Demand for ‘cross border’ pensions grows to serve expat workers, and counter political and economic instability

Companies are making increasing use of innovative international pensions and savings vehicles in benefits packages for different groups of expat staff, and for those living in politically and economically volatile hotspots,  research from Willis Towers Watson revealed today.

Willis Towers Watson (NASDAQ:WLTW), a leading global advisory, broking, and solutions company, released  its latest International Pension Plan Survey that included 932 International Pension and Savings Plans (IPPs and ISPs) sponsored by 877 companies. Assets under management of IPPs and ISPs in the survey rose from US$14.7bn in 2018 to US$15.8bn in 2019.

IPPs and ISPs established in the 20th century were originally aimed at expats, particularly senior executive ‘global nomads’, who may have spent their careers in many different countries and were unable to be maintained in home country arrangements or to join host country plans. More recently the popularity of  IPPs and ISPs has also been driven by the needs of local expats (foreigners employed under a local contract) and other diverse and often complex employee groups.

Michael Brough, Senior Director in Willis Towers Watson’s Global Services and Solutions Group, said: “The growth in IPPs and ISPs has continued apace, as their appeal widens beyond the traditional senior executive global expatriate. We expect stronger interest in 2020 as companies explore the flexibility of these vehicles in their global struggles to attract and retain the best talent.

“Large multinational employers often look to provide minimum levels of risk benefits, supplementary medical care, and a pension contribution for all their employees globally. This can be a challenge in developing markets, where local supplementary pension systems might have severe economic insecurity. There is often an absence of a local alternative pension solution and so IPPs act as a gap filler.

“In other locations, where there are large expatriate populations, such as Singapore, IPPs are also growing for expatriate groups excluded from the local host pension system, and who may also be unable to be maintained in their home system. In such cases, employers need to figure out ways to provide pensions and savings benefits, and IPPs are proving popular.”Willis Towers Watson believes demand in 2020 will be further driven by:

  • Ambitions to attract or retain local staff in countries that are economically unstable, or where no local pension system exists. This can be a challenge for employers as at least four governments a year typically default on their debt. and this asset class is often required as a component in local developing markets pension plans. The 2019 report found that Argentina was the most popular such location for IPPs/ISPs, with 28 plans including Argentina-based savers. Egypt-based savers were in 23 plans, Russia 17, Ukraine 11, and Turkey 11.
  • Landmark regulatory changes in the Dubai International Financial Centre (DIFC) mean that employers there will have to offer a workplace savings plan from 1 February 2020. Employers can use the centrally-administered default DEWS Plan, or an alternative “Qualified Alternative Scheme” or QAS. It is likely that  IPPs and ISPs established in certain approved domiciles will qualify as a QAS, subject to appropriate approvals by the DIFC authorities. Willis Towers Watson reports a surge in interest from DIFC-based companies and expects this to continue through the year as companies align to the new regulations, with many looking to opt out of the DEWS Plan and instead establish a more flexible and significantly lower cost QAS by the next opportunity in December 2020.
  • Other destinations popular with multinationals and ‘global nomads’ are showing high interest in IPPs and ISPs. For example, many large companies in Singapore set up plans in 2018 and 2019, particularly in the high-tech sector, and Willis Towers Watson expects this trend to continue. Expats in Singapore, who form a significant proportion of the labour market, find themselves locked out of the mandatory Singaporean Central Provident Fund (CPF) system, and so IPPs and ISPs can provide an attractive and portable savings solution.

Michael Brough added: “Looking forward into 2020 and beyond there is likely to be growth in IPPs and ISPs for a range of different eligibility groups, and not just expatriates. We anticipate strong interest in many markets, including the DIFC and possibly other Middle Eastern locations, and parts of economically stressed Latin America, Europe, and Asia. Demand is also coming from both Non-Governmental and Inter-Governmental Organisations (NGOs and IGOs), driven by their need to offer defined contribution (DC) pension plans, and also by their special status and cross border nature.”

The Willis Towers Watson IPP Survey 2019, which can be seen here, also found that:

  • IPPs/ISPs are offered by companies in all business sectors, but particularly in banking and finance, oil and gas, and consumer goods and retail.
  • 69% have been established with a ‘retirement objective’ (IPPs), with 31% having a shorter-term ‘savings objective’ (ISPs).
  • Given the increasing importance of defined contribution (DC) pension schemes, WTW is seeing a growth in global DC oversight by MNCs, with IPPs and ISPs being incorporated into an MNC’s global DC oversight framework, ensuring that investment, administration and communications performance are consistently monitored, measured and managed effectively.
  • Average employer contributions are between 10% and 14% in 44% of IPPs/ISPs. In a majority of schemes, there is no requirement for employees to contribute, but average employee contributions are between 5% and 9% in 47% of cases.