Number of International Pension Plans Grows in 2011

Towers Watson’s International Pension Plan Survey found the IPP market is evolving rapidly, with a 15% growth rate in the last year. It is continuing a trend that has seen the number of plans grow by 50% in the last five years.

Michael Brough, senior consultant at Towers Watson, said: “The rapid rise of the IPP market is being driven by more companies offering IPPs for expatriates and using these plans as a ‘catch all’ pension and savings vehicle for diverse employee groups. IPPs are particularly suitable for local expatriates in the Middle East as an end of service gratuity funding vehicle, a top-up facility and a low-cost savings plan; as opposed to a pure pensions vehicle.”

The survey includes data on IPP membership criteria (plan size and location), plan design (such as defined contribution (DC), defined benefit (DB) or hybrid plans), funding, vesting criteria, vehicle, employer and employee contribution amounts, investment funds and retirement distribution options.

According to the survey, funded DC remains the most prevalent design, while most DB plans are now closed to new members. The research also shows that almost a third of IPPs offer the choice of lump sum or annuity, with very few (5%) offering annuities only, concluding that the offshore annuity market remains small and typically of poor value.

Brough added: “IPPs are proving to be a good way for companies to provide their employees with access to low-cost savings arrangements, particularly for those of their employees that might struggle to find good individual alternatives, especially in countries with immature investment markets.” 

Other survey findings include:

•  There has been an increase in the number of plans with minimum employee contribution rates of between 5% and 9%; 

•  Most plans continue to have maximum employer contribution rates of between 5% and 9%, with the percentage of companies with minimum employee contributions of less than 5% continuing to be high;

•  The number of plans with “Contracts” as the vehicle structure has increased;

•  Over half of new plans established in 2011 have a flat contribution structure, reinforcing the trend away from service and age-related contribution structures;

•  In 2011 some plans reported having nil minimum employer contributions; and

•  Plans offer mainly external funds, but the percentage of plans offering internal funds has increased. During the year there was a fall in the number of Lifestyle Strategies offered but of those still offering Lifestyle Strategies, two are generally offered: currency or risk driven.

The 2011 Towers Watson International Pension Plan Survey includes 337 IPPs sponsored by over 300 companies. This is an increase of over 100% from the 2010 survey, which included 145 IPPs sponsored by 132 companies. Participants include large and mid-sized 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 4,000. Eligibility criteria for the survey has remained unchanged since 2010.