A] What Is A Corporate International Pension Plan (IPP)?
An IPP provides Occupational Pension Coverage regardless of the global location of both the employer and the employees.
Thus the IPP avoids the problem of having a number of Occupational Pension Plans in a number of countries. Which each will have different legal/tax regimes and possibly restrictions on contributions and limited investment options. Plus the risk of local currency movements.
Therefore the IPP has often been used to great effect to solve the complexities of providing retirement benefits to mobile employees with a focus on populations such as rotators and career expats.
B] For Which Type Of Company?
The IPP assists international corporations to provide attractive retirement benefits to their international workforce. IPP’s are especially popular with companies who have employees who work abroad on international assignments or are employed on a more globally mobile basis.
Corporations with an IPP are able to provide an advantageous pension plan as part of an employee’s total remuneration package. Which these days is relevant for attracting and retaining highly qualifies employees. The IPP also enables globally mobile employees to remain in the same Occupational Pension Plan when they work in a number of countries throughout their career within the company.
C] In Which Type Of Situation?
Corporations can set-up an IPP for a number of reasons. For example:
- If an employee is hired by an international corporation in his native country and that country does not have a suitable Occupational Pension Plan that is comparable with the Occupational Pension Plans that are offered to colleagues in other countries.
- If an employee leaves his home country and is unable to participate in his home country Occupational Pension Plan.
- If international corporations have growing numbers of globally mobile employees.
- IPP’s can remove some of the burdens of determining how to give globally mobile employees a suitable occupational pension coverage where working overseas is common.
The IPP these days will in general be investment based which is called a Defined Contribution (DC) nature.
The capital will be used to fund the Old Age Pension as well as the Next of Kin Coverage. With options to, if so desired, upgrade the Next of Kin Coverage in several steps.
E] Characteristics Of The IPP
- Most IPP’s are flexible regarding type and amount of coverages and investments.
- Accounts often can be segregated to allow for different types of contributions: employer, employee, voluntary contributions, bonus payments or others as required.
- Often contributions may be paid at a frequency to fit with the sponsoring employer’s payroll and there is no requirement for contributions to be paid on a regular basis. Ad hoc contributions often may be paid at any time.
- Often flexible end-of-service and retirement options are available, including regular withdrawals.
- Often fees may be paid by employees (deduction from their account), by invoice to the employer or as a combination of both.
- Often the IPP is a multi-currency product which enables companies to design a plan that mirrors the geographical location of the head office, subsidiary offices and individual member locations.
- Some employers choose to place their plan under trust and several providers are ready to work with any third-party trustee appointed.
It is relevant to distinguish all existing type and amount of costs. For example:
- Costs for the company while setting up and maintaining the IPP.
- Employee costs regarding annual administration, risk coverage, investment fund and possibly existing Trustee costs.
- The employee has to be aware of the possibly existing additional costs if they might have additional questions. This can quickly become rather expensive.
When selecting an IP for your company, these issues should be one of the major aspects to take into account. Too often, this has not been the case.
This regards the following tax aspects:
- The corporate tax position in each related country.
- The employee tax position regarding the payment of premium, the possibly existing wealth taxation during the build up phase and finally regarding the pay-out phase, the international double tax treaty position in order to prevent or mitigate double taxation.
It is our experience that the highly relevant tax aspects often have not received the attention they deserve. Which often can have very negative implications for especially the employees.
H] Our Proposal
It will be our pleasure to assist your company during the process of establishing which type of Occupational Pension Plan might be most attractive for both the company and the employees.
Due to our independence and in line with all our services, we will be highly critical when doing the research.
You can only really decide when you have all the facts presented in a complete, correct and neutral manner. Not just an indeed beautful glossy from an insurance company.