ing group and pension funds: international differences drs. peter de bruijne aag mba armenia - 29...

ING Group and Pension Funds:International Differences

Drs. Peter de Bruijne AAG MBAArmenia - 29 May 2005

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This Presentation is about ...

... the influence of culture on ...

… pension, as basis of a healthy long life.

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Agenda

• ING Group as source of my experience

• Pension Funds

• Value chain

• ING examples from the Value Chain1. Technology2. Administration3. Marketing4. Distribution5. Client-Service

• Relevance for Armenia?

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Peter de Bruijne

• ..1988 actuary• ..1997 manager life insurance

in Netherlands in Curaçao (Caribbean)

• 1997-2000 chairman of 3rd pillar open pension fundin Czech Republic (€ 10 - € 100 m)

• 2001-2004 advisor employee benefits for ING in HU, ESP, GRE, RUS, LUX, UKR, GER

• 2001.. board member 2nd pillar occupational fundin Netherlands (€ 8 bn)

• 2004.. advisor Financial InstitutionsInsurance : Sri Lanka, UAE, Mongolia Pension : Antilles, el Salvador, Nigeria

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ING Global Network ING operates in 50 countries and employs 115,000 employees world-wide

EuropeAustriaBelgiumBulgariaCzech RepublicFranceGermanyGreeceHungaryIrelandItalyLuxembourgNetherlandsPolandPortugalRomaniaRussiaSerbia & MontenegroSlovak RepublicSpainSwitzerlandTurkey

Africa/Middle East

Iran

United Arab

Emirates

Asia/Australasia

Australia

New Zealand

China

Hong Kong

India

Indonesia

Japan

Kazakhstan

Malaysia

Philippines

Singapore

South Korea

Taiwan

Thailand

North America

Mexico

United States

Canada

South America

Argentina

Brazil

Chile

Cuba

Curaçao

Peru Wholesale BankingInsuranceAsset Management

Operations

UkraineUnited Kingdom

Last update: March 2005

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Operating profit before tax

in EUR million 2004 2003 %change

Insurance 4,005 3,486 14.9

Europe 1,733 1,791 -3.2

Americas 1,669 1,310 27.4

Asia / Pacific 751 411 82.7

Other -148 -26

Banking 3,414 2,371 44.0

Wholesale Banking 1,932 1,272 51.9

Retail Banking 1,170 1,058 10.6

ING Direct 432 151 186.1

Other -120 -110

Total ING Group 7,419 5,857 26.7

2004 Profit contribution of business lines*

*Excludes component ‘other‘ in banking and insurance

Europe22%

Americas22%

Asia / Pacific10%

Wholesale Banking

25%

Retail Banking

15%

ING Direct6% Insurance

Insurance

Insurance

A good balance of businesses

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ING Advisory concept

www.ingadvisory.com

AssetManagement

InsuranceWholesaleBanking

RetailBanking

ING Direct

BankingRisk and Capital

ManagementInsurance

and Pensions

SHARING AND TRANSFERRING THE KNOWLEDGE

OF ING GROUP GLOBALLY

ING ADVISORY

Performance Scan

Restructuring

Postal Financial Services

Basle II

NPL Restructuring

Anti-money Laundering

Pension fund Establishment

Asset Management

Bancassurance

INTERIM MANAGEMENT and TECHNICAL ASSISTANCE

Asset Management

InsuranceWholesale Banking

RetailBanking

ING Direct

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Build on our skills and experiences:

We will tell from our own experience

We can show you our best practices

We like to help with implementation

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Pension Funds• Private financial institutions with purpose to

provide retirement income from invested funds

Commercially and non-commercially available assets (total pillar II and III)Source: BCG-database, BCG growth projections, in co-operation with ING

2002

2015

Slovakia

Portugal

Egypt

Turkey

Israel

New Zealand

Hong Kong

South Korea

Italy

NL

Germany

DK

Spain

UK

US

Thailand

Philippines

Indonesia

Singapore

Malaysia

China

Morocco

SI

Croatia

RUS

Iran

U.A.E.

