Managing defined contribution plans in uncertain economic times

We will be asking questions. We will be answering questions at the end of the presented materials. If you do have any questions, since all lines have been placed on mute, we do ask you to put those questions into the chat. You can find the chat feature in the lower right-hand corner. So please, as you're listening and as you have questions, please do ask those as you're thinking of them. We'll be gathering those. We will answer as many as we can, time permitting, at the end of the session. For the questions that we cannot answer, we will certainly reply and send those after the Webex.

So just in terms of introductions, my name is Anna Budnik. And I actually manage the retirement solution area for our Integrated and Global Solutions team. I will be your MC today, but we have many speakers today. I'm very excited and delighted that we have Holger from JTI, who's going to really spend some time talking about the case study and how they manage defined contribution plans from a governance perspective, both from a local perspective and also from a central perspective. So we are very delighted, and we thank Holger for his time and presenting today.

So just in terms of a little bit of background, as all of you know, markets have been very, very volatile and trading probably lower now than they were at the beginning of the year. In addition to that, we're in a period of high inflation, and in some countries even hyperinflation. And also, there's been rising bond yields. So I think there's been so much volatility in the market that it really has shed light on the importance of really looking at defined contribution plans and with the lens of improving outcomes for employees, but that also improves workforce planning and making the plans more efficient from a company perspective.

So during today's Webex, first, I'm going to turn it over to Marc, that's going to talk through this from a UK perspective and some of the things that we're doing from an investment perspective as part of our master trust offering, LifeSight. From there, he will turn it over to Michael, who is really going to present-- based on some of the information of how they're looking at this in the UK-- how that is applied more broadly. And then from there, we will turn it over to Holger and to Frans to walk through the JTI case study. So with that, I would like to turn it over to Marc to get us started today.

MARC BAUTISTA: Thanks, Anna. And hi, all. I'm Marc Bautista. I have multiple hats here at WTW, but I'm speaking today with my main hat, which is the lead investment advisor for our master trust, LifeSight, as an exemplar of what we think is best practice.

At Willis Towers Watson, we've always designed these investment strategies for the long-term with a changing balance between risk and return, not only over time but over term to and through retirement, reflecting the specific nature of DC-- in particular, the shifting balance between what we call human capital and financial capital as members progress through their careers.

So financial capital, what we mean by that is the accrued pensions savings, which gradually increases over time. And human capital, what we mean by that is time horizon and essentially, the future optionality that DC members have, which gradually reduces over time. So that balance shifts as members progress through their careers.

Now with that as background, I wanted to start by sharing how we see the recent market stress events from different perspectives. So the last year has been difficult, to say the least. As Anna mentioned, inflation has been skyrocketing here in the UK and in many other countries.

Governments and central banks have been responding to that with quantitative tightening policies, including interest rate hikes. Meanwhile, equities, corporate bonds and other return seeking assets have been falling over the past few months. And then the recent falls and volatility in UK government bonds, in particular, have been spectacular, unprecedented.

So obviously, DC members have been impacted. Firstly, market falls have impacted the nominal value of members savings, while high inflation has further eroded the real impact-- the real value of their savings. Probably the impact has been relatively more acute for those members who are close to or even post-retirement.

To some extent, this has been offset by cheaper annuity prices as bond yields have gone up. That's a good indication. Even where members don't buy annuities, it's a good indication of the purchasing power of members' accumulated DC savings and the income that can be secured going forward, with a given quantum of savings.

It's also worth noting that very few have been immune through this macroeconomic crisis. Workers whose salaries have not kept pace with inflation, BB pensioners who have their benefit increases capped, and DC members have all seen a negative impact on real wealth.

Focusing in on inflation a little bit more, our central expectation is that governments and central banks will ultimately be successful in bringing inflation back down towards their long-term targets within the next two to three years. But this is not a high conviction view. There is a very wide spectrum of possible inflation scenarios from here. And central bank mandates can change. And they have changed in the past and may change in the future.

Perhaps more importantly, our outlook for investment returns. So we have reviewed our investment assumptions and the way we set our assumptions. So the first thing to say is our long-term, normative, average assumptions have not changed. They are informed by over 100 years of parsed data, including periods with high inflation regimes, with high risk, with substantial market falls. So we haven't felt the need to change our long-term assumptions.

Our medium term assumptions, however, perhaps over 3 to 10 years, have increased. Because the way our assumptions work, they reflect current market pricing and how that pricing is likely to evolve over the coming years towards more long-term average levels.

