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Asset pooling comes of age
A roadmap to pooling assets for pensions
Alexander W.A. van Ittersum
Table of Contents
Introduction� 1
1 Assetpoolingbenefitsnowavailabletointernationalcompaniesofallsizes 2
� The�need�to�simplify�pensions�management�� 2
� Asset�pooling�in�theory�–�decreasing�complexity,�improving�control� 2
� Why�the�delay?� 4
2Diversityinpensions–aunitedEurope? 5
� Managing�your�pension�plans� 6
3 Manywaystopoolyourpensions 8
� Administrative�and�data�pooling�–�interim�solutions� 9
� Global�custody�–�a�partial�solution�for�larger�multinationals�� 9
� Multi-client�asset�pooling� 9
� Bespoke�asset�pooling�solutions� 9
� IORPs�–�under�development� 9
� Asset�pooling�and�IORPs� 10
4 Multi-clientassetpooling–theadvantagesofareadymadesolution 11
� Asset�pooling�in�practice�–�one�size�fits�all?� 11
� A�first�step�towards�pension�pooling� 13
5Assetpoolingcomesofage 14
� Improving�international�pension�management� 14
� Five�steps�to�implementing�asset�pooling� 14
Acknowledgements� 15
References�and�notes� 16
1
IntroductionIn�the�light�of�the�economic�crisis,�pensions�are�now�very�much�a�boardroom�issue,�with�CFOs�looking�
to�reduce�pension�risks1�and�to�control�costs.�For�companies�with�pension�plans�in�multiple�countries,�
this�is�no�easy�undertaking.�Due�to�the�diversity�of�international�pension�regulations,�companies�have�
to�run�separate�pension�plans�for�every�country�in�which�they�operate.�This�makes�it�difficult�for�them�
to�gain�a�clear�overview�of�their�pension�assets�and�liabilities�(increasing�risk)�and�to�take�advantage�
of�their�international�scale�(increasing�costs).�In�order�to�address�these�issues,�a�number�of�solutions�
have�been�developed�to�help�companies�improve�their�international�pensions�management.�
Over�the�past�few�years,�as�several�large�multinational�companies�set�up�tailor-made�asset�pooling�
solutions,�it�looked�as�if�asset�pooling�for�pensions�was�about�to�break�through�as�a�must-have�solution�
for�all�companies�with�multiple�pension�plans�in�Europe.�Then,�as�attention�shifted�to�IORPs�(Institutions�
for�Occupational�Retirement�Provision)� –� the�new�hope� for�European�pension� consolidation� –� and�
the�financial�crisis�forced�companies�to�focus�on�more�urgent�problems,�attention�for�asset�pooling�
waned.�However,�as�it�has�become�clear�that�IORPs�are�presently�limited�and�difficult�to�implement�
and�multi-client�asset-pooling�has�become�available,�asset�pooling�is�now�entering�a�new�phase�as�it�
opens�up�a�range�of�benefits�for�companies�of�all�sizes.
No longer a solution for the few The�pooling�of�pension�assets�clearly�offers�sponsoring�companies�and�their�pension�funds�distinct�
benefits.�In�practice,�however,�the�technical�difficulties�of�designing�a�robust�and�effective�asset�pooling�
solution�have�meant�that�only�the�largest�of�multinational�companies�(Unilever,�Shell�and�Nestlé)�have�
started�to�pool�their�pension�assets.�Smaller�and�medium-sized�multinationals�have�not�been�able�to�
benefit�from�asset�pooling,�as�it�does�not�make�financial�sense�for�them�to�invest�in�designing�and�
implementing�their�own�bespoke�solution.�Until�now,�therefore,�the�expectations�around�asset�pooling�
have�not�yet�solidified� into�benefits�for�companies�other�than�the� largest�multinationals.�However,�
asset�pooling� is�now�coming�of�age,�as�new�‘off�the�shelf’�multi-client�solutions�are�ready�to�place�
asset�pooling�within�the�reach�of�international�companies�of�all�sizes.�
In�this�AEGON�Global�Pensions�white�paper,�we�examine�the�issues�that�multinational�companies�face�
in�managing�their�pensions�and�introduce�asset�pooling.�Having�discussed�the�diversity�of�pensions�
and�pensions�systems�in�Europe�today,�we�explore�the�different�pooling�solutions�available�and�show�
how�multi-client�asset�pooling�now�offers�a� robust�and� future-ready� solution� for� companies�of�all�
sizes.�Finally,�we�provide�five�brief�guidelines�on�how�companies�can�implement�asset�pooling.
