- The search for safer investment havens. The number of international pension plans and international savings plans being offered in countries operating in challenging political or economic circumstances has risen from 54 in 2019 to 126 in 2024.
- An environment of volatility. Challenging political and economic circumstances have been driving the increase in volatility over the past few years.
- ISPs and IPPs are known commodities. These plans have some longevity as tools for globally mobile employees, specifically in instances where their home country retirement plan options could not be supported or where local schemes were not suitable.
The number of international pension plans (IPPs) and international savings plans (ISPs) being offered in countries operating in challenging political or economic circumstances has risen from 54 five years ago to 126 in 2024, according to a new WTW report.
This increase in safer investment havens is primarily a consequence of economic challenges, including rising inflation around the world and a higher-than-normal number of sovereign defaults — 18 in 10 countries since 2020 — that have made local pension and savings provisions riskier for local employees in certain countries.
In 2023, countries most affected by currency devaluations included Angola, Argentina, Egypt, Lebanon, Turkey and Zimbabwe. Consequently, there has been an increase in IPPs and ISPs offered to employees in such countries because plan options invested in hard currencies (e.g., the U.S. dollar, the Euro and the Great Britain pound) tend to be less impacted by currency devaluations and economic fluctuations.
“High inflation and rising costs of borrowing due to high interest rates have made it much harder for many nations to repay foreign loans or to raise funds, further adding to the likelihood of defaults,” said Michael Brough, senior director for integrated and global solutions at WTW. “This presents a challenge for employers that have local pension arrangements in these countries, especially when these pensions are invested locally.”
If you work for a multinational organization with employees in countries facing economic, social and/or political turmoil now or potentially in the near future, compensation experts say the time may be ripe to explore more risk-averse options.
Mitigating Market Volatility
So, how can IPPs and ISPs work to mitigate some of the risk and volatility?
IPPs and ISPs that allow employees to invest in a wide variety of assets across different regions and industries can mitigate the volatility that can come from investing in a single asset or market, according to Justin Sun, a compensation expert at Expedia Group.
“Because plans are held across multiple currencies — including hard currencies that aren’t affected as much by market volatility — they help to reduce any adverse impact of market volatility to investments,” Sun said.
WTW’s Brough said the majority of IPPs and ISPs are set up as trust structures domiciled in secure offshore centers and provide regional or global coverage.
“By offering hard currency investments via trusts, these plans are seen to be more secure and can benefit from more efficient investments to reduce risk and volatility,” he said.
Before making any new offerings, however, Brough stated it’s important to review key areas such as plan design, population demographics, domicile, currency and suitability of providers, which would include administrators, trustees and investments selection.
Leading Practices
Both ISPs and IPPs have some longevity as tools for globally mobile employees, said Alicia Scott-Wears, a compensation content director at WorldatWork. This is specifically so in instances where home country retirement plan options could not be supported or where local schemes were not suitable.
“The expanded offering of ISPs and IPPs to international local employees helps to meet a need for more secure retirement vehicles than what some local plans can offer,” Scott-Wears said.
ISPs and IPPs are seeing an expanding presence in the rewards package for international employees where less stable environments have the potential to negatively impact invested programs in that locality, she added.
“Financial stability and security are of utmost importance in retirement savings considerations, and ISPs and IPPs are designed to be more secure,” said Scott-Wears. “Though they may not have some of the tax advantages [of other options], reducing risk may still be a better strategy for some.”
Overall, she said, “integrating ISP/IPP offerings for local international employees to your rewards portfolio — where standard offerings may be of higher risk — is a strategic approach that brings a protective measure and value by considering employees’ needs for a financially secure future.”
When implementing any new retirement or benefits programs, rewards professionals should first consider the diverse needs and preferences of the demographics within their organization, said Expedia Group’s Sun, in addition to making sure programs meet local legislative requirements.
“Working with internal stakeholders, including your tax and payroll teams, is critical to ensuring that employee contributions can be properly tracked,” Sun said. “Partnering with your internal communications and HR teams to educate employees on how to enroll in the ISP and manage their contributions can help promote the utilization of this program.”
Communicating Change
A thorough understanding of all savings and retirement vehicle offerings is necessary for employees to make informed decisions whenever new options are made available, Scott-Wears said.
“Therefore, all communications must entail both the pros and cons of any new offerings for a full comparison to assess the right individual path with the savings and retirement vehicles available to them,” she said.
Because pensions can be highly technical, ensuring communications use simple language and illustrations may help employees feel more comfortable investing in their retirement, advised Sun.
“Understanding how your audience prefers to receive information — for example, in the form of bite-sized videos or one-pagers — can help reduce their cognitive load when learning about your programs,” he said.
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