The boot is generally on the other foot, with international solutions sitting at odds with domestic rules and regulations, or at least they are frequently perceived to be. But are developments in international pension strategies the exception?
Of course we are all only too aware of the global pension crisis playing out in front of our eyes.
In a nutshell we are living longer and governments, saddled with enormous deficits, are having to raise the age of retirement, as well as slash benefits, in order to ensure there is enough in the pot to fund pension obligations.
No surprise then that the emphasis is increasingly on funding our own retirement. But providing for our own retirement presents its own challenges. While the majority of people understand the increasing need to save in order to fund their retirement, many save too little and too late.
How individual countries tackle these problems depends on factors, from traditional working practices, the investment vehicles available, to the general economic health of the nation.
For example, when it comes to encouraging people to save we have witnessed the introduction of auto-enrolment in the UK as well as the idea recently outlined by pensions minister, Steve Webb, that pensioners should be able to shop around for a better deal on their annuity purchase.
Flexibility
Whatever your views on Mr Webb’s solution, the idea behind it is a simple one. Flexibility. domestic pension rules are often inflexible and take too long to catch up with social change and this is where I think the international community has some lessons to share.
We have, for example, seen how the development of Qualifying Recognised Overseas Pension Schemes (QROPS) can offer the required flexibility of a growing sector of those who choose to move overseas. But it was a recent survey by Towers Watson that stuck me on how international pension solutions may help address the growing retirement crisis.
This latest survey not only shows how international pension plans (IPPs) set up by global companies for internationally mobile employees are increasingly offering more sophisticated investment options that include lifestyle funds and strategies in a range of currencies in order to meet the specific demographics of IPP members, but that they are also tackling the problem of employees on short term employment contracts or those less enthused by long term savings. How? By adjusting IPPs into International Savings Plans (ISPs).
Towers Watson points out that this is not only a growing trend, but one that appeals to those who like the idea of a “low cost shorter-term savings facility, perhaps supported by employer contributions or at least established on a group basis by their employer with administration costs covered”.
In my mind there are lessons here that can be adapted for wider use in both state and private pension planning strategies. Most importantly, it potentially helps respond to one of the biggest problems we now face – how to change mindsets from seeing pension planning as something in the future, to incorporating it in savings plans today.
Developments in IPPs may not offer solutions to every nation’s retirement problems, but they certainly highlight the benefits of balancing rules and regulations rightly in place to protect pension pots, with much more choice and flexibility.
If we are to stand a chance of solving our pension problem any time soon, it’s something that needs serious consideration.
