2013 EMEA EXPATRIATE MANAGEMENT CONFERENCE 11-12 APRIL 2013

EXPATRIATE RETIREMENT & HEALTHCARE ISSUES 12 APRIL 2013

Katie Potter

London

MERCER

AGENDA

• Introduction

• Emerging themes and recent trends

• Key challenges

• Retirement

– Approaches to provision

– International pension plans

• International medical

– Approaches to provision

– Design

– Coverage by insurance companies

– Premium increases

– Focus on cost / strategies to mitigate premium increases

MERCER

INTRODUCTION BIO

• Working in International Consulting Group since October 2010

• Experience across all aspects of international employee benefits –

variety of different international clients in various sectors

• Focus on Global Benefits Management, Expatriate Benefits and Total

Reward

– Management of plans

– Benchmarking on general market practice and sector specific

practice

• Studying towards Diploma in International Employee Benefits (IEBA)

MERCER

INTRODUCTION EXPATRIATION / MOBILITY CYCLE

MERCER

EMERGING THEMES

• Governance and Centralisation

– Initial draft / fundamental re-write of Expat / Mobility policy

• Existing approaches to expatriate categorisation and retirement benefit

provision questioned

– Re-evaluation of categorisation of expatriate population

– Increased degree of localisation

• Historic Packages

– Increasing focus on those employees who have remained on

expatriate-style packages even where localised (local+)

– Engaging with employees to remove benefits

- Either immediately or over time – phased reduction in benefits

- In some cases, transfers of cost centre from central to local

MERCER

KEY RETIREMENT BENEFITS CHALLENGES

LONG-TERM NATURE

OF PENSIONS NATURE OF

ASSIGNMENTS

BENEFITS

FRAGMENTATION

EMPLOYEE

EXPECTATIONS

TAXATION COST

MERCER 7

RETIREMENT

MERCER

EXPATRIATE RETIREMENT PROVISION OPTIONS

• Prevalence

– Home country / Host country / IPPs

• Use of domestic plans – Localisation

• Use of cash allowance in lieu of pension – reduction in administration and tax

concerns

• IPPs / ISPs

MERCER

INTERNATIONAL PENSION PLANS WHAT ARE THEY?

• An IPP is an offshore pension or savings plan

– Typically located in Channel Islands

• Why a savings plan?

– Many plans allow for benefits to be taken based on:

- Service with the company

- Specific eligibility criteria

• Historically have been used across a number of circumstances

– Offset any Social Security issues

– Augment retirement benefits

– Facilitate pension provision where there is no plan in the host country or for

Global Nomads

• Increasing use of IPPs although eligibility criteria is being tightened

– Mainly for areas where material loss of occupational or Social Security

retirement benefit accumulation

– Reduction in use in other areas?

MERCER

INTERNATIONAL PENSION PLANS: PLAN DESIGN

• Normally “offshore” and relatively flexible, strong trend towards DC

• Initial decisions:

– Can be funded or unfunded

– Trust or insurance contract

• Eligibility is key

• Contributions:

– Employer contributions – fixed level or vary by location, category or age

– May require or allow employee contributions

• Benefits:

– Typically payable as lump sums

– Locked in until retirement (at least while still with sponsoring organisation)

– Member’s account payable on death or disability

• Investment choice from preselected range of funds

MERCER

INTERNATIONAL PENSION / SAVINGS PLANS CONSIDERATIONS

• Restrictions

– Minimum requirements on contributions

– Membership - often maximum of 10% US citizens / green card holders

(ERISA and FATCA reporting requirements)

– Auto enrolment (AE) in the UK

– Can be country restrictions where an external trust is being used

– UN / EU financial sanctions lists – countries where expatriates cannot be

covered

• Transfers to individual arrangements

MERCER

INTERNATIONAL PENSION PLAN IMPLEMENTATION PROCESS AND CONSIDERATIONS

IPP design

Objective setting & delivery

Provider review and selection

Implementation

1

PHASE 1 PHASE 4 PHASE 2 PHASE 3

• Objectives of provision

• Weighting of objectives to aid selection of a provider

• Identification of target employee population and eligibility criteria

• Insurance or trust

based

•DB / DC, funded or unfunded

• Bundled / unbundled

• Employee contributions (if applicable)

