It’s tough being an employer in the 21st century. Geopolitics aside, globalisation and digital technology mean that company size is no longer a barrier to international expansion.
SME employers used to face structural disadvantages in accessing international markets. They were constrained by access to market intelligence, financing, human resources and the capacity to navigate regulatory complexity. With digital technologies they have overcome these challenges and gained access to new markets and potential for growth.
But scaling beyond domestic borders also brings headaches. HR and Compensation & Benefits (C&B) teams may find themselves trying to juggle the demands of a multi-generational workforce, changing work practices and expectations, and an ever more complex mosaic of employment laws and regulations.
Attracting talent, and most importantly retaining it, is fundamental to a company’s success. So how do employers stand out in the crowd, keep costs down and deliver on their duty of care to employees? Promoting a workplace pension as part of the recruitment process is essential. It demonstrates a company’s commitment to the long-term financial wellbeing of its employees and helps SMEs compete with larger corporations in the talent market.
An approved domestic workplace plan may be suitable for employees who will remain in one location, but younger working generations value portability, flexibility and choice. They will potentially be working into their 70’s and they want benefits that will keep up with their life and career, wherever it takes them.
The good news for internationally expanding employers is that there is a simple and cost-effective answer. International Pension Plans (IPPs) or International Savings Plans (ISPs) are tried and tested solutions that have been around for decades. They have traditionally been used by multinational firms and NGO’s that need to implement fair reward systems for a global workforce and ensure consistent, long-term accumulation of retirement funds that are not subject to the frequent changes of local legislation. They share a lot in common with domestic plans, but serve as a centralised plan in a stable currency, regardless of where employees are based.
IPPs and ISPs provide a set of building blocks that gives the employer flexibility to structure a plan to their requirement. It can evolve over time as the company needs change. Also as it grows it will benefit from economies of scale.
The beauty for employers is that they can choose who can join the plan – for example you can sweep up populations that don’t fit into your existing plans, or use it for any employees working in places where they don’t have access to an adequate domestic plan or there may be a specific set of employees that you want to provide with an additional benefit.
IPPs and ISPs allow employers significant choice on contributions, which can be tailored over the medium-to-long term to align with corporate financial goals. Employer contributions can be uniform or vary according to country, age, service or a variety of other criteria. Members can typically select from a suitable range of investment funds, to fit their own circumstances and power investment growth.
International plans are typically established in international finance centres, such as Guernsey, with robust regulation and a favourable tax regime and good support services. This is important because IPPs and ISPs do not provide upfront tax relief on contributions in the same way as domestic pension schemes. Instead, they offer tax-efficient growth, portability and flexible income extraction.
Employer contributions can be based on a fixed percentage or tiered according to rank or service length, or employers can write a broad definition to catch all, such as “agreed by the employer” or refer to the employee’s contract. Contributions can also be protected through vesting, so that employees are required to serve a particular amount of time before they earn their benefit rights.
Employees voluntary contributions are also flexible and there is a growing awareness that starting to save as soon as possible, as much as you can afford and on a regular basis is now essential for long term financial independence. International schemes allow employees to do this easily from payroll. These savings can be used for retirement or for life events such as marriage or educating children.
The key difference between IPPs and ISPs is in the payment of benefits. Since an ISP is not necessarily a retirement plan, they can give an employer flexibility to allow access to benefits at any age, so they can be used as a vehicle to fund liabilities for employees working in countries with mandatory end-of-service gratuity requirements, such as in the Gulf region.
If an employee does leave, you will not be left with a deferred member. Most international plans, depending on the rules agreed, allow the member account value to be transferred or cashed out.
IPPs and ISPs help employers help employees. They are easy to administer, cost effective and a tax efficient way to invest in your people and give them the flexibility to build a career with you and help them save for their future.
Therefore if you have employees that are:
- Globally scattered or internationally mobile/nomadic
- Working offshore
- Critical employees that are hard to attract and retain
- Leadership – where you want to provide an additional “top hat” benefit
- Local nationals working in countries with no robust local solutions
- Or just want to put in a voluntary savings plan to help people save
Or all of the above! Then think international plan.
These tried and tested solutions are built for 21st century challenges.
- They allow employers to deliver on their duty of care and attract and retain talent.
- They provide employees an easy, cost effective way to work towards financial independence and freedom to build an international career.
Jo Smeed has decades of experience helping employers deliver meaningful employee benefits to populations of all sizes and sectors. Contact her today to find out how these proven simple solutions can help.