�
2
1 Asset pooling benefits now available to international companies of all sizes
The need to simplify pensions management As�companies�grow�over�time,� it� is�not�unusual� for� them�to�gain�additional�pension�plans�through�
mergers,�acquisitions�and�the�creation�of�new�subsidiaries.�Historically,�many�companies�have�allowed�
their�pension�plans�to�proliferate�with�little�thought�for�harmonisation.�This�in�turn�leads�to�increased�
complexity� in�pensions�management�and�increased�risk.�A�combination�of�the�economic�crisis�and�
tightening�international�regulations�(for�example,�IFRS)�have�led�companies�to�look�once�more�at�their�
pensions�in�a�drive�to�manage�risk,�increase�control�and�decrease�costs.�
When� pension� plans� are�managed� individually,� country� by� country,� it� is� usual� for� the� trustees� of�
individual�pension�plans�to�decide�on�their�investment�policies�and�to�choose�their�own�investment�
managers.�This�can�result�in�inefficiencies,�hidden�risks,�inconsistent�reporting�and�opaque�costing�
(that�can�amount�to�15%�of�the�risk�premium).2�
Asset�pooling�offers�multinational�companies�the�possibility�of�optimising�their�pension�management,�
delivering� benefits� to� all� stakeholders.� By� pooling� their� pension� assets� from� different� countries,�
multinational�companies�can� improve� their�pension�governance,�better�control� their�financial� risk,�
increase�their�operational�efficiency�and�obtain�access�to�better�investment�solutions.�Asset�pooling�
enables�companies�to�remove�investment�management�inefficiencies,�helping�them�to�manage�their�
pensions�better�and�more�cost-effectively.
Asset pooling in theory – decreasing complexity, improving controlThe�idea�behind�asset�pooling�is�simple:�companies�with�multiple�pension�plans�can�pool�their�assets,�
giving�them�greater�control�over�their�pension�plans�and�enabling�them�to�gain�from�efficiencies�of�
scale.�Corporate�headquarters�receive�up-to-date,�consolidated�reporting�of�all�their�pooled�pension�
assets.�Asset�pooling�removes�complexity�(and�therefore�reduces�risk)�and�improves�corporate�control�
over�pensions.�
On�the�investment�side,�asset�pooling�provides�savings�in�management�and�custody�fees�and�makes�
it�easier� for� the�plan�managers� (the�trustees�or�sponsoring�company)� to�design�appropriate�asset�
allocation� strategies.� The� overall� cost� and� efficiency� savings� are� highest� when� multiple� smaller�
pension�plans�combine�their�pension�assets,�as�opposed�to�when�a�single�large�and�already�efficient�
pension�plan�combines�its�assets�with�smaller�plans.�This�fact�means�that,�paradoxically,�the�potential�
benefits�and�savings�are�highest�for�the�smaller�pension�plans�that�have�until�now�been�unable�to�
afford�asset�pooling.�With�the�development�of�multi-client�asset�pooling,�these�smaller�pension�plans�
are�now�able�to�benefit�not�only�from�the�cost�savings�that�asset�pooling�offers�but�also�from�better�
risk�diversification,�as�asset�pooling�provides�access�to�more�asset�classes�and�manager�styles�(which�
previously�would�only�have�been�available�through�expensive�funds�of�funds).
3
Benefits of asset pooling for all stakeholders
Asset pooling offers companies benefits in three major areas: improving governance and
control (and reducing complexity), providing insight into risk (allowing companies to control
risk more effectively), and enabling companies to control their costs. Finally, asset pooling
provides benefits to all stakeholders – a key factor in successfully implementing any solution.
Figure 1: Benefits of asset pooling for all stakeholders
1 Improved governance and control
The most important reason for multinational companies to consider asset pooling is to improve
their international pension governance. The economic crisis has revealed the potential risk that
pensions represent to the corporate balance sheet. Asset pooling offers a unified investment
solution with centralised reporting, providing companies with better insight into potential
investment risks and decreasing the complexity of their pension reporting.
2 Managing risk
Knowing your risk is the first step to managing it. Conversely, not knowing what you have in
your pension funds or where you have it is a considerable risk for a sponsoring company. An
asset pooling platform provides a fast and consistent way to gain an overview of investment
risk on both a consolidated and plan basis. Asset pooling enables companies to take advantage
of a controlled investment manager selection process with ongoing monitoring, offering
complete transparency and reducing risk.
3 Reducing costs
For smaller companies, economies of scale mean that asset pooling provides them with
significant savings on their investment costs. As larger companies often possess larger, more
efficient pension plans, combining these large plans will not always result in such significant
savings on asset management fees. In addition to investment management savings, however,
asset pooling also offers savings on internal monitoring costs and consultancy.
Head office
Local sub
sidiaries
Tru
stee
s
Risk
Cos
ts
Assetpooling
Control
Members
4
Providing benefits for all stakeholders
Asset pooling not only provides the CFO with the means to gain better control over the
company’s pensions but it also delivers benefits to the other pension stakeholders. The
individuals responsible for the management of the individual pension funds can be assured
of a high quality and well managed investment solution for their particular pension plan.
Although local pension fund trustees may be hesitant to give up their freedom to choose their
own investment strategy, in return they gain access to the best investment managers and to
greater diversification at a lower cost. In addition, they are able to focus on achieving optimal
asset allocation for their local plan and on other important areas such as communication to the
members.