So the market falls we've seen suggest we think higher return assumptions over the medium term. And that actually bodes well for DC members with decent time horizons, particularly younger DC members, where future returns on future contributions are more important than the accumulated pot size to date.

So what does this all mean for our investment proposition to members? At LifeSight, we've reviewed both our self-select fund range and our default investment strategies and concluded that they remain appropriate. We haven't made any changes. We've concluded that the recent negative impact, however unfortunate it has been, is in line with the shocks we would expect from time to time.

And we think we've got the balanced and risk and return over time, and over term to, or through retirement about right. And so we've concluded, no change is required to our fund range or our investment strategies. Indeed, we think that any changes would be knee-jerk and counterproductive.

Thinking about member behavior, we may see a shift in member behavior. For example, a shift away from drawing down their savings to purchasing annuities, perhaps a shift from buying level annuities to buying inflation-linked annuities. Perhaps some members will defer their retirements. Perhaps some will reduce their contributions to offset the rises in the cost of living. And some may increase their contributions to target higher levels of savings at retirement. It's really too early to say.

So bringing that all together, I think our overall conclusion is that investment is a long-term project. It isn't risk free. In fact, risk is absolutely critical to achieving attractive, long-term outcomes. And if you're accepting risk to achieve those outcomes as long-term outcomes, periods of significant market stress, negative returns have to be expected from time to time.

And appropriate long-term DC investment strategy should seek to achieve an appropriate balance between risk and return along the member's journey to and through retirement. But it can't eliminate that risk. Unfortunately, there is no magic bullet. And as I say, knee-jerk reactions would be dangerous.

So on the next couple of slides, I'm going to provide a bit more detail on our investment options as an example of what we think is best practice. So here on this page, firstly, starting on the-- we have the savings phase and the spending phase, which are on the top of-- the right hand, top of the page. The savings phase, we refer to our pre-retirement proposition and spending phase, our post-retirement proposition.

So pre-retirement, we offer a range of different self-select funds that let me do a range, which is the same pre-retirement and post-retirement. And that is to provide flexibility to those members who wish to build their own portfolios. The idea here is to keep the fund range as limited as it can be, but as broad as it needs to be to provide good flexibility and choice.

Secondly, we have a range of alternative strategies. The help me choose range-- for members who may want to make an investment choice but don't actually want to go quite as far as building their own portfolios. Pre-retirement, we have a range of life cycle strategies. And post-retirement, we have a corresponding range of objective-based investment strategies.

All of these use the same building block funds just put together in different proportions to reflect a range of different retirement objectives. And in both cases, pre and post-retirement, I think it's important to offer members a range of sophisticated proportionate engagement tools to help guide them in a simple manner to the choices that are most appropriate for them.

But then most importantly, we have the default for those members who don't want to make an active investment choice. Our standard default is shown on this page on the top left. So as you can see, it switches from a LifeSight equity fund, the purple, to the blue, LifeSight diversified growth fund, and then builds up an allocation to cash in the years just prior to retirement.

The philosophy behind this is to provide members with good potential for growth earlier on in their savings journey when risk tolerance is relatively high, and then gradually and increasingly diversify, and then de-risk as members approach retirement. It's a simple strategy, but how we implement it using our bespoke building block funds is unique. And that's what I'm going to talk about on the next page.

As I mentioned, all our strategies use the same building blocks. And the two key growth vehicles are LifeSight Equity and LifeSight DGF. And on this page, we summarize the key features of both of these funds. Our best investment ideas are integrated within these funds.

Both of these funds are managed by our investment team on the fiduciary basis. That's where our clients ask us to make investment decisions for them rather than advise in order to achieve a given set of strategic objectives. And we've got a really big global fiduciary team. And that scale enables us to innovate and access opportunities at attractive cost for our members.

But whether we work with clients on a fiduciary or an advisory basis, we have the same underlying global research team that engages with asset managers around the world to identify the best solutions and often develop bespoke vehicles for our clients. And our whole investment business is focused on constructing robust portfolios and implementing them by getting the best ideas and best value from external fund managers. And that means we're fully independent. We're free to pick who we think is best for a given mandate.

So let's just very quickly look a little bit closely at the two funds here. So LifeSight Equity, the objective as you can see on this page is to outperform passive over the long-term but with the total investment fee budget of 11 basis point per annum, which we think is really good value for members. It is 100% ESG-focused with sustainability incorporated in both the stock selection and the stewardship. That's really important to us. Our commitment to sustainable investment is high because we believe that ultimately, it will help to achieve better risk adjusted returns for our members.

