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 workforces 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.
“Expatriate pension vehicles can be used to deliver pensions and long term savings to diverse groups, such as nationals living in the Middle East, parts of Asia, Africa and Latin America. These are generally viewed as markets that may not have the developed infrastructure to support such a pension offering.”
According to the survey, multinationals are using creative ways to include multiple groups into a single pension structure, which 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 decision-making tools and smartphone technologies.
Michael Brough said: “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’.
“IPPs are proving to be a good way for multinational 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.”
According to the survey, 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 per cent of IPPs offering up to ten investment funds while most of the rest offer in excess of ten investment options. Furthermore, some 40 per cent of IPPs now offer lifestyle options, with over 20 per cent offering more than one lifestyle option to provide for different membership demographics, risk profiles or currencies.
Michael Brough said: “Through the use of institutional investment funds we have seen a move to lower charges for IPP products. This can deliver significant savings for members with charges for some passive funds being as low as six basis points, which competes favourably with charges in the established US and UK domestic DC markets.”
The survey also found that the most popular form of distribution at retirement continues to be a lump sum with nearly 60 per cent of IPPs offering lump sum benefits only.
Michael Brough said: “While lump sums remain the most common distribution option, we are seeing some change with over a third (37 per cent) 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.”