Why the delay?Considering�the�benefits�that�asset�pooling�promises,� it� is�perhaps�surprising�that� it�has�not�been�
adopted�more� quickly.� As� usual,� the� devil� lies� in� the� detail.� Using� non� tax-transparent� or� opaque�
investment�funds�is�relatively�simple�but�can�lead�to�substantial�underperformance�(particularly�for�
equity�funds),�greatly�reducing�or�even�eradicating�the�potential�benefits�of�asset�pooling.�In�order�for�
asset�pooling�to�be�effective,�it�is�important�that�the�solution�be�tax-efficient�–�and�developing�a�tax-
efficient�solution�is�complex�and�time�consuming.�However,�now�that�tax�efficient�multi-client�asset�
pooling�is�available,�companies�can�benefit�from�asset�pooling�without�having�to�develop�a�bespoke�
solution�themselves.�
Figure 2: Unified investment management
This figure demonstrates how asset pooling unifies investment management for the pensions
of a multinational company, catering for a wide variety of different pensions including, for
example, a Defined Benefit plan (DB) provided by a self-administered pension fund (Pension
Plan A), a trust-based Defined Contribution (DC) plan (Pension Plan B) and a unit-linked DC plan
as part of a life-cycle solution provided by an insurer (Pension Plan C).
Multinational Company
Pools Reporting
Pension Plan B Pension Plan C Pension Plan DPension Plan A
DB Plan DC Plan Insured DC Book reser. DB
UK Subsidiary NL Subsidiary FR Subsidiary Other Subsidiaries
(Source:�AEGON�Global�Pensions)
5
2 Diversity in pensions – a united Europe?Within�Europe,�no�single�state�pension�system�is�the�same�as�another.�As�a�result,� it� is�difficult�for�
multinational�companies�to�provide�a�unified�pension�solution�for�all�of�their�European�subsidiaries.�
When�a�company�takes�inventory�of�its�pension�plans�in�various�countries�across�Europe,�it�becomes�
rapidly�clear�that�there�is�still�a�wide�variety�in�pension�systems�and�practices�across�Europe.�The�
differences�apparent�are� the� result�of� the�different�state�pensions,�different�pension�vehicles�and�
different�pension�promises�made�(notwithstanding�the�different�terminology�used�in�each�country).�
When�looking�at�European�pensions,�the�major�differences�between�the�various�country�systems�lie�
with�the�state�pension�(first�pillar).�Although�all�European�countries�provide�a�minimal�state�pension,�
the�importance�of�this�provision�varies�substantially.�For�example,�in�France,�Germany,�Spain�and�Italy,�
the�state�pension�presently�provides�the�majority�of�retirement�income.�In�countries�such�as�the�UK,�
Ireland,�the�Netherlands�and�Switzerland,�occupational�pensions�(the�second�pillar)�are�much�more�
important.
Diversity of pension systems: the differing importance of the 1st, 2nd and 3rd pillars
The graph below includes all premiums paid to insurers, pension funds and banks for pension
savings and all contributions made by employers and employees into the social security
system.
Figure 3: Shares of the three pillars in the total premium income
0%
20%
40%
60%
80%
100%
2nd pillar
3rd pillar
2nd and 3rd pillar
1st pillar
United
King
dom
Nethe
rland
s
Germ
any
Switz
erlan
dDe
nmar
k
Swed
en
Finlan
d
Spain
Franc
e
Polan
d
Turk
ey
Belgi
umPo
rtuga
l
Italy
(Source:�CEA�Statistics�No�28,�September�2007)�3
6
Managing your pension plansIt�is�easier�for�companies�to�exercise�control�of�their�pension�plans�in�countries�where�insurance�and�
book�reserves�dominate�as�opposed�to�countries�where�autonomous�pension�plans�are�the�norm.�In�
the�UK,�Ireland�and�Switzerland,�self-administered�pension�funds�are�the�primary�vehicle�for�providing�
pensions�to�employees.�In�Denmark�and�Sweden,�insurance�contracts�dominate�the�market,�while�in�
Germany�and�Austria,�book�reserves�(that�is�reserves�held�on�the�balance�sheet�of�the�company)�are�
the�main�vehicle�used�to�provide�occupational�plans.�Any�solution�that�involves�combining�different�
pension�plans�must�therefore�satisfy�the�independent�pension�fund�trustees�as�well�as�the�board�of�
the�sponsoring�company�itself.
Diversity of pension systems: organisation of occupational pension plans
The graph below demonstrates the diversity of the various national pension systems,
showing the different vehicles employed for occupational pensions across Europe.