You can see four colors on the pie chart on the left. That reflects four different components of the equity strategy. They're all essentially, ESG-integrated, smart beta, or almost passive strategies that provide diversification.

In the interest of time, I'll just give one example, the most recent addition, which is our climate transition fund. This fund focuses on minimizing exposure to companies that are most exposed to climate transition risk. The assessment of climate risk at the company level here is sophisticated. It's determined by our climate team of about 70 specialist specialists. And what that means overall, we put all those four components together as a fund that's well diversified, has very strong sustainability credentials, and is well positioned to beat passive equities over the long-term at low cost.

And then finally, moving on to the right-hand side, the LifeSight DGF. This is a diversified growth vehicle-- diversified, risk controlled, looking to achieve inflation plus 3% to 4% over the long-term, with about 2/3 the risk of equities, all for a fee cap of 15 basis points per annum.

From the bottom segment, the pink segment, that's LifeSight Equity. So you can see that about a third of this fund invests in LifeSight Equity. So everything I just spoke about for LifeSight Equity applies to this fund too.

And then alongside of Equity, there's a range of different alternative asset classes to control risk. And again, we've sustainable investment practices embedded throughout this fund. So again, this results in a fund that's liquid and low cost but still well diversified, really strong sustainability credentials, and well positioned to achieve its long-term risk, and return objectives, and delivering value for members.

Now, that's really all I was intending to say about LifeSight at this stage. Hopefully, that was useful. Now I'm going to hand over to Michael to explain how some of the points that I've just made about investment thinking can be applied to multinationals with pension plans in other jurisdictions.

MICHAEL BROUGH: Great. Thank you. Thank you, Marc. So, yeah, my name is Michael Brough. I'm a senior director within Integrated and Global Solutions team and with a focus on developing emerging markets and all things cross-border. And I'm based now in the Dubai office.

So Marc focused on five key themes, and we're going to have a look at those key themes and translate them over into global examples. So if we have the next slide, the five key themes that we're going to focus on are the long-term investment strategy-- the importance of that, the importance of the default where ultimately most members can often find themselves being invested in, whether there's a sufficient range of investment fund options, the importance of effective communications, and then finally, opportunity to consider sustainability.

So if we look at the UK-- is a very sophisticated DC market. And when you add it to the key seven countries, you'll find that in the Thinking Ahead group's Global Assets study research, it showed that 92% of the world's pension assets sit within those seven countries, which means that 190 countries have about 8% of the world's pension assets.

And so all pension systems are very different. And if we look on the next slide, we'll see that we've tried to bucket them into four categories. So we've got sophisticated DC markets. We've got developed DC markets, developing DC markets, and infant or new startup DC markets.

And you see that the five themes that came from Marc's presentation are set out there. And we give an interpretation as to what this looks like across these four different buckets. So within sophisticated markets like the Netherlands, for example, then you'll see that there is typically a long-term investment strategy. So these are aiming to provide pensions at the end of the day.

There usually are a range of fund choices. And those fund choices are broadest within sophisticated DC markets. Usually, there's a default. And that's driven by the fact that members struggle with pensions to some extent. And therefore, a high proportion of members are-- typically will end up in the default arrangement that's set up for them.

Communications, so sophisticated markets tend to be very good when it comes to communications in terms of the range of those communications that are available. So the sort of media that's offered, ranging from online to paper, to video, to webinars, call centers, and mobile apps, et cetera. So they have a wide range of media. But still there's an area for improvement to help members when it comes to the important decisions that they need to make around contribution levels and around where to invest.

And then sustainability, perhaps slower progress than would be preferred. So the European Union, for example, didn't go down the disclosure route that the UK went down. And so when it comes to investing sustainably, it tends to be quite voluntary. So it's not mandated as such, but it is encouraged to invest in the appropriate ESG strategies. But at this stage, you could argue that there's pretty much slow progress.

If we look at developed DC markets, so here we've got Poland as an example. So Poland introduced auto-enrollment a couple of years ago. And they also have a long-term investment strategy as the objective behind that auto-enrollment. But with some exceptions-- so for some reason, they left an open door, which means that if members want to cash in their auto-enrollment funds at any time, then they can do so. And they can rejoin, so going against the objectives of using pensions as a long-term vehicle.

Most auto-enrollment providers in Poland have nine investment funds that they offer. They're age-based, target date funds, and they include a default-- a default being member-driven. So whatever the member's age is, then they'll fit into the age vintage, the target date fund that's appropriate for them.

