International pension and savings plans (IPPs and ISPs) are increasing in popularity as the pandemic increases the risk of economic and political instability in challenging locations, according to a survey from consultants Willis Towers Watson (WTW).

The 2020 International Pension Plan Survey covered 988 IPPs and ISPs sponsored by 932 companies and with assets under management of US$17.2bn (€14.2bn), an increase of 56 schemes (6%) on 2019, when corresponding assets under management amounted to US$15.8bn.

The sample was made up of large and midsize multinational employers across a wide range of industry sectors, employing expatriate and local workforces participating in such schemes, ranging from fewer than ten to over 18,000 members.

Of those schemes surveyed, 26% covered Europe, 6% covered the Middle East, and 6% covered Asia.

IPPs and ISPs are offered by companies in all business sectors, but particularly in banking and finance, oil and gas, and consumer goods and retail. 

Michael Brough, senior director in Willis Towers Watson’s global services and solutions group, said: “Last year a much higher number of sovereign states defaulted on their government debt, including some, like Lebanon, for the first time. This can have implications for savings because of bond and currency rates, and local rules around holding local bonds in local pension and savings plans.”

Other countries which defaulted or were unable to borrow on the financial markets included Argentina, Ecuador, Venezuela and Zimbabwe.

Brough considers it likely that more defaults will happen in 2021, as countries struggle to deal with the implications of the pandemic.

He observed: “We’ve seen an uptick in demand from companies who are wary of putting their staff into pensions that may fail. They often want to find a safer harbour for workers in these high-risk environments by using cross-border plans to access global funds in hard currencies.”

The survey showed that the number of schemes being used for employees in high-risk countries has increased by 13%.

“Local pension systems may be exposed to high economic insecurity, or they may not allow expats to join”

Michael Brough, Willis Towers Watson 

Of the 130 IPPs and ISPs offered to local employees in countries operating in challenging circumstances, Argentina was the most popular location, with 34 plans covering Argentina-based savers. Egypt-based savers were in 24 plans, Russia 19, Ukraine 15, and Turkey 15.

Brough said: “Local pension systems may be exposed to high economic insecurity, or they may not allow expats to join. These flexible cross-border schemes are continuing to strengthen their position in the market, and we expect that to continue in 2021.”

Over the past year, there has also been significant interest from inter-governmental organisations and non-governmental organisations looking to set up new plans and review existing arrangements.

According to the survey, schemes have been highly flexible in adapting to financial pressures caused by the pandemic. Many amended their governing trust deed or contracts to allow hardship withdrawals, while others changed employer or employee contributions as a form of short-term relief.

Other survey findings included the range of investment funds on offer to scheme members. Half the schemes offer up to ten investment funds, and the rest in excess of this, with a significant number offering over 40 different funds.

Meanwhile, lifestyle strategies or funds continue to feature in the investment offering, with 17% of those surveyed offering one such option, and 31% offering more.

In a 2018, WTW said that “myths” of cross-border IORPs were prompting European multinational companies to turn international pension plans. 

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