Figure 4: Financial vehicles used for occupational pension funds
�
0%
United
King
dom
Nethe
rland
s
Germ
any
Switz
erlan
d
Denm
ark
Swed
en
Finlan
d
Spain
Franc
e
Irelan
d
Italy
Belgi
um
Portu
gal
Austr
ia
Norway
20%
40%
30%
50%
70%
10%
60%
80%
90%
100%
Other
Book reserves(non-autonomous)
Pension insurancecontracts
Pension funds(autonomous)
(Source:�Pension�Markets�in�Focus:�November�2007,�Issue�4�-�©�OECD�2007)
7
Diversity of pension systems: different pension promises
Another element of the diversity of the pension systems in Europe that any unifying solution
has to be able to address is the different types of pension promises made to employees in each
country. This refers not only to the differences between DB and DC pension plans but also to
different interpretations of these systems in each country. For example, in Switzerland the DC
system (a cash balance system) allows employees no investment freedom and the employer/
occupational pension fund has to guarantee the paid-in premiums. This is very different from
contract-based DC plans in the UK, where the employee has complete investment freedom and
no guarantees.
The different types of pension promises within Europe were mapped out by Oxera in the figure
below, ranging from ‘pure’ DB via hybrid plans to ‘pure’ DC.
Figure 5: The full spectrum of pension plans
�
Asset pooling report Company XYZ
COMPANY NAME PLAN PLAN TYPE No PREMIUM AUM EUR PLAN LIVES EUR COUNTRY
Company XYZ Materials NL B.V. Garantiecontract insurer ABC DB Insured 25 500,000 5,000,000 Netherlands
Company XYZ trading BV Stichting Pensioenfonds XYZ DB career average 1000 5,000,000 50,000,000 Netherlands
Company XYX Electrical appliances Contrats à cotisations définies Defined Contribution 200 28,000 800,000 France
Company XYX Electrical appliances Fonds collectif de retraite Group Pension Fund 100 1,200,000 12,000,000 France
Company XYX Electrical appliances Fonds collectif d’I.F.C End of career insurance 30 800,000 8,000,000 France
Company XYZ Group Personal GPP Group Personal Pension DC 270 500,000 5,000,000 UKPension Scheme
Company Xyz Ltd GP STAKEHOLDER Group Stakeholder DC 550 1,000,000 10,000,000 UK
Company XYZ AG Vorsorgungskasse XYZ Cash balance DC 50 1,000,000 10,000,000 Switzerland
Company XYZ AG Company XYZ CTA DB Bookreserve 500 1,500,000 15,000,000 Germany
Company XYZ AG Pensionsfonds DC guaranteed 120 - 8,000,000 Germany
‘Pure’ DB Average Various DC with Outcome- ‘Pure’ DC
(final salary) salary DB hybrids guarantees oriented DC
� (Source:�Oxera)�4�
Figure 6: An example of the various different pension plans a single multinational company
could have within Europe
(Source:�AEGON�Global�Pensions)
8
3 Many ways to pool your pensionsGiven�the�diversity�of�pensions�and�pension�systems�across�Europe,�it�is�unsurprising�that�different�
methods�have�been�developed�to�try�to�improve�pensions�management�across�Europe�(and�beyond).�
If�we�look�at�the�solutions�presently�on�offer,�there�is�a�variety�of�‘pooling’�solutions�available,�ranging�
from�administrative�and�data�pooling�through�to�IORPs.�The�chart�below�highlights�the�benefits�of�the�
different�solutions�compared�with�how�easily�they�can�be�implemented.�
Although�IORPS�ultimately�promise�the�greatest�benefits,�they�are�presently�difficult�to�implement�
and�it�will�be�some�time�before�they�can�achieve�their�full�potential.�At�the�other�end�of�the�spectrum,�
global�custody,�and�administrative�and�data�pooling�offer�more�limited�benefits�but�require�less�effort�
to�implement.�Asset�pooling,�however,�provides�considerably�more�benefits,�and,�while�bespoke�asset�
pooling� is� only� feasible� for� the� largest� multinational� companies,� multi-client� asset� pooling� offers�
companies�of�all�sizes�the�possibility�to�realise�significant�efficiency�gains.�In�addition,�it�is�easier�to�
implement�and�‘future-ready’�for�inclusion�into�an�IORP�solution,�if�required.