Again, communications in a similar way to the sophisticated DC markets is improving but could get better. And then when it comes to sustainability, then you can see that there can be some conflicts. So again, Poland within the European Union, so subject to the same regulations there.

But Polish pension schemes, certainly the auto-enrollment vehicles must invest 70% in the Polish market. And the coal industry is a significant part of that market. So Poland is the ninth largest coal producer in the world. And so there is a little bit of a conflict around, should you invest in-- domestically in the coal industry? Or should you be investing more appropriately in sustainability? And so those conflicts do exist from time to time in some of these markets.

Developing DC, there we've given the example of the Philippines. And Holger and Frans in the case study that follows will also pick up on the Philippines. So developing DC markets, they also will have a long-term investment strategy at their heart. They often won't have any fund choices, or the fund choices that are offered will be quite limited.

There's usually a default, and that's driven by the fact that members in developing markets really do struggle with financial decisions. And so that's taken often out of their hands because they just invest in the fund. And when it comes to communications, again, we're at the early stages of the developments. And so there's a range of communications, but could be better, and certainly could be more effective. And sustainability is often talked about at governance committee meetings. But it's a slow burn in terms of any kind of mandatory requirements in these markets. So again, it's following a best practice approach.

And then the infant DC markets like Vietnam, which only introduced the DC system of supplementary system last April-- this does have a long-term investment strategy at its heart, don't offer any real fun choices. So where there is a fund choice, it's really, do you want 80% government bonds and 20% cash? Or do you want 60% government bonds and 40% cash? So it isn't really much diversity around those fund options. There's usually a default that is offered, and that's usually the fund.

Again, communications are very basic and much more basic than within the sophisticated and developed markets, but enough at least for members to join arrangements, and to get a handle for how they operate. And then sustainability is just not-- it's just not a feature at the moment. It's all about investing money in the local market itself in order to invest in government debt, corporate debt, or cash.

And so when it comes to these markets and these DC arrangements, then the multinationals can certainly influence things to some degree. But they are largely constrained within the parameters of the rules of the various systems.

Perhaps on the next slide, we-- I'll just touch on developments in cross-border and multi-country plans. So these are international pension plans, international savings plans typically used for expatriates but also locals in certain countries where the local systems are inefficient, or insecure in some way. Or they're often used to provide pensions for countries where there are low head counts, or there are specific issues that multinationals need to fix, and use these cross-border plans to do so.

But following the same approach, the key themes on the left-hand side that Marc mentioned, long-term investment strategy-- well, these cross-border plans tend to meet the multiple needs, can be set up for both long-term or short-term investing. They do typically have a default because most members end up in the default arrangement. And something in the order of 75%, 85% of assets tend to end up in the default. And so it's critical to make sure the design of that default is well thought through and also is flexible enough to encounter change when it happens.

Sufficient range of investment fund options, well, there are thousands of potential fund choices offered in the cross-border market covering broad asset classes from a wide range of fund managers, covering beliefs like Sharia beliefs, for example, but also ESG and sustainability, and obviously covering a range-- a wide range of currencies as well.

Importance of effective communications, well, this is driven to some extent by the provider capabilities. And there's a range of providers. So some are very good when it comes to communications and certainly get messages through in a more effective way. Others are less successful at that.

And then we have the opportunity to consider sustainability. So sustainability, you would argue, is-- for these arrangements can often be unburdened. In that respect, it means that they can lead the way to some extent.

And so our IPP survey that comes out later this year indicated that 168 organizations had already considered ESG and had made changes to their fund ranges that they were offering within their cross-border plans. So there is an opportunity to be creative. And some organizations are also now adjusting their defaults to ensure that they do include some sustainable investing within those default strategies.

Or new themes that we're seeing, so inflation protection is very hot as a topic at the moment. And so a lot of governance committees that oversee cross-border plans will be looking at the fund options to make sure that the range is sufficient. And we are seeing that some organizations are making changes to include the likes of commodities-- which obviously goes against sustainability-- but also property infrastructure, value equities, and index-linked bonds, which tend to be the asset classes that might perform best during an inflationary period. So that is a discussion area that is very prevalent at the moment.

We also are seeing themes around withdrawals and early access where these cross-border plans are becoming more flexible when it comes to allowing and making early payouts or early distributions. And that came out of COVID-19 to give people just greater flexibility when it comes to these arrangements.

