International pension plan market sees double-digit growth

The international pension plan (IPP) market has grown by 15 per cent in the last year, contributing to a 50 per cent increase in plans in the last five years according to new figures from Towers Watson.

Thirty-six new IPPs have been set up in the last year, according to data from Towers Watson’s IPP survey, which is now in its fourth year.

The survey found 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 just 5 per cent offering annuities only, which it says shows that the offshore annuity market remains small and typically of poor value.

The research also found there has been an increase in the number of plans with minimum employee contribution rates of between 5 and 9 per cent. Most plans continue to have maximum employer contribution rates of between 5 and 9 per cent but the percentage of companies with minimum employee contributions of less than 5 per cent continues to be high.

Over half of new plans established in 2011 have a flat contribution structure, reinforcing the trend away from service and age-related contribution structures. In 2011 some plans reported having nil minimum employer contributions

Plans generally offer mainly external funds, but the percentage of plans offering internal funds has increased. During the year there was a fall in the number of lifestyle strategies offered but of those still offering lifestyle strategies, the two that are generally offered are currency or risk driven.

Michael Brough, senior consultant at Towers Watson, says: “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.

“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.”