Figure 7: Comparison of added value and ease of implementation of different pooling solutions
�
Administrativeand data pooling
Multi-clientasset pooling
Bespokeasset pooling
IORP
Difficulty of implementation
Added value: improved control, cost savings
Globalcustody
Information
Assets
Liabilities
(Source:�AEGON�Global�Pensions)
9
Administrative and data pooling – interim solutionsSeveral� multinational� companies,� including� Mars� and� Reckitt� Benckiser,� have� implemented� data�
and�administrative�pooling�solutions� (also� referred� to�as� investment�or�portfolio�accounting).�This�
involves� centralising� pension� management,� including� the� management� of� pension� assets� without�
actually�pooling�the�assets�into�a�single�investment�vehicle.�Administrative�pooling�requires�internal�
organisational�changes,�such�as�setting�up�asset�management�committees�for�hiring�managers.�The�
pension�assets�remain�invested�within�their�present�legal�vehicles�and�pooling�is�only�carried�out�at�an�
administrative�level.�Administrative�pooling�offers�some�–�but�not�all�–�of�the�benefits�of�asset�pooling�
and�can�be�used�as�a�first�step�towards�full�asset�pooling.�
Global custody – a partial solution for larger multinationals Global�custody�offers�primarily�larger�companies�a�way�to�lower�their�costs�and�pool�the�reporting�
of� their�pension�plan�assets�by�placing� the�custody�of� their�pension�assets�with�a�single�provider.�
However,�global�custody�does�not�automatically� lead� to�unified� reporting�and� implementation�nor�
even�necessarily�to�improved�investment�management.�In�particular,�it�does�not�provide�the�additional�
controls�and�efficiency�gains�in�investment�management�that�are�made�possible�by�asset�pooling.�In�
addition,�although�companies�should�be�able�to�benefit�from�some�efficiency�gains,�the�scale�of�the�
provider�involved�may�reduce�the�negotiating�power�of�all�but�the�largest�companies
Multi-client asset poolingMulti-client�asset�pooling�provides�companies�of�all�sizes�with�the�ability�to�pool�their�pension�assets�
and�to�receive�consolidated�reporting�on�their�assets.�Asset�pooling�can�help�companies�to�improve�the�
management�of�their�pension�investments,�generates�efficiencies�and�makes�it�easier�for�companies�
to�control�their�pension�plans.�Multi-client�asset�pooling�offers�most�of�the�benefits�of�bespoke�asset�
pooling� solutions� but,� because� companies� can� participate� in� pre-existing� asset� pools,� it� is� easier,�
quicker�and�less�expensive�to�implement.�
Bespoke asset pooling solutionsThe�earliest�asset�pooling�solutions�were�tailor-made�solutions�created�for�the�largest�multinationals�
(for�example,�Nestlé�and�Unilever).�These�tailor-made�solutions�can�require�enormous�investment�in�
time�and�resources.�As�one�of�the�people�involved�in�a�bespoke�asset�pooling�project�said:�‘Murphy’s�
law�will�definitely�strike�more�than�once.’�Such�‘one-off’�solutions�are�simply�not�affordable�for�smaller�
companies,�which� is�one�of� the�reasons�why�asset�pooling�has�been�slow�to�be�adopted.�Creating�
bespoke�asset�pooling�solutions�can�be�difficult�and�complicated,�and�the�costs�can�be�substantial,�
which�is�why�the�only�companies�that�have�adopted�them�tend�to�have�more�than�ten�billion�euro�in�
assets.�
IORPs – under developmentCross-border�IORPs,�like�asset�pooling,�appear�to�have�experienced�their�share�of�attention,�as�they�
offer�the�potential�for�true�pan-European�pension�provision.�IORPs�will�eventually�provide�companies�
with�the�ability�to�pool�both�their�European�pension�assets�and�liabilities.�At�present,�however,�IORPs�
remain�largely�elusive,�as�differing�social,�labour�and�tax�laws�through�Europe�remain�a�considerable�
barrier� to� their�use� (and�will� remain� so� for� the� foreseeable� future).�Although� the�benefits�of�pan-
European�pension�pooling�are�clear,�pension�benefit�systems�(like�other�labour�arrangements)�within�
the�European�Union�are�not�yet�harmonized,�which�has�significant�impact�on�attempts�to�consolidate�
pensions.� It� is�for�this�reason�that�early�attempts�to�create�IORPs�(and�more�than�70�cross-border�
10
IORPs�now�exist)� have� concentrated�on� countries�with� similar�pension� structures,� such�as� Ireland�
and�the�UK.�At�present,�such�IORPs�typically�contain�DC�plans�for�expats�or�executives,�as�pension�
plans�within�an� IORP�still�have�to�adhere�to� local� tax,�social�and� labour� laws.�As�a�result,�member�
administration�is�still�complex�and�efficiencies�are�not�easily�accomplished.�
Asset pooling and IORPsAlthough� IORPs�will� eventually� offer� an� overarching� pension� solution�within� Europe,� considerable�
further�developments�in�European�harmonisation�are�necessary�before�these�can�be�truly�realized.�
There�are� immense�obstacles�to�be�overcome�before� IORPs�can�achieve�their� full�potential.� In�the�
meantime,�standalone�asset�pooling�solutions�provide�an�achievable�first�step�towards�pan-European�
pensions,�‘future�ready’�for�inclusion�into�one�or�more�IORPs�at�a�later�date,�if�required.�In�addition,�
asset�pooling�solutions�can�also�be�used�to�pool�non-European�assets,�for�example�pensions�assets�
from�US,�Asian�or�other�pension�funds.�
Figure 8: Asset pooling – a future-ready solution
Asset pooling solutions can be used in IORPs and also for pooling non-European assets.