And then finally, improved governance-- when you get plans, which are growing in terms of asset size but also perhaps have greater compliance responsibility, or greater risks to think about, or to be concerned about, then it is important to ensure that the governance structure is robust and that committees are put in place that provide good oversight to make sure that the right behavior is followed, to make sure that members are fully informed, that costs and fees are kept to a minimum.

And you end up with a living, breathing, better pension arrangement for the benefit of all. Then that's some of the side effect benefits of better governance frameworks, which I think nicely leads on now to hand over to Frans and to Holger to talk about governance and their case study.

FRANS BADENHORST: Thank you, Michael. Next on the agenda is the case study with one of our long-standing clients, Japan Tobacco International, or JTI as Michael mentioned. Firstly, just a quick introduction for myself. I'm Frans Badenhorst. I'm a director in our Integrated and Global Solutions team in London. I've been with WTW for 14 years. And I've been working with JTI for a number of years on the DB and DC plans.

Today, I have the pleasure of welcoming an esteemed guest, our contact at JTI, Holger Balnojan. Holger, thank you, once again. We really appreciate your input today and look forward to hearing you speak. So with that, I'll let you introduce yourself and kick off this case study.

HOLGER BALNOJAN: Thank you very much, Frans. And as Frans mentioned, my name is Holger Balnojan. I'm working for JTI meanwhile, as well, more than 14 years-- within compensation and benefits, it's meanwhile 22, 23 years. But I have the pleasure to-- yeah, to learn every day something new when it comes to pensions and benefits.

If we can go to the first slide to introduce as well a little bit where I work for or who I work for. So I'm working for Japan Tobacco International, which is a 100% subsidiary of Japan Tobacco. Japan Tobacco is-- was or is-- came out of the Japanese Salt and Tobacco monopoly in the 19th century. And in the late 20 century, JT, so Japan Tobacco started international acquisitions. And Japan Tobacco International is now the result of these acquisitions.

We have around 48,000 employees within JTI. Our products are available in 120 countries. We have a presence in, meanwhile, more than 100 countries. And one of our main visions is to be a global tobacco company, bringing quality innovation and reduced risk into the product. And we do invest quite a lot of efforts in our employees to become one of the employers of choice.

As mentioned, I will lead you or I will show you parts of our governance journey. And if we can go to the next slide, we can start with the-- let's say, the numbers. So in 2012, you can see that the majority of our operating cost when it came to pension was in the area of defined benefit plans.

Over the last 10 years, we were able to shift significantly our cost basis away from defined benefit into defined contribution. And if we have achieved our final stage for our largest DB plan, so a buyout for our UK plan, then this operating cost basis will even change more dramatically.

So what did we do? We had from-- as of the beginning or since I joined, we had the objective to move away from defined benefit and move towards defined contribution, either in existing countries, in emerging, or in mature countries, or as well when it came to emerging countries, to new countries.

We had, as well, other de-risking initiatives leading to DB-- to reduced DB costs. Like, we introduced for our existing DB plans or closed DB plans, so-called flight plans, in order to ensure a proper funding. And as well, some legal changes in quite a couple of countries supported the move as well, away from DB to DC.

But what does it mean in reality? So we have reduced our traditional DB risk, which was mainly financing, funding questions and long-term sustainability. But moving to the DC plans doesn't mean that no new risk or even other risks would occur.

So especially in emerging markets where the DC plans are less developed or the markets are less developed, we are facing usually quite substantial issues. And we identified that we need a strong governance model or control model in order to ensure that we want to achieve or that we achieve the objectives we want to achieve, which leads to the next slide.

The business case, where did we come from, from the DB world? Or what did we do in the DB world, which had an impact in our DC approach? So when I joined the company, it was obvious. And it was very well known that we had direct risks as a result of the big DB plans and the big DB liabilities.

So what did we do? We introduced, more than 10 years ago, 14-- basically it was nearly 14 years ago. We introduced, in the headquarter, a committee called Public Pension and Benefit Oversight Committee, which was led by the chief finance officer of JTI. But as well-- a member of the committee was, as well, the chief finance officer of JT-- of the JT group. We had treasury. We had people in culture. We had business development in this specific committee, which was created to ensure an appropriate governance around the defined benefit plans.

The focus was on the big plans that we had. And I can name them. It was the UK as the largest one, Canada, Switzerland, Germany, and Ireland. So from that perspective, there was a focus on specific plans. And as well-- that was driving, again, as well the agenda, what we are doing with this plans.

In addition, we did, on a periodic basis-- so depending as well on the size of the plan, we did additional audits, which were less focusing on the financial situation of the plant but then around the design, the administration, what is communicated to the employees, and the operation itself in order to ensure that we understand beside the financial risks, what are potential other risks?

