Global competition made maximising long-term investment returns on pensions assets a key priority for multinational employers, according to Gert van Bezooyen, head of corporate pensions at Philips International in Eindhoven.
“Excellent performance is what we are looking for as we approach the 21st century, taking into account the global competitive environment,” he told an IBC conference on pensions in Brussels.
Employers’ pensions arr-angements would have to be competitive in the labour market. “Cost control is becoming more important due to the globalisation of industry and competition.”
Costs, van Bezooyen warn-ed, must not be higher than they were for competitors. “Up to 1990, Japanese plans were not allowed to invest abroad, then the law was amended to allow funds to invest new contributions abroad. Currently there are discussions going on in Japan to extend this opportunity, because the returns on the pension contribution invest-ed abroad were higher than in Japan and they want to reduce their pensions cost and operate competitive pro-grammes.”
He stressed the importance for competition purposes of having adequate infor-mation systems, particularly in relation to investment performance across group schemes. “We are interested in the level of performance, historic development, the benchmark used - whether it is the index or the index plus 0.5 or 1% - and schemes’ long-term goals.”
Those responsible for pensions schemes should be interested in what their competitors were doing. “Are they having better performance than you are - if so, you are the loser. So be aware of what they are doing.” He conceded that it was not always easy to obtain good quality information on these points.
On the question of mergers and acquisitions, van Bez-ooyen regarded it essential to be aware in advance of “your own position” in relation to the group’s different pension schemes. “When you start discussions about disposal of a business, one of the the first things you will have to sign is a document saying that everything is secret and confidential, so you cannot then contact your own people for information. So you should always know what your own position is.”
The need for maximum long-term investment re-turn is independent of the type of plan. “It does not matter in our opinion whether there are defined benefit (DB) or defined contribution (DC) plans, if you take it that people have a target income replacement ratio for retirement benefits.” What is important is that the higher the long-term investment returns, the lower the contribution rate.”Basically, the difference between DC and DB is the question of who is responsible for attaining the target benefit level,” he said.
Philips was looking at changing its approach to central management of pensions assets. “We are coming from the situation where there is no corporate attention to pension investment. Very simply, everyone took care of themselves at a national level.”
But now the emphasis is on corporate involvement. “We are collecting information of what the investments are, what the performance is, what the benchmarks are and we are starting to get involved in discussions on how investments can be handled centrally.”
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