Home ListingApril 8, 2015

Multinational Pensions Push to Centralize Governance

Streamlining resources—and committing more to DC—will be the future for multinational pensions, a survey has found.

Reported by Featured Author

Better risk management and policy consistency is pushing companies running multiple pension funds around the globe to centralize investment teams, a survey has found.

Investment manager Vanguard surveyed 90 multinational companies running defined benefit pensions and found 55% of them had moved to a “more centralised approach to oversight and governance”.

“Respondents identified local market rules, regulations and customs as some of the obstacles preventing centralization,” Vanguard said.

And more centralization is on the way, according to the report.

“On average four out of ten companies that do not currently manage their global retirement plans centrally expect to move to a more central approach in the next five years,” Vanguard said. “Even smaller organizations expressed the need to consolidate governance, although the desire to centralize plan oversight was stronger for larger organizations.”

Multinational companies, such as Unilever, run their organisations from one or two central locations. Many have also set up investment management companies to further centralize—and professionalize—their pension funds.

However, Vanguard warned that improving governance on a global basis would take time and require “healthy dialogue”, along with the “engagement of everyone involved.”

“The exact steps an organization takes will vary based on its culture, strategic objectives and employee base,” the report said. “Companies should consider establishing a formal global governance policy.”

Additionally, Vanguard’s survey found more time and resource was being committed to DB funds, despite defined contribution (DC) funds’ growing membership. Some 18% of respondents said they intended to spend “somewhat more time, resources, and effort” on these funds, with a further 4% indicating this extra commitment would be “significant”.

Just over half—53%—said their commitment would stay the same, while the same number said they would increase their workload focused on DC. This would leave pension staff with a conundrum, Vanguard concluded.

“Something needs to give,” the firm said. “Either resources—and costs—will need to increase, or plan sponsors will need to find ways to simplify the structure and approach to their global retirement plans.”

Vanguard time