INTERNATIONAL: Pooling helps net better perks

Publication info: Employee Benefits ; London (Feb 2006): S.13.

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ABSTRACT
Multinational pooling might sound like plain, common sense. Rather than running six schemes for six different
subsidiaries, firms bundle together benefits such as insurance, cars and pensions, consolidating them into a single
global vehicle. Grouping benefits together to share the cost is not a new idea and organisations have been pooling
insurance contracts for 40 years. Yet recently, the practice has attracted renewed interest. While there is a raft of
benefits to be had from pooling, in the end, it all boils down to the same thing: cost. Savings of 5%-10% are typical
in well-managed pools, where attention is paid to the contracts selected for inclusion, says Jeremy Hill, principal,
international consulting at Mercer HR Consulting. So, where does this cash come from? In respect of insurance,
organisations can offset risk by linking international contracts, mainly for life, disability and healthcare benefits.
And, simply, the more you buy the more you are able to save.

FULL TEXT
The practice of pooling allows multinationals to boost purchasing power in the form of lower supplier costs and it
can also mean more detailed reports covering benefits claims, says Jenny Keefe
Pension pooling facts
* Some four-out-of-five multinationals are considering pension pooling.
* Of those planning to pool pensions, one-out-of-five is planning to do so within the next year.
* 80% of multinationals considering pension pooling have schemes in over 10 countries.
* Improved risk management was the driver cited by most companies (100%) followed by cost reduction (82%) and
easier administration (65%).
If you're a member of your office's National Lottery syndicate, chances are you already know the basics of
multinational pooling. The aim is to bank millions by clubbing together, hopefully keeping things amicable along
the way. You'll also need a lot of balls.
Multinational pooling might sound like plain, common sense. Rather than running six schemes for six different
subsidiaries, firms bundle together benefits such as insurance, cars and pensions, consolidating them into a single
global vehicle.
Grouping benefits together to share the cost is not a new idea and organisations have been pooling insurance
contracts for 40 years. Yet recently, the practice has attracted renewed interest. Jeremy Hill, principal, international
consulting at Mercer HR Consulting, says: "Firms are giving more attention to this area as part of the overall drive
for better governance of benefits and pay."
Another reason why pooling is undergoing a renaissance is that firms are breaking new ground by pulling together
assets from international pension schemes. Consumer-products group Unilever grabbed headlines last December
when it became the first company to launch a pooling vehicle combining equity investments from pension
schemes globally.
While there is a raft of benefits to be had from pooling, in the end, it all boils down to the same thing: cost. "Savings
of 5%-10% are typical in well-managed pools, where attention is paid to the contracts selected for inclusion," says
Hill. This holds for all pools, from insurance to pensions.
So, where does this cash come from? In respect of insurance, organisations can offset risk by linking international
contracts, mainly for life, disability and healthcare benefits. And, simply, the more you buy the more you are able to

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save.
Leveraging purchasing power
Francis Coleman, senior international consultant at Watson Wyatt, says: "Pooling allows multinationals to leverage
their global purchasing power." Rewards include lower charges from providers (or networks of providers) and more
detailed reports covering benefits claims and covered employees. Firms can create a sense of uniformity by
harmonising benefits across the globe.
Underwriting firms are likely to be more flexible. "Use one insurer internationally and they will be more willing to
remove local contract exclusions, for instance clauses on HIV and Aids," she adds.
The drivers behind pooling assets from international pension schemes are rather similar. Why shell out for things
twice when you can kill two, three, or four birds with one stone? In the case of pensions, individual countries keep
their liabilities, so if you are a UK employee, the UK scheme will still be responsible for paying your pension.
Gavin Bullock, head of pensions pooling at Deloitte, says: "It's simply that on the investment side, instead of each
country all deciding which manager to hire, which custodian to use, which strategies to follow and paying a lot
more for that because they are doing it separately, they put all their assets together and get big economies of
scale, which means they can hire better managers." Non- financial perks include improved risk management and
governance.
So if you like the sound of pooling, where should you start? Novices should take gradual, baby steps. "The first step
is to do a feasibility study to work out whether pooling's for you. Although multinational pooling is suitable for the
majority of multinationals, there may be instances where a multinational has particular characteristics and it's not
the most sensible option. For example, if you had just one major pension plan and one much smaller plan, it's less
likely to be suitable for you than if you had, say, five plans because the benefits are largely to do with economies of
scale. Whereas it's very clear that if you had five plans, then there are significant benefits to be gained," says
Bullock.
Mercer's Hill confirms that a feasibility study is also a good starting point when pooling risk benefits. "First, gather
information on the existing contracts by country to identify the scope for savings. Look at the type of risk being
covered, number of employees covered, premiums paid, current insurers and renewal dates to identify the scope
for savings." Next obtain quotes from providers with international networks.
It pays to be aware of pitfalls however. Whether you are pooling cars, insurance or pension assets the same issues
crop up. You must first make sure that there is buy-in from local HR departments. "The local operating company or
HR contact may resist changes to their contracts," says Hill.
Loss of autonomy
This is a common problem. "Local subsidiaries may feel they lose autonomy in choice of insurer since with the
implementation of a global pooling network their corporate head office may take over or direct the choice of
insurers in local countries," says Watson Wyatt's Coleman.
There is also the issue of local compliance. "To set up pooled contracts that are still compliant with local
legislation while still maximising local tax efficiency, then the pooled coverage must be insured with a local
licensed insurance carrier. The pooling agreement operates on a head office level between the multinational
company and the pooling network," adds Coleman.
Setting up pension pooling vehicles throws up numerous tax problems. Unilever, for example, took years to
persuade international tax authorities to let the vehicle benefit from double taxation treaties. Once you've
overcome these technical issues, you should then get everyone on board. Jaap F. Maassen, chairman of the
European Federation for Retirement Provision, says you need to get buy in from different trustees as well as
countries because internal politics can overshadow the new venture. There was bitterness at one firm, for example,
when one country was chosen to host the pension scheme over another. Overcome these obstacles, however, and
you can hit the jackpot.
Copyright: Centaur Communications Ltd. and licensors

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DETAILS

Subject: Multinational corporations; Employee benefits; Cost reduction; Poolings of interest

Location: United Kingdom UK

Classification: 9510: Multinational corporations; 6400: Employee benefits &compensation; 9175:

Western Europe

Publication title: Employee Benefits; London

Pages: S.13

Number of pages: 0

Publication year: 2006

Publication date: Feb 2006

Publisher: Centaur Media USA Inc. (A member of Centaur Plc Group)

Place of publication: London

Country of publication: United States, London

Publication subject: Business And Economics--Personnel Management

ISSN: 13668722

Source type: Trade Journals

Language of publication: English

Document type: Feature

ProQuest document ID: 224712213

Document URL: https://search.proquest.com/docview/224712213?accountid=145475

Copyright: (Copyright (c) 2006. Centaur Communications Limited. Reproduced withpermission

of the copyright owner. Further reproduction ordistribution is prohibited without
permission.)

Last updated: 2010-06-10

Database: ABI/INFORM Global

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