The international pension plan (IPP) market has expanded at a rapid rate to grow by 50% the last five years, according to research by Towers Watson.
The 2011 Towers Watson International Pension Plan Survey found that the IPP market showed a 15% growth rate in the last year, and 36 new IPPs have been set up in this period.
The survey found that funded defined contribution (DC) remains the most prevalent design while most defined benefit (DB) plans are now closed to new members.
Almost a third of IPPs offer the choice of lump sum or annuity, with very few (5%) offering annuities only, indicating that the offshore annuity market remains small and typically of poor value according to the consultancy.
The survey also found that there has been an increase in the number of plans with minimum employee contribution rates of between 5% and 9%.
Most plans continue to have maximum employer contribution rates of between 5% and 9%; with a high percentage of organisations with minimum employee contributions of less than 5%.
Other findings from the survey include:
- The number of plans with contracts as the vehicle structure has increased.
- Over half of new plans established in 2011 have a flat contribution structure, reinforcing the trend away from service and age-related contribution structures, said Towers Watson.
- In 2011 some plans reported having nil minimum employer contributions.
- Plans 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, two are generally offered: currency or risk driven.
Michael Brough, senior consultant at Towers Watson, said: “The rapid rise of the IPP market is being driven by more organisations 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 organisations 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.
“Distribution options are changing and we are seeing not just lump sum distributions but also a growth in internal annuities, which can provide tax advantages for certain individuals drawing benefits from IPPs in this way.”
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