GLOBAL - Multinationals are tightening their hold on localised pension funds in the wake of deficits.
North American companies are leading the way for more centralised pensions management, and are twice as likely to have global asset allocation guidelines.
Over half of non-North American multinationals surveyed had no influence on manager selection within regional pension funds, compared with 30% of North American multinationals which have centralised guidelines.
According to a survey by Watson Wyatt, some 13% of multinationals described their plans as centralised and 30% described their plans as decentralised, leaving the majority leaving their plans as somewhere between.
There is a wide spectrum of governance approaches for a multinational, but it is clear that there are financial efficiencies from a more globally co-ordinated approach, said Chris Ford, head of multinational investment consulting at Watson Wyatt and the study’s author.
One explanation touted for the tighter grip of North American companies is a bid to control pension fund deficits. A recent survey by ratings agency Standard & Poor’s showed that 15% of US large caps now faced a deficit. A UBS Warburg report also revealed that volatile markets had wiped out the pension fund surplus of all S&P500 companies for the first time since 1993.
But Ford warned that too much control by company directors could threaten the independence of trustees:
The danger we see is when companies try to achieve this purely through central control, which can alienate local fiduciaries and even fall foul of local legislation.”
“A more inclusive approach where decisions are taken in parallel, co-ordinated by headquarters, is more likely to succeed as it allows local fiduciaries to retain an appropriate level of involvement.
Other key findings included: - North American multinationals are five times more likely to use a common external adviser across their pension plans, compared to non-North Americans;- North American multinationals frequently have headquarters' personnel on local boards;- 12% of non-North American multinationals have no global integration compared to just 5% of North American companies;- Non-North American multinationals are twice as likely to have noheadquarters involvement in the selection of trustees for local plans.
Watson Wyatt's survey of 42 multinational companies responsible for 1,877international pension plans and assets of over US$480bn
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.