And as a result of that, during the 10 years of the Pension and Benefit Oversight Committee, of the PBOC, we developed basically the business case or the ideas, what to do with the DC plans. So in DC plans, the major risks-- from a financial perspective-- are shifted away from the company to the employee. So that requires that we need to communicate completely different and new information to the members to ensure that they have the tools in their hands to make the right decisions for their future investments.

In addition, just investing the money-- and we invest quite a lot of money in defined contribution plans-- is not the objective. We need to ensure, as well as an employer, that we-- that the money is utilized or optimized as well in the sense for the employees.

The legislation is evolving. And basically, that requires as well quite a lot of oversight on what is happening in various countries. So what we did is we created-- out of the existing things we did anyway for the defined benefit plans, we tried to create a kind of a blueprint. And Frans will elaborate a little bit more on that one.

We used the blueprint in key markets and key plans to test whether it works or not. We established local committees mainly for the pension plans in order to ensure the awareness of the local management, who is usually a member of these plans, but as well to proactively monitor changes, potential threats that are coming; like now the inflation, the investments, the administration to ensure the communication.

And we continue with the corporate oversight governance by creating-- by closing the PBOC last year, but introducing what we now call the Corporate Pension and Benefit Committee, which is not the senior, senior executives in our company but still on a very senior level, in order to ensure that we still track all the major plans, now more focusing on defined contribution plans but still working or closing-- continuing the journey as well of the DB plans. And with having said that, I'm handing over to Frans to give a little bit more insight on what the blueprint really looks like.

FRANS BADENHORST: Thank you, Holger. It's been great to work with you on this. Just before we dive into that, just a quick note. I think it's fair to say that as you described, you've made a lot of progress with your increasing shift to DC but-- in recent years. But the journey started a long time ago. And what I'd like to do on the next couple of slides is just to demonstrate a few snapshots showing how your process evolved over time.

Oh. We want to start with the international savings plan called the SIP that you set up around 20 years ago. Now, this plan was set up specifically for a group of international assignees, a group which is important to your organization and had unique requirements. And with that in mind, you decided that it was necessary to devote a suitable amount of resource to ensure that this plan is well governed.

So with that, you consulted WTW and designed a new governance framework, which was to ensure that you are able to collaborate effectively with the different stakeholders and that you can ensure that the plan is run smoothly and those member requirements are met. So this SIP governance framework, as you said, ultimately became the blueprint for your DC governance efforts elsewhere. And we'll cover that on the next slide.

But at the heart of this framework is an oversight committee, one that in this case is actually driven by HQ, given the global nature of the plan. And of course, Holger, you currently chair this committee. And we attend the meetings with you. And in this committee, the responsibility was to establish and maintain clear objectives and strategies, which were to be monitored on an ongoing progress to make sure you meet those.

I'd like to touch on a couple of those strategies, the first one being the investment strategy. And what we've heard from what Marc said previously and what we've seen from the market recently is that it's just highlighted exactly how important it is to have a very robust, long-term strategy.

And so we worked with you some years ago to develop key investment principles based on your investment beliefs. And using those, and considering the expectation of this member's level of engagement, we developed a suitable self-select and default fund options. And I've been working with you to monitor the performance on an ongoing basis and to assess also the continued appropriateness and sustainability of those options.

So that's the first one. The other one I'd like to highlight is the member communication strategy. Yeah, we work together to devise minimum levels of annual engagement with members through newsletters, webcasts, and other technology. And importantly, you set in place a process to ensure that you're able to collect ongoing member feedback through surveys.

So those are a couple of the strategies. Obviously, there's a lot more to it. And all of this was based on our standard model and our standard supporting tools, which are highlighted below. And in the interest of time, I'd like to just pick up on one of those, which is the terms of reference document.

This is a document that we recommend for all structures like this. It's fairly simple, but it is very robust and powerful at the same time. And the purpose is to clearly highlight the structure of the committee and to spell out the roles and responsibilities and the boundaries of the committee's operation.

So we have found that this worked very well. And in fact, this whole structure worked very well and have been in place for a number of years. And, Holger, I can honestly say that in this plan, you've got a market-leading governance framework and process in place. On to the next slide, please.

So having established that framework for the SIP, the obvious next question was how you develop this elsewhere-- how to deploy this elsewhere, I should say. And we agreed that the framework that we use for the SIP was suitably robust.

