The financial crisis eventually will push more multinational pension plan sponsors to better centralize their corporate pension activities, but in the short term, the route might be marred by more pressing concerns such as a growing deficit, poor returns and volatile market conditions.
What the months of (financial) carnage did was to show that many multinational companies dont have the infrastructure in place to know exactly what the carnage was doing to them from a pension risk management perspective, said David Fogarty, principal in financial strategy group of Mercer Inc. based in London. That is bound to change.
Consultants and fund officials expect a more centralized pension management system in which investment risks are better understood and controlled from a companywide perspective.
Before the credit crunch, which began to emerge in the summer of 2007 and gained steam in 2008, corporate sponsors already were looking at their pension plans throughout the world from a risk perspective, said Christopher Mayo, senior consultant at Watson Wyatt Worldwide based in London. But many sponsors had been slow to act. Then the crisis came along and demonstrated what could occur when companies havent taken steps to better control pension investment risks, Mr. Mayo said.
There has been a significant impact on assets and liabilities, he added. The risk that pension schemes have has been brought home.
In 2008, global institutional pension fund assets lost an average 19% of total assets, according to data for 11 major markets compiled by Watson Wyatt Worldwide, Reigate, England. Separately, the funding level at the largest 100 U.S. corporate pension plans shrank by nearly 30 percentage points in 2008, giving up gains from the previous five years (Pensions & Investments, June 1).
Across Europe, corporations with multiple plans have been trying to squeeze more efficiency from the way they manage their defined benefit pension assets for years. The single currency, single economy of the European Union was supposed to have translated into the pensions industry through the Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision.
While progress is slow, more companies are investing pension assets in cross-border funds. For example, there were 70 companies with cross-border pension capability in the European Economic Area as of June 2008, a 40% increase or 22 cases from the previous 18 months, according to a survey conducted by the Committee of European Insurance and Occupational Pensions Supervisors.
There has been an uplift in the aggregate number of cases, which is significant in percentage terms, although small in comparison to the scale of provision of occupational schemes across the EEA generally, according to a report that accompanied the survey. CEIOPS, based in Frankfurt, advises the European Commission on regulatory matters affecting the insurance and occupational pension industries.
However, advances in cross-border plans have been on a piecemeal basis. Most pension vehicles link only a few countries rather than being a fully integrated multinational fund, according to data from CEIOPS.