Number of international pension plans grow at rapid rate
The International Pension Plan (IPP) market is expanding at a rapid rate, with 36 new IPPs set up in the past year, according to Towers Watson research. The company’s IPP survey, in its fourth year, shows the IPP market evolving rapidly with a 15% growth rate in the last year, continuing a trend which has seen it 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.
Interestingly, over a third of the plans Towers Watson has seen set up over the last year have been in the Middle East. These plans span all industries including Hotel and Leisure, Technology, Food and Drink, Banking and Finance, Transport and Travel, and Education. The size of the plans range from just one member to over 1,000 members.
A general theme seen in the region is that the sponsors anticipate growth projections within the plans either through local hiring or by offering the plan to other regions at some stage in the future. The majority of the IPPs have flat contribution structures and many also have an arrangement for employer matching the employee contribution. All of the IPPs have been funded and DC in nature, and over half are trust-based.
Around half of the plans have been for local employees and the other half is being set up specifically for expatriates. The majority of the IPPs provide only for a lump sum distribution of the benefit rather than offering an alternative option of an annuity benefit.
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.
Michael Brough said: “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.”
Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets.
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