And so you started encouraging this as a blueprint for other plans. And as you explained, you refined your global oversight structure accordingly. And what you did specifically was to still look for opportunities for light touch governance through master trust arrangements. But where it wasn't possible, you were able to leverage this blueprint effectively in different shapes and forms for various countries around the world, including also those countries that Michael categorized as developing.

So I'd like to touch on one example, namely the Philippines. We're looking here at a plan that is very different, of course, from the SIP; a plan with a different membership, with different requirements, and also in a market that have comparatively less sophisticated provider offerings. And so we devised a way to apply the SIP blueprint, making some adjustments, and applying it as shown on the next piece that will come soon. Thank you, Brigid.

I'd like to just touch on a few of those nuances that had to be considered for the Philippines' retirement plan compared to the standard blueprint, if I can call it that, from the SIP. Firstly, on the stakeholders, there is no trust law in the Philippines. So we established early on that it was necessary to clarify fiduciary duties clearly in the same way that we defined the trustees' role in the SIP.

The second point is on the oversight committee. Here, this committee was driven locally. But you determined that there was a need for central support. And so together, we have been offering training to your local team and providing ongoing oversight.

In terms of investment and member communication strategies, here we had to, again, consider the different population profile and their different requirements. And we were able to leverage our tools and resources in an efficient way. Finally, in terms of risk, we helped you identify risks that are unique to this plan, including the emerging sovereign debt risk, which is becoming increasingly important these days.

So that just gives a flavor of some of the nuances to this plan and the way we adjusted the model accordingly. I could honestly say, again, that this has worked really well. It's three years in. And it just shows the robustness of the blueprint. And, Holger, with that, I would like to pass on to you to just reflect on the lessons that you've learned and what the future holds.

HOLGER BALNOJAN: Thank you very much, Frans. So basically, the first lesson I learned is that "one size fits all" doesn't really work. So you have to adapt each framework, each-- whatever your framework will look like in the future needs to be adapted to the local circumstances. What is very, very important, in our case, we shifted clearly the responsibilities for the plans to the locals. Whether you do that or not, what is very important is to clarify the responsibilities and the roles. So whether you are centrally led or locally driven, it needs to be clear who is able or who is allowed to do what.

You need to ensure that the people on the ground understand what they have to do and that most probably, they will need support from external parties like consultants. Not to forget having in mind that all of that needs to be consolidated at headquarters-- at headquarter level to be able to report in a sustainable way, as well, forward.

What Frans mentioned, we tried to expand the network or the framework with any new plans, or even existing plans to slightly change the setup in the countries-- not only focusing on the pension plans in the country but expanding the framework as well to other benefits. Clearly assign the ownership to the local committees to determine as well the principles on which we base our benefits in the company and based on that, to come up with a strategy that is clear to everybody in the countries.

What is, from my perspective so far over the last 10 to 12 years, definitely the biggest challenge is to put a robust reporting in place. That really is, let's say, you push the button, and you get the data. So far, we haven't that in place. So this is, I think, a journey that just started and what we do from a corporate perspective. Because our company goes through a transition, so we are still refining some of the elements of the global oversight structure. And having said that, I'm quite done so if somebody else wants to continue.

ANNA BUDNIK: Thank you. Thank you, Holger. That was very, very helpful. Thanks to all of our speakers. We do have a few questions. And maybe, Holger, since you were just speaking, I may go ahead and ask you the first one. So what would you say, you know, do you see as major advantages and maybe some of the disadvantages, or concerns with having a global structure for defined contribution governance versus maybe very highly specialized and having a local running with this on their own, from a local perspective? So any of your perspectives on that, now that you've done this for-- I guess, for many years.

HOLGER BALNOJAN: Well, I have to explain a little bit our situation. So I'm running with very few resources. So my team is very small. And I'm mainly working with external consultants. So I'm working, as well, as a consultant for the countries. If you have the resources to put really robust structures locally in place, this is definitely a solution, a way you can go forward.

But for us within the countries-- because the SIP is the example. We have lots of people moving around on different levels. So we cannot ensure a robust continuation everywhere. So for us, the advantage is to have it more centrally or to have it a little bit more tweaked towards the center versus the local. But that depends, from my perspective, on the situation of each company and the resources you have available.

ANNA BUDNIK: Thank you. And maybe I can touch on maybe one question that was asked. And someone asked for the tracking and the reporting for defined contribution plans. What does that look like? What are the tools? What types of dashboards? And that is one that I think we do work very much with clients on looking at, what would be that data that's going to be important for managing?

