Towers Watson & Co : International Pension Plans Continued to Expand in 2013, Towers Watson Survey Finds

Employers move to provide savings vehicle as opposed to retirement plan

The number of companies using International Pension Plans (IPPs) continued to grow in 2013. A survey of multinational employers by global professional services company Towers Watson (NYSE, NASDAQ: TW) found that the total number of plans in the survey increased by approximately 10% in 2013, to 438. The survey, now in its sixth year, also found an increase in the number of International Savings Plans (ISPs) managed by employers.

The reasons that companies offer IPPs remain largely unchanged, with the main objective to provide expatriates with a retirement benefit (as a replacement for not being able to remain in a home country or host country retirement plan). A continuing trend is to extend participation to include local workforces where local retirement or savings solutions are either not available or not satisfactory due to poor market conditions.

IPPs are also being established solely for a local workforce, where local retirement or savings markets are inadequate. There is also a slowly emerging trend for IPP sections to be established as cross-border pension arrangements or Institutions for Occupational Retirement Provision (IORPs).

One interesting observation centers on the objective for setting up an IPP, which is evolving and now commonly used to provide a short- to medium-term savings vehicle, as opposed to a traditional, longer-term retirement objective. The evolution of IPPs into ISPs is a consequence of the relatively shorter service of expatriates or local members within the plan. Towers Watson estimates that around one-third of all IPPs are now used mainly as an ISP savings vehicle, while the remaining two-thirds are still used as a traditional IPP pension plan.

"We are seeing more companies using their IPPs as a savings vehicle instead of a longer-term retirement plan and have noticed an increase in the number of companies favoring an ISP approach," said Michael Broomhead, director of international consulting services at Towers Watson. "This is particularly evident in the Middle East and Latin America for local employee groups, but also for expatriate groups with shorter expected service periods as expatriates.

"An ISP can offer an efficient, low-cost employer- and employee-funded savings facility, which offers an excellent opportunity to build up some savings through a group arrangement for when an international assignment ends," said Broomhead.

The Middle East is an increasingly popular region for IPPs, with six of the 15 new plans in 2013 being set up for local Middle East-based workforces. Overall, the majority of the new plans were established for more global workforces.

"Companies aspire to an increasingly mobile workforce, which brings the challenge of how to provide highly effective benefits. Expatriates are sometimes unable to stay in their home country pension arrangements or may be able to for limited periods only. When there is no host country plan or this plan is inadequate, expatriates can easily end up with a shortfall in their retirement savings. Employers will have to address this problem or risk providing inadequate financial support for this high-performing and business-critical employee group," said Broomhead.

About the Survey

The 2013 Towers Watson International Pension Plan Survey includes 438 IPPs sponsored by 406 companies, representing an increase of around 10% compared to 2012. Participants include large and midsize multinational employers across a variety of industry sectors that employ expatriate and local workforces participating in IPPs ranging from less than 10 members to over 7,000. The survey includes data on IPP membership criteria (plan size and location), plan design (such as DC, DB or hybrid plans), funding, vesting criteria, vehicle, employer and employee contribution amounts, investment funds and retirement distribution options.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.

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