Employers are increasingly trying to reduce or remove political and economic volatility risks by providing more secure International Pension Plans (IPP) and International Savings Plans (ISPs), in order to protect employees’ retirement pots and savings from localised instability.
Recent research conducted by WTW highlighted that this is particularly important where local pensions are invested locally.
In 2023, countries including Angola, Argentina, Egypt, Lebanon, Turkey and Zimbabwe, were affected by currency devaluations.
Consequently, there has been an increase in IPPs and ISPs offered to employees in such countries. This, according to WTW, is because IPPs and ISPs invested in currencies such as dollars or euros tend to be less impacted by currency devaluations and economic fluctuations.
WTW said it saw an increase in demand in locations such as Lebanon, Ukraine and Zimbabwe for this reason.
In fact, the number of IPPs and ISPs plans in countries with challenging circumstances increased from 54 in 2019 to 126 plans in 2024.
Safeguarding
But as the demand for IPPs and ISPs increases, often driven by including wider geographical coverage, other challenges can arise, WTW pointed out.
It said that economic and political instability in many countries, along with rising inflation have created many challenges for employers looking to give employees stable pension/savings arrangements.
Since 2020, it pointed out that there have been 18 sovereign defaults in 10 countries. 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.
WTW said this presents a challenge for employers that have local pension arrangements in these countries, especially when these local pensions are invested locally.
It added that IPPs and ISPs can be used to provide a more secure vehicle and deliver better pension outcomes with access to global investment funds, thereby reducing exposure to local high-risk markets.
Of the IPPs and ISPs surveyed (126 plans), one in eight are offered to local employees in these countries. The number of plans that cover countries that might be viewed as operating in challenging circumstances is on the rise and has more than doubled in the last five years.
It added that a “major” advantage of IPPs and ISPs is that hard currencies are used, such as US dollar, sterling pound and euro, which protect members from currency devaluation.
Most of these plans are set up as trusts domiciled in Isle of Man, Jersey and Guernsey and provide global coverage, according to WTW.
Michael Brough, senior director of integrated and global solutions at WTW, said: “Economic and political instability in many countries, along with rising inflation have created many challenges for employers looking to provide stable pension and savings arrangements for their employees around the world.
“IPPs and ISPs can be used to provide a more secure vehicle and deliver better pension outcomes with access to global hard currency investment funds, reducing exposure to local high-risk markets.”
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