First and foremost, a lot of organizations are still even in the process of getting their arms around, what are all the DC plans we even have around the world? So even an inventory of the various programs, and are they the statutory mandatory versus maybe supplemental? So I think that is one basic.

And then from there, OK, we've gathered data on these programs. What are they costing us? What are the contributions? How are they being utilized? What's the asset levels? We even get into-- especially now with what's happening on the investment side is, what are the investment offerings? And again, how are those being utilized from an employee behavior perspective?

And I do think that that is very important as you start to think about global governance and central governance is really having that framework. And it also helps you prioritize. If you see that maybe in a country there's too many options, or not enough robust options, or there aren't communications, et cetera, it helps you focus. So definitely, I know a lot of our clients. And it's something that once it gets set up, it's very, very useful. So I think reporting is very, very critical.

There were a couple of other questions, so let me just go through here quickly. So maybe, Michael, I'll ask you this question. Someone asked, what's your opinion on the best approach for managing defined contribution plans maybe in countries where there's very small headcount? So your perspectives on that would be very helpful, Michael.

MICHAEL BROUGH: So I think what some organizations like to do when they have small head counts is either do a short-term fix, which is to pay contributions for a period of time until they get a bigger head count and then can meet minimums for local countries. Or if that's not satisfactory, then to look instead at whether they can use a cross-border arrangement, for example. And if they have one within their organization, then you can put small head count countries for periods of time into those arrangements.

But there is often no perfect solution. It's a case of just looking at the countries and figuring out, what are the minimums to-- that you need to get into a group arrangement in those countries? Or can you use a cross-border arrangement? Or do you use cash for a period of time until the head count gets bigger?

ANNA BUDNIK: My God, OK, thank you. Thank you, Michael. We had a couple of more specific questions. So I think I will address those maybe at a high level. And then we can get more robust answers to follow up, following the webcast. So there was a question around-- Marc had mentioned that annuity rates are improving as a result of the yields increasing. And that was valid for the UK. And do we see this in other markets?

And I would say yes. I mean, we are seeing yields rising all around the world. Of course, it also depends on credit spreads. It depends on buying power. So that's where inflation comes into play. So it's not a "one size fits all" across the globe. But this is definitely-- in this environment that we're in, there's definitely been an interest in looking at annuities. Not only from purchasing annuities where you have maybe legacy-defined benefit obligations, but also looking at, is there an opportunity to perhaps introduce an annuity option for participants to have some of that security from longevity-- and introducing that in some of the plans. So definitely, I would say this would be a good time to explore that.

There was also a question specific, again, very specific but on Switzerland, and where Switzerland might fit in terms of the stages of development from what Michael presented. I would say there, we probably see the defined benefit market, probably more well defined in Switzerland, probably a little bit more development that we might be able to see in Switzerland. But I think for something that's specific, we are happy to follow up and have a discussion with some of our experts in the country. So we're definitely happy to have any questions that come up from any of you on the call. Please let us know if you'd like to maybe have a more specific discussion there.

There was another question around-- in terms of operating on a global governance model. And what are some of the adjustments that are being made, given the current environment? And again, as we know, with what's been happening with the volatility in the markets and inflation and everything else, there's definitely a lot more interest and a lot more action from corporate to actually start to look at these programs.

Again, I think Holger mentioned it. There's a significant amount of assets that are held in these programs. In fact, Michael even mentioned-- I mean, defined contribution assets are surpassing what are even in defined benefit assets around the world. So definitely worth a focus on, are those investments appropriate? Are the fees in line with market? Are there any efficiencies? How are employees utilizing? And do they even understand?

Because all of this is about improving outcomes not only from the organization but also, of course, from the end user or the employees who-- as we know, when you move to defined contribution, a lot of that risk falls onto the employees.

Let me see if we have any other questions. And I'm pleased if there are any. Please enter them into the chat. Again, the lower right hand corner, you'll see the little bubble. You can answer-- enter your questions there. If we can't get to them in the next couple of minutes, absolutely we will follow up after the call.

Let me see if there's any other ones. Let me look up here. Looks like we've addressed most of the questions. So I think in closing, I want to thank all of our speakers and especially Holger, all the time that was spent in preparing and presenting. And we really, really appreciate it. So thank you very much.

And as I mentioned at the beginning, the session is being recorded. We will follow up with the recording. And we will send out the slides. And absolutely, if you have any other questions or any needs to continue any discussion, please do reach out to all of us. So with that, Brigid, I will ask that you close the session today. Thank you, everyone.