The main objective of many international pension plans (IPPs) and international savings plans (ISPs) is to provide a ‘top-up’ or replacement retirement benefit for international or expatriate employees who are no longer eligible for their home country plans and who have no reliable host country plan option. Various other eligible populations are developing with IPPs/ISPs now being offered to various local populations, e.g., locals in countries at risk of default, or where there are other economic challenges such as rising inflation, as well as foreigners on local contracts excluded from domestic plans such as in Singapore and locals across the Middle East or in small headcount countries as a simplifying vehicle.
Three-quarters of IPPs/ISPs offer immediate vesting, but where vesting rules do exist, the available options are typically between a phased or a flat vesting schedule.
Defined contribution (DC) plans are the prevalent plan type, with defined benefit (DB) plans still in operation but typically closed to new members and falling in numbers. Most pension assets are retained in trust vehicles in offshore locations.
The investment funds offered vary from basic to very sophisticated. Sustainable funds are a rapidly evolving offering within global pension and investment markets, where environmental, social and governance (ESG) criteria to evaluate and screen investments is quickly becoming key in fund analysis. This year six out of ten providers report an increased interest in a broader ESG fund range which not only focuses on carbon reduction, but also other criteria, including clean water, healthcare, and Shariah. Sponsors of 163 plans have reviewed the fund range for ESG considerations in the past 12 months.
In the last few years, more than 15 countries have defaulted on their government debt and many more are under risk of default. This presents a challenge for employers that have pension arrangements in these countries or wish to provide such supplementary benefits to their employees. Our survey shows that one in eight plans are offered to local employees in countries operating in challenging political or economic circumstances, as IPPs and ISPs can help safeguard employees’ savings and protect them from local economic or political turbulence.
Post the pandemic, employers are challenged to provide benefits for an increasingly remote and global workforce, in addition to an increased awareness about diversity, equity and inclusion (DEI) and ESG investing. IPPs/ISPs act as a solution to meet employer requirements as they offer a host of advantages:
Leading multinational companies can adopt a single (or duplicated) cost-effective long-term savings and pension plan for employees globally. In this solution, local pension plans are retained where the quality of those pension plans is sufficient, with certain employees being given options to enrol into a voluntary IPP/ISP where either their local pension plan does not exist or is below the minimum standards set by the company. To allow for different categories of members, employers can offer one or a small number of IPP/ISP with varying contribution levels or simply an employee contribution top up vehicle. As a result, employees can be given access to a relatively low cost, adaptable, secure plan with fair and diverse benefits.
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