�Multinational company
UK Subsidiary NL Subsidiary
Pools Reporting
FR Subsidiary Other Subsidiaries
IORP Pension Plan C Pension Plan D
(Source:�AEGON�Global�Pensions)
11
4 Multi-client asset pooling – the advantages of a readymade solution
Asset pooling in practice – one size fits all?Although�the�benefits�of�asset�pooling�may�be�clear,�creating�a�cross-border�asset�pooling�solution�
for�the�first�time�is�a�difficult�process�requiring�considerable�international�expertise.�In�order�to�be�
able�to�cope�with�the�immense�diversity�5�of�pensions�across�Europe,�asset�pooling�solutions�need�to�
be�flexible�and�ready�for�change.�
The�variety�of�potential� –�and�partial� –� solutions�presently�on�offer�may�have�made� it�difficult� for�
companies� to�decide�which�solution�may�be�appropriate� for� them.�With� the�development�of�multi-
client�asset�pooling,�companies�no�longer�need�to�design�their�own�solutions�and�instead�have�access�
to�a�ready-made�solution�at�a�fraction�of�the�cost.�As�a�result,�asset�pooling�is�now�within�the�reach�of�
all�sizes�of�companies.�Multi-client�asset�pooling�can�be�offered�either�as�part�of�an�insured�pension�
solution�or�as�an�asset-only�solution.�A�separate�solution�naturally�provides�more�flexibility,�and�may�
facilitate�companies�wishing�to�implement�asset�pooling�in�phases.�
Multi-client�asset�pooling�platforms�provide�companies�with�access�to�a�ready-made�pooling�platform,�
removing�the�barrier�of�expensive�start-up�costs�and�enabling�companies�to�benefit�immediately�from�
economies�of�scale.�When�pooling�pension�assets,�it�is�important�that�the�investment�vehicles�used�are�
as�efficient�as�possible�from�a�taxation�perspective.�At�present,�tax�efficient�investment�vehicles�are�
currently�available�from�Luxembourg�(FCP:�Fonds�Commune�de�Placement),� Ireland�(CCF:�Common�
Contractual�Fund)�and�the�Netherlands�(FGR:�Fonds�voor�Gemene�Rekening).
In�connection�with�this,� it� is�very�important�that�the�asset�pooling�provider�handles�the�tax�rebate�
issues�on�behalf�of�its�clients.�This�in�itself�can�provide�considerable�benefits,�as�many�investors�simply�
do�not�apply�for�tax�rebates�as�the�procedures�are�particularly�complicated.�This�was�confirmed�by�
the�EU�Internal�Markets�Directorate�General�in�a�memo�in�October�2009�6�stating�that�many�investors�
do�not�reclaim�their�share�of�the�EUR�5.47�billion�in�foregone�withholding�tax�annually.�
12
Tax efficient pooling
Claiming back taxes requires expertise
In October 2009, the European Union’s Internal Markets Directorate General issued a
memo stating that many investors simply don’t reclaim their share of the EUR 5.47 billion
in foregone withholding tax annually. The procedures for validating investors’ entitlements
are so complicated that they discourage investors from applying. For those who do apply for
reimbursement of their taxes, the cost of doing so is thought to amount to approximately
EUR 1.09 billion every year.
The clear benefit of tax-transparent investment vehicles
Tax-transparent investment vehicles offer a clear advantage to investors in comparison to
tax-opaque vehicles (as illustrated in the graph below). Over an 8-year period, the return on
investment from a global equity portfolio where all dividends can be reinvested outperforms a
portfolio where withholding tax is paid by about 6% (for example, a Luxembourg-based SICAV:
Société d’Investissement à Capital Variable).
Figure 9: Additional returns gained from tax-transparent global equity fund compared with
tax-opaque global equity fund
For example, if we were to take a closed Defined Benefit pension plan of EUR 50 million in 2001
(into which no further contributions are being made), by October 2008, the total assets of the
plan would be EUR 76 million, if all dividends were reinvested, as opposed to EUR 73 million if taxes
were paid over the dividends. Over 8 years, this would amount to a loss of almost EUR 3 million.
If instead we look at a new Defined Contribution plan set up in 2001 for 150 members with a
contribution rate of 6% on average salaries of EUR 30,000, after 8 years, if withholding tax
were paid (and if 100% of assets were allocated in equity), the total pension assets would be
approximately EUR 2,480,000. If a tax-transparent vehicle were used, the assets would instead
be about EUR 2,540,000 – a difference of approximately EUR 60,000 – or more than two and a
half months’ premium. Although these costs are more likely to be borne by the participants, the
cumulative effect over the course of an individual’s working and saving life would be significant –
and the worth of the benefit provided by the employer would be unnecessarily devalued.
