Demand for Expatriate Pension Vehicles Growing

February 25, 2013 ( Thirty-three new International Pension Plans (IPPs) have been established in 2012, according to a Towers Watson survey of multinational employers.

This brings the total number of IPPs managed by the responding employers to 403. The company’s latest International Pension Plan survey, now in its fifth year, also indicates that IPP’s are being developed within multicountry pension frameworks, including Pan-European structures, known as Institutions for Occupational Retirement Provision (IORP’s). 

Michael Brough, senior consultant at Towers Watson, said: “The growth of the IPP market is mainly driven by more companies offering IPPs for international or expatriate employees to either ‘top up’ or replace home country retirement plans. We also see more multinationals extending the eligibility of existing IPPs to allow local work forces to join the IPP where possible. This illustrates the continuing trend for these vehicles to be set up where local alternative arrangements are inadequate or absent.”  

According to the survey, multinationals are using creative ways to include multiple groups in a single pension structure that can deliver synergies through the use of a single administrator, a single investment platform and a single governance framework, which supports mobility, portability and cost reduction. Other creative approaches identified in the survey are the development of member decisionmaking tools and smartphone technologies.   

“We see big improvements in provider propositions through the development of these tools and technologies to address mobility, portability and cost reduction. These tools include individual rate of return calculators, projection tools, risk assessment tools and smartphone apps to enable fund value and contribution history viewing. Given the typical IPP membership, the use of these online and mobile tools will appeal to global workers and those based in remote locations,” Brough said.

Funded defined contribution (DC) plans remain the most prevalent design for IPPs, with defined benefit (DB) plans still in operation but typically closed to new members. However, the survey also shows that one new DB plan was set up in 2012. In addition, the number of investment funds being offered by IPPs, and their sophistication, continues to increase with around 40% of IPPs offering up to ten investment funds while most of the rest offer in excess of ten investment options. Furthermore, 40% of IPPs now offer lifestyle options, with more than 20% offering more than one lifestyle option to provide for different membership demographics, risk profiles or currencies.   

The survey also found the most popular form of distribution at retirement continues to be a lump sum, with nearly 60% of IPPs offering lump-sum benefits only.   

According to Brough: “While lump sums remain the most common distribution option, we are seeing some change with over a third (37%) of IPPs now offering a choice between a lump sum or an internal annuity or drawdown. Internal annuities can provide tax advantages for certain individuals drawing benefits from IPPs, and this option has become more common among those IPPs set up in the past five years.”  

The 2012 Towers Watson International Pension Plan Survey includes 403 IPPs sponsored by 391 companies. Participants include large and midsized multinational employers across a variety of industry sectors that employ expatriate and local work forces participating in IPPs ranging from less than ten members to more than 4,000. 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.   

The Towers Watson International Pension Plan Survey can be found on