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IPE special report May 2018

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Akzo N obel aims for benefits harmony

A company built up through merger and acquisition needs a clear pensions strategy. That is exactly what Akzo Nobel has developed, going so far as to harmonise schemes within individual countries. All pension affairs for the chemicals and pharmaceuticals multinational are overseen by Akzo Nobel Risk and Insurance Management (ARIM) under Bert Kiffen, co-ordinator of international pension affairs.

Based in the Netherlands, Kiffen has responsibility for the pension schemes, group life schemes and disability schemes of 50,000 employees worldwide (excluding the Dutch scheme) plus multinational pooling networks.

He explains: When a subsidiary wants to change or implement such a scheme, it must go before the board but they cannot go directly. I co-ordinate to ensure that everything is in line with the guidelines we have within Akzo Nobel."

Kiffen will also play a role during takeovers, although at just what stage may vary due to the political circumstances. He explains: "There will be a special clause in the purchase agreement stating that the pensions are fully funded. If not, we will discuss it with the company and put another claim on the table. Suppose the funding stated is 80% and it should be 100%, then we are missing a certain amount and we will have to discuss it with the company concerned."

The underlying philosophy is that pensions are part of the total employment conditions. "We don't look at it as a separate issue while any benefits system should be in line with what is normal practice in the country," he adds.

But there have been some recent changes to the strategy, focused so far on Europe. "We have said that normal practice in the country is the basis for a scheme, but we are placing more emphasis on defined contribution. Any schemes we start now, say in Spain or France will be defined contribution, at least in countries where this is possible."

Explaining the reasons, Kiffen says: "With defined benefit there is a lot of risk for the employer and an automatic cost increase in longevity. It is not that Akzo Nobel does not want to compensate these losses, but that these losses should be a part of negotiation between the employer and the employee."

He cites new mortality tables in Germany which require an automatic increase in contributions of 15%, adding that the company has the same approach to changes to the social security system. "Social security because of demographics will be reduced over the next few years. Once again we do not want to compensate that automatically."

ARIM has also overseen the harmonisation of national plans in Ireland, Norway and Germany. The process is continuing in the UK. Completion in the UK, scheduled for the start of July, has been delayed while the company waits to see the government's budget plans which could bring a tax on pension funds' share dividends.

The company's reasons for harmonisation are quite obvious. It allows cost reductions for administration and investment and the easier transfer for employees between subsidiaries while company benefits within a country will match with the corporate identity.

Harmonisation in the UK, for example, involves the merger of nine different schemes, of which eight are defined contribution and one is defined benefit, involving different sizes of membership, different benefit structures and funding levels from 100-140% as well as different investment managers.

One existing scheme, the Crown Berger Coatings Scheme, has become the Akzo Nobel UK Scheme with its members forming a closed section maintaining their current benefit structure. All employees hired after 1 July 1996 across the subsidiaries will join this scheme on a new benefit structure. The other schemes receive no new entries and are to be merged with the Akzo Nobel scheme. The process is overseen by one consultant who develops a plan for the harmonisation including deciding the structure of the fund, the levels of benefits and contributions and the set-up of a common investment fund.

Kiffen says: "Taking the UK schemes we said: 'Everybody who is working for Akzo Nobel will be able to retain the benefit they have.'"

Noting that it is rare for companies to give such a guarantee, he continues: "We want to treat our employees fairly. That means that both the company and employees have to take on their responsibilities. This is in line with our philosophy that says no automatic cost increase."

Having completed the re-organisation of several national schemes, Kiffen is countenancing co-ordination on a European basis.

Though he does not believe that it is possible to set up a Europe-wide pension scheme particularly because of tax difficulties, he does think that it may be possible to set up a pan-European investment vehicle. "We are waiting for the single currency which will make it easier to start with one investment fund."

He continues: "All the liabilities are in the same currency. With a Dutch scheme, for instance, most of your assets are in the Dutch currency but if we have the euro it doesn't matter if you are invested in France or the UK as long as they are taking part in EMU."

Indeed, the company has a policy statement towards the euro saying: "Akzo Nobel supports the introduction of the EMU and considers it a challenging opportunity in the long run rather than a short-term burden."

However, Kiffen highlights some obvious hurdles to a common investment vehicle, notably the difficulties of reconciling the different attitudes to equities holdings across countries. The eight UK defined contribution schemes hold around 80% in equities while the single Dutch scheme holds 35%.

"If you combine it all in one fund, should you have 60% equities? That is an open question. Should you have different categories? For the UK 80% equities, Holland 35%, another amount for Germany."

He also cites the legal structure. In the UK, for example, trustees are responsible for investment performance: "If you set up one investment vehicle, this vehicle should at least be giving a good return to be competitive with other managers in the UK."

He is slightly cynical about the European Commission's recently published green paper on supplementary pensions, believing that it will not be able to bring reform in the key area. "It is all fine philosophy but as long as we have tax problems, we cannot do much with green papers," he concludes."

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