Nov ‘01 Nov ‘02 Nov ‘03 Nov ‘04 Nov ‘05 Nov ‘06 Nov ‘07 Nov ‘08 Oct ‘090%
1%
2%
3%
4%
(Source:�MSCI-Barra,�AEGON�Global�Pensions)
13
A first step towards pension poolingMulti-client�asset�pooling�is�a�first�step�towards�building�a�‘shared�service�centre’�for�pensions�for
multinational� companies.�Given� the� changing�pensions� environment,� it� is� very� important� that� any�
�asset�pooling�solution�should�be�flexible�and�‘future-ready,’�as�a�company’s�needs�are�likely�to�change�
and�develop.�
Although� it�will�be�a� long�time�before�cross-border� IORPs�are�commonly� in�use,� IORPs�do�already�
exist�and�their�use�will�continue�to�grow.�Asset�pooling�solutions�need�to�be�able�to�fit�seamlessly�
into�an�IORP,�if�and�when�necessary.�In�addition,�unlike�IORPs,�asset�pooling�solutions�extend�beyond�
the�borders�of�Europe,�enabling�companies�to�manage�their�pensions�through�a�single�vehicle.�For�
example,�in�an�advisory�opinion�on�pensions�in�20087,�the�US�Department�of�Labor�opened�up�the�
possibility�for�US�pension�assets�(ERISA)�to�be�pooled,�along�with�pension�funds�from�the�Middle�East,�
Asia,�Africa�and�Europe.�
A�modular�solution�should�be�able�to�service�the�different�types�of�asset�management�models�required�
by� different� pension� systems.�Although� some� companies�will� be� able� to� reap� benefits� from�more�
customized�solutions,�it�is�important�to�find�a�balance�between�increased�costs�and�the�benefits�to�be�
gained.�A�standardized,�multi-client�asset�pooling�solution�can�be�easily�and�efficiently�implemented.�
An�asset�pooling�solution�must:
•� Be�efficient�and�transparent,�with�low�operating�costs
•� Have�low�implementation�costs�
•� Provide�excellent�governance�and�control�over�the�investment�solution�
•� Provide�a�high�quality�investment�solution�that�is�suitable�for�a�variety�of�pensions
•� Provide�consolidated�reporting�
•� Offer�a�modular�investment�solution�to�service�different�asset�allocations�and�currencies
•� Be�future-ready�for�IORPs,�and�the�shift�from�DB�to�DC�pension�plans.
Most�importantly,�an�asset�pooling�solution�must�deliver�value�to�all�stakeholders,�and�not�just�the�
CFO.�A�good�asset�pooling�solution�should�offer�improved�governance�and�control�for�the�CFO,�a�solid�
investment� solution�fitting� local� requirements� for� the� trustees�and�employees,� and� low�costs� and�
reliable�high�quality�for�the�local�subsidiaries.�
�
14
5 Asset pooling comes of ageWith�the�advent�of�multi-client�asset�pooling,�it�is�time�for�companies�to�reassess�the�available�pooling�
solutions.�Multi-client� asset� pooling�provides� companies�with� a�flexible,� future-ready� solution� that�
will�help�them�to�drive�down�costs�and�improve�their�risk�control�and�pensions�management.�Asset�
pooling�is�available�and�achievable�now.�
Improving international pension managementBy�enabling�companies�to�harmonise�the�management�of�their�pension�plans,�multi-client�asset�pooling�
provides�them�with�increased�control�and�consolidated�reporting.�Not�only�does�this�allow�companies�
to�better�understand�and�control�risk,�but�it�also�enables�them�to�optimize�the�management�of�their�
portfolio�of�pension�assets.�Smaller�pension�funds�can�benefit�from�access�to�the�best�managers,�and�
all�pension�funds�can�benefit�from�transparent�costs�and�competitive�management�fees.�
Asset� pooling� reduces� complexity� for� the� corporate� headquarters,� provides� a� high� quality� asset�
management� solution� for� the� local� subsidiaries� (coupled� with� reduced� operational� and� reporting�
costs),�and�provides�local�trustees�of�the�individual�pension�plans�with�good�investment�performance�
and�increased�diversification�at�a�low�cost.�
Five steps to implementing asset poolingFor�asset�pooling,�a�step-by-step�implementation�process�is�preferable�to�a�‘Big�Bang’�approach.�As�
asset�pooling�is�introduced�across�a�company,�internal�processes�will�have�to�be�altered�and�adapted,�
and�contacts�and�contracts�with�external�providers�will�have�to�be�changed�accordingly.�If�pension�
plans�are�added�one�at�a�time,�as�they�become�ready�to�join,�any�issues�can�be�dealt�with�as�they�
arise.
Step1:� ��Establish�whether�asset�pooling�(or�other�pooling�solutions)�will�benefit�your�company.�Does�
centralisation�fit�within�your�company�culture?�
Step2:� ��Identify�which�pension�plans�you�have,� in�which�countries.�Which�assets�do�you�hold�and�
in�what� kinds�of� investment� vehicles?�What� types�of� plans� do� you�have,�with� how�many�
participants?�
Step3:� ��Perform� a� cost� benefits� analysis� –� establish� the� potential� benefits� of� asset� pooling� in��
terms�of�cost�savings,�improved�control,�risk�management�and�reduced�tax�drag.�Identify�
which�pension�plans�will�benefit�from�asset�pooling�–�not�only�in�terms�of�potential�savings�
for�the�company�headquarters�but�also�in�terms�of�quality�of�investment�solutions�available�
for�members,�trustees�and�local�subsidiaries.�
Step4:� ��Secure� executive� sponsorship� –� involve� all� stakeholders,� from� board� members� to� local�
trustees�in�order�to�identify�their�requirements.�Together�with�your�consultant,�identify�the�
appropriate�asset�pooling�solution�for�your�needs.�Carefully�balance�the�‘need’�for�your�own�
unique�requirements�(and�the�added�complexity�this�may�bring)�against�the�benefits�offered�
by�easy-to-implement,�ready-made�scalable�solutions.