KazakhstanUkraine

BulgariaRomania

Mexico

Peru

Chile

Columbia

ArgentinaUruguay

Cuba

Venezuela

Swiss

South Africa

Czech

Hungary

AUS

Greece

India

Taiwan(1)

Sweden

Brazil

Norway

Australia

BELux

Finland

Denmark Poland

Japan

France

UK (USD 6 trillion)

Ireland

US (USD 24 trillion)

Canada

NL (USD 1.3 trillion)

Estimated real asset growth

2002 - 2015

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Asset management& Risk Management

Pension Scheme development

Administration Distribution

Support and customer service

Value Chain adjusted for Pension (McKinsey and Co)

Marketing

technology product design manufacturing marketing distribution service

Value Chain

Influence of culture on the value chain often discussed• Service • Distribution Barney, Jeannet & Hennessey,• Marketing Hodgetts & Luthans, Kotler• Manufacturing• Product design - Hempel, Herkenhoff• Technology - not well described

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Marketing


Value Chain differences from ING

• Service : Communication in NL & Czech Rep.• Distribution : ING in Slovak Republic & Russia• Marketing : Examples from Poland & Czech

Rep.• Manufacturing : Administration issues from Poland• Product design : Pension Scheme from Czech Rep.• Technology : Asset allocation in Chile

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National Culture• “National culture is defined as the values, beliefs, and

assumptions that are learned in early childhood and distinguish one group of people from another (Hofstede 1991)”

• Hofstede Culture-Dimensions (1980)• Uncertainty Avoidance (UAI)• Power Distance (PDI)• Masculinity-Femininity (MAS)• Individualism-Collectivism (IDV)+ Long Term Orientation (LTO, 1991)

>70 Countries

Country Culture Index: PDI UAI IDV MAS LTOaaa PDI UAI IDV MAS LTO1 Africa East 64 52 27 41 252 Africa West 77 54 20 46 163 Arab region 80 68 38 534 Argentina 49 86 46 565 Australia 36 51 90 61 316 Austria 11 70 55 79 317 Bangladesh 80 60 20 55 408 Belgium 65 94 75 54 389 Bolivia estimate PdB 60 80 20 40

10 Brazil 69 76 38 49 6511 Bulgaria 70 85 30 4012 Canada 39 48 80 52 2313 Chile 63 86 23 2814 China 80 30 20 66 11815 Colombia 67 80 13 6416 Costa Rica 35 86 15 2117 Croatia 73 80 33 4018 Czech Republic 57 74 58 57 1319 Denmark 18 23 74 16 4620 Ecuador 78 67 8 6321 Estonia 40 60 60 3022 Finland 33 59 63 26 4123 France 68 86 71 43 3924 Germany 35 65 67 66 3125 Great Britain 35 35 89 66 2526 Greece 60 112 35 5727 Guatemala 95 101 6 3728 Hong Kong 68 29 25 57 9629 Hungary 46 82 80 88 5030 Iceland estimate GH 31 50 69 8 4431 India 77 40 48 56 6132 Indonesia 78 48 14 4633 Iran 58 59 41 4334 Ireland 28 35 70 68 4335 Israel 13 81 54 4736 Italy 50 75 76 70 3437 Jamaica 45 13 39 6838 Japan 54 92 46 95 8039 Korea South 60 85 18 39 7540 Latvia estimate PdB 80 90 50 5041 Luxembourg 40 70 60 5042 Malaysia 104 36 26 5043 Malta 56 96 59 4744 Mexico 81 82 30 6945 Morocco 70 68 46 5346 Netherlands 38 53 80 14 4447 New Zealand 22 49 79 58 3048 Norway 31 50 69 8 4449 Pakistan 55 70 14 50 050 Panama 95 86 11 4451 Peru 64 87 16 4252 Philippines 94 44 32 64 1953 Poland 68 93 60 64 3254 Portugal 63 104 27 31 3055 Romania 90 90 30 4256 Russia 93 95 39 3657 Salvador 66 94 19 4058 Serbia 86 92 25 4359 Singapore 74 8 20 48 4860 Slovakia 104 51 52 110 3861 Slovenia 71 88 27 1962 South Africa 49 49 65 6363 Spain 57 86 51 42 1964 Surinam 85 92 47 3765 Sweden 31 29 71 5 3366 Switzerland 34 58 68 70 4067 Taiwan 58 69 17 45 8768 Thailand 64 64 20 34 5669 Trinidad 47 55 16 5870 Turkey 66 85 37 4571 United States 40 46 91 62 2972 Uruguay 61 100 36 3873 Venezuela 81 76 12 7374 Vietnam 70 30 20 40 80

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National Culture Example UAIUncertainty Avoidance Index

Flexible

Pragmatic

Gamble

Rules/regulations

Conservative

Control

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Culture’s influence on Asset Allocation

Hypothesis:

“In countries with a higher uncertainty avoidance index (UAI) pension funds will invest less in equity than in countries with lower uncertainty avoidance index”.

