GLOBAL - Moving pension provisions into pooled funds is a growing trend among multinational companies' pension funds in Europe, according to Kerry Ann White, ABN AMRO Mellon’s head of multinational product development.
White told IPE multinationals moving to pooled funds was definitely a growing trend in Europe and an emerging trend in the Nordic region. It also continued to grow in the United States and a couple of prospective clients in Asia have asked for preliminary information, she added.
The main reason for the demand was the European Union law trying to develop cross-border pensions. The EU Council in 2003 passed a law allowing Institutions for Occupational Retirement Provision (IORP). “Such legislative developments improve the likelihood of establishing true pan European pensions and other pooled vehicles, “White said.
Other reasons for the trend to using funds were industry consolidation, cross boarder expansion and merger and acquisition.
The goal for multinationals, she explained, was to reduce costs through operational efficiencies and globally-negotiated fees, as well as to apply “consistent methodologies”.
Mellon services 63 multinational mandates last year, with the average mandate worth about $8bn.
White said: “We are helping them multinationals understand from a very thorough review of the existing assets in those different markets where they are looking to have one of these structures.
“Many clients don’t even necessarily have a very detailed understanding of the different tax treaties underneath their local plans because they never had to take a vested interest in it.”
According to a William Mercer survey of 83 multinational plan sponsors, mentioned in White’s presentation, the percentage of head quarters monitoring performance will go up in the next two years from the current 57% to 93%. The level of HQ-coordinated custody is expected to nearly double in two years from 38% to 68%.
White continued that multinationals tend to set up ‘hybrid schemes’ to run defined benefit schemes for old employees and defined contributions for new ones.