Step5:� ��Plan�and�execute.�Make�a�detailed�project�plan�of�how�and�when�to�switch�from�the�current�
investment�solution�to�the�asset�pooling�solution,� taking� into�account� local�requirements�
and�long�running�contracts.�
15
AcknowledgementsI�would�like�to�thank�the�following�people�for�providing�their�much�valued�input�and�insight.
Alexander�van�Ittersum
Jeroen�Bogers��
Product development manager, AEGON Global Pensions
Steve�Chapman�
International sales director, AEGON Global Pensions
Bernard�Hanratty�
Managing director head of investor services EMEA, Citi
Frans�van�der�Horst
Managing director, AEGON Global Pensions
Anne�Laning�
Head operations, TKP Investments
Mischa�Muntinga
Head tax and regulatory, AEGON Asset Management
Philip�Pennings
Tax department, AEGON Asset Management
Frank�Randall�
Director, AEGON Global Pensions
Thurstan�Robinson��
Communications manager, AEGON Global Pensions
Martijn�Tans�
Director marketing, AEGON Global Pensions
Piet�Vandenbossche
Consultant and project manager asset pooling, TKP Investments
Andrew�Wood�
Regional sales director, UK and Nordics, AEGON Global Pensions
Karen�Zeeb��
Director investor services Global Transaction Services, Citi
�
16
References and notes�
1� � �Planning�your�way�out�of�the�financial�crisis,�a�roadmap�to�derisking,�Jeroen�J.J.�Bogers,�
AEGON�Global�Pensions�March�2009.
2���� �IPE�31�March�2010:�Multinationals�‘unaware�of�overseas�pensions�cost’,�Allianz.�
3� � �Statistics�N°�28,�The�role�of�insurance�in�the�provision�of�pension�revenue,�September�2007.�
Note:�CH:�3rd�pillar�underestimated;�DE:�Data�for�2nd�pillar�missing;�DK:�1st�pillar�is�
underestimated�because�it�does�not�include�contributions�to�the�public�scheme;�FR,�UK,�DE,�ES:�
1st�pillar�estimated�on�the�base�of�the�benefits�paid;�IT:�2003�data;�FR,�UK:�No�split�available�
between�the�2nd�and�the�3rd�pillars.
4� �� �Source:�Defined�contribution�pension�schemes,�risks�and�advantages�for�occupational�
retirement�provision,�Ofama�–�Oxera�January�2008.
5� � �Christina�Matos,�Unreformed�or�Hybrid?�Accounting�for�Pension�Arrangements�Diversity�in�the�
EU,�Springer,�7�April�2009.
6� �� �Press�announcement�IP/09/1543,�Brussels,�19�October�2009,�Securities�income:�Commission�
recommends�simplified�procedures�for�claiming�cross-border�withholding�tax�relief.
7� � �2008-04A�ERISA�SEC�404(b)�U.S.�Department�of�Labor�advisory�opinion�concerning�the�
indicia�of�ownership�requirements�in�section�404(b)�of�the�Employee�Retirement�Income�
Security�Act�of�1974�(ERISA),�and�the�implementing�regulations.
17
AEGON Global Pensions and asset pooling
In June 2009, AEGON and Citi launched the first multi-client cross-border asset pooling platform. The
groundbreaking asset pooling platform, developed by TKP Investments, Citi and AEGON Global Pensions,
was launched with total assets invested with a value of more than €9 billion. Through the use of tax
transparent investment funds under a European passport (UCITS), the unique platform will enable
the multinational clients of AEGON Global Pensions to consolidate the management, investment and
reporting of their pension assets, reducing both risk and costs.
Currently, the AEGON Global Pensions asset pooling platform is being used by Dutch pension funds and
a UK and French insurance company. The platform contains tax-transparent UCITS equity and bond
funds, but can also cater to alternative investments. The asset pooling platform provides companies with
a modular, flexible and scalable solution. In addition, it provides share classes at different fee levels in
order to cater for different distribution methods (for example, asset pooling is available through a DC
fund platform, via an insurer or directly to a self-administered pension fund).
18
Contact details
AEGON�Global�Pensions
P.O.�Box�85
2501�CB,�The�Hague
The�Netherlands
Telephone:�+31�(0)70�344�89�31
E-mail:�[email protected]
Website:�www.aegonglobalpensions.com
DisclaimerThis�white�paper�contains�general�information�only�and�does�not�constitute�a�solicitation�or�offer.�No�
rights�can�be�derived�from�this�white�paper.�AEGON�Global�Pensions,� its�partners�and�any�of�their�
affiliates�or�employees�do�not�guarantee,�warrant�or�represent�the�accuracy�or�completeness�of�the�
information�contained�in�this�white�paper.�
AEGON,�June�2010
�
