International pension plans continued to grow in 2013, Towers Watson finds

The number of companies using International Pension Plans (IPPs) continued to grow in 2013, according to a survey of multinational employers by Towers Watson. The survey includes 438 IPPs sponsored by 406 companies, representing an increase of around 10% compared to 2012.

Reasons for offering IPPs and ISPs

The reasons that companies offer IPPs remain largely unchanged, the survey found, 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).
The survey also found an increase in the number of International Savings Plans (ISPs) managed by employers. IPPs are now commonly used to provide a short- to medium-term savings vehicle, as opposed to a traditional, longer-term retirement objective, according to Towers Watson. 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.

Source: Towers Watson press release.

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