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Hypothesis rejected Hypothesis not rejectedP < 1 Promille incorrect Culture explains 55% of Equity investments

UAI Line Fit Plot

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

0 50 100 150

UAI

%S

har

es

%Shares

Predicted%Shares

UAI Line Fit Plot

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

0 50 100 150

UAI

%S

har

es

%Shares

Predicted%Shares

Dimension r-square Co-efficient significance-F

UAI 0,47 -0,55 *** 0,000089PDI 0,24 -0,56 ** 0,008953IDV 0,41 0,64 *** 0,000336MAS 0,07 -0,20 ns 0,180568LTO 0,00 0,05 ns 0,794375

Dimension r-square Co-efficient significance-FUAI 0,03 -0,10 ns 0,452466PDI 0,00 0,04 ns 0,780873IDV 0,01 -0,09 ns 0,632970MAS 0,00 0,00 ns 0,991557LTO - - - -

non OECD OECD

Culture explains Asset Allocation ?

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Example Chile: influence of asset size• Expansion of investment freedom

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Marketing





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Pension Scheme Development• Objective?

• Capital Market Development? > Savings > OP or MuF : Chile• Ageing problem? > Funding > OP + WP : Western EU• Source Diversification > Multi pillar > WB-5 pillars : West Africa

• Characteristics?• Build-up phase only?

• Will shorten investment duration (and lower yield)

• Will create 2nd “sales moment” with commission expenses

• Will concentrate the longevity risk

• Will create more focussed companies

• Will promote lump sum payments

• Dependents?• Disability?• Choice?

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Marketing





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Administration - Manufacturing• Operational

• Mandatory or Voluntary Pension• Legal contract requirements (# signatures)

• Underwriting requirements• Technical• Medical• Money Laundry

• Required interfacing • Employer• Supervisor• Tax authority• Post (addresses)

• Clients (internet)

• Standardisation• Straight through processing• Faultless basic data (id)

NAV and number of members

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

99/05

99/12

00/06

00/12

01/06

01/12

02/06

02/12

03/06

03/12

04/06

04/12

bln

PLN

0,00

2,00

4,00

6,00

8,00

10,00

12,00

mln

net assets value (ls) members (rs)

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Administration - Legal Organisation• Trust/foundation (NL)

• + no strings attached• - no transparency

• Mutual (HU)• + power with involved people• - none financial decision making

• Stock company (CR)• + clear transparent legal structure• - shareholder has different interests than Fund

• On Balance rights (Germany)• + good for cash-flow position of employer• - stay dependent on employer

• Outsourcing: in NL, CR, Pol, Hu, UK, etc.PF

InvestmAdmin

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Marketing





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Marketing:• Promotion

• Important in retail market

• Price:• Commission important in broker-agent

market (CR)• Timing even more than amount

• Yield important in commodity market

• Product: • Quality important for Wholesale market

• Solvability, employer interfacing, investment strategy

• Quality important for transfer market• Client operational processes• Awards (Poland)

• Work Site marketing

Sources used in Slovakia (1st Q 2005):

32% Advertising in media

23% Mediators

16% Acquaintances

9% Publications

8% Independent experts

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Marketing





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Distribution: + re-distribution!

• Slovak Republic• 30.000 mediators• 780.000 savers (in week 16)

• Initially estimated potential 1.1 – 1.3 million savers

• Maximal potential 1.9 - 2.2 million people

• Broker market: B2A2C• ING was retail Insurance Co• ING has high name

recognition (>85%)

• > Chile, CR, Poland

• Russia• In house team of 5 fte• 2 clients in Q1 2005

• 1 client of 5000 empl

• Maximal potential >10 mln people in Moscow

• Wholesale market: B2B• ING is wholesale Bank in RU• ING is well known as FI in RU• Needs no promotion budget

• > NL, Belgium

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Marketing





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Service: decide by Market or Legislation• Dutch market self-regulation on indexationCategory indexation Policy Payment Proposed Proposed

Scheme Text Communication

Source: OPF

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Service: Communication

KISS!• Keep• It• Straight & • Simple

Dear client,

we have also provided you with the option of notifying us of changes or of carrying out amendments to your contracts via the Internet.

Application to change personal details

Application to change the method and frequency of supplementary pension insurance payments

Application to suspend payments

Application to change or add a beneficiary (beneficiaries)

We used to let the actuaries and lawyers decide on texts: DON’T

Keep the ultimate reader in mind

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Marketing





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Relevance for Armenia?Needs influenced by culture!

• Listen• Ask questions• Understand “why”

•Do Not Copy !! Make your own meal• Use expertise of public and private sector• Use ING’s international experience

ing group and pension funds: international differences drs. peter de bruijne aag mba armenia - 29...

Documents

ing service

chile slide

nigeria slide

described slide

implementation slide

pension mckinsey

mongolia pension

ing global network ing