• Review of intended benefits for target population sections

• Financial strength

• Charges

• Management information and reporting

• Administration capability

• Online functionality

• Employee communication services

• Investment consulting and member communications

• Implementation support

MERCER 13

INTERNATIONAL MEDICAL

MERCER

EXPATRIATE HEALTHCARE TRENDS

• Companies continuing to globalise throughout recession

– Domestic markets under pressure

– Mid-market and SME companies increasingly operating overseas

• Increasing globalisation trends from ‘developing’ countries

– ‘Mix’ of expatriates changing

– Benefits evolving due to this

• Move to central purchasing

– Consistent benefits benchmarked globally / segmentation strategies

– Ease of administration

– Premiums leveraged globally

• Development of more sophisticated benefits management strategies globally

– Multinational pooling approach

– Development of Captive solutions

MERCER

EXPATRIATE HEALTHCARE TRENDS - COMPLIANCE

• Increasing trend towards admitted insurance locally, which is

accelerating

– Government health budgets under pressure

– Typically expatriates are caught up in domestic reform

• Areas of concern include Middle East, Australia, US healthcare reform

MERCER

INTERNATIONAL MEDICAL PLANS: COVERAGE BY INSURANCE COMPANY

23%

1%

6%

3%

11%

10%

46%

30%

1%

6%

9%

10%

11%

32%

Other

Aviva

AXA

Allianz

Aetna

BUPA

CIGNA

2012

2008

Mercer 2011 / 2012 Benefits Survey for Expatriates and Globally Mobile Employees

MERCER

INTERNATIONAL MEDICAL PLANS: PREMIUM INCREASES AT LAST RENEWAL

0 5 10 15 20 25 30 35

None

1-5%

6-10%

11-15%

16-20%

Over 20%

2012

2008

%

Mercer 2011 / 2012 Benefits Survey for Expatriates and Globally Mobile Employees

MERCER

INTERNATIONAL MEDICAL PLANS: COSTS / STRATEGIES TO MITIGATE PREMIUM INCREASES

• Partnership approach to negotiations

– Actuarial analysis of claims fund

• Negotiations around administration rates which can be as high as 25%

– Break link with medical inflation at 12%

• Choose provider with strong hospital network mapped against

expatriate locations

MERCER

XYZ

Medical Expenses Projection and 90% Confidence Interval for 2009/10

£389

£517

£448

£200

£250

£300

£350

£400

£450

£500

£550

Jul 03 Dec 03 Jul 04 Dec 04 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10

Pur

e R

isk

Cos

t (P

RC

) per

Life

per

Yea

r

Monthly PRC 12-Month MA PRC 5% Lower CI 95% Upper CI Expected Fund Long Term Trend

Currently 9,543 risk lives => Expected Fund for

2009/10 of £4,276,000

Long Term Inflationary Trend is 8.3%

Based on our actuarial analysis, we are able to provide a complete risk profile for the full as well as

segmented group therefore allowing

Benchmark insurer terms against expected claims costs

Identify the preferred claims funding mechanism, re-insurance and risk charges in order to support

our clients longer terms benefit strategy

INTERNATIONAL MEDICAL PLANS: ACTUARIAL ANALYSIS

MERCER

INTERNATIONAL MEDICAL PLANS: COSTS / STRATEGIES TO MITIGATE PREMIUM INCREASES

• Cost containment

– Segmentation / localisation of benefits

– Benefit redesign – copayments etc

– Reduce areas of coverage

– Risk Management – Medical assistance

• Some now penalising expatriates for non-preauthorisation of claims

• Increasing Case management approach

– More robust risk management generally

• Increasing development of medical second opinion services

• Provider has to demonstrate value add to claims process

• Audit provider processes

QUESTIONS?

MERCER

CONTACT

KATIE POTTER

Katie.Potter@mercer.com

+44 (0)20 7178 3449

Order Mercer’s 2011/2012 Benefits Survey for Expatriates and

Internationally Mobile Employees

www.imercer.com/expatbenefits