1. ING Group and Pension Funds: International Differences
Drs. Peter de Bruijne AAG MBA
Armenia - 29 May 2005

2. This Presentation is about ...
... the influence of culture on ...
… pension, as basis of a healthy long life.

3. Agenda ING Group as source of my experience Pension Funds Value chain
ING examples from the Value Chain
Technology
Administration
Marketing
Distribution
Client-Service
Relevance for Armenia?

4. Peter de Bruijne ..1988 actuary
manager life insurance in Netherlands in Curaçao (Caribbean)
chairman of 3rd pillar open pension fund in Czech Republic (€ 10 - € 100 m)
advisor employee benefits for ING in HU, ESP, GRE, RUS, LUX, UKR, GER
board member 2nd pillar occupational fund in Netherlands (€ 8 bn)
advisor Financial Institutions Insurance : Sri Lanka, UAE, Mongolia Pension : Antilles, el Salvador, Nigeria

5. ING Global Network
ING operates in 50 countries and employs 115,000 employees world-wide
Europe
Austria
Belgium
Bulgaria
Czech Republic
France
Germany
Greece
Hungary
Ireland
Italy
Luxembourg
Netherlands
Poland
Portugal
Romania
Russia
Serbia & Montenegro
Slovak Republic
Spain
Switzerland
Turkey
Asia/Australasia
Australia
New Zealand
China
Hong Kong
India
Indonesia
Japan
Kazakhstan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Ukraine
United Kingdom
Africa/Middle East
Iran
United Arab Emirates
North America
Mexico
United States
Canada
South America
Argentina
Brazil
Chile
Cuba
Curaçao
Peru
Operations
Wholesale Banking
Insurance
Asset Management
Last update: March 2005

6. A good balance of businesses
Operating profit before tax
2004 Profit contribution of business lines*
in EUR million
2004
2003
%change
Insurance
4,005
3,486
14.9
ING Direct 6%
Insurance
Europe
1,733
1,791
-3.2
Europe
Retail
22%
Americas
1,669
1,310
27.4
Banking
Asia / Pacific
751
411
82.7
15%
Other
-148
-26
Banking
3,414
2,371
44.0
Insurance
Wholesale Banking
1,932
1,272
51.9
Americas
Wholesale
22%
Retail Banking
1,170
1,058
10.6
Banking
25%
Insurance
ING Direct
432
151
186.1
Asia / Pacific
10%
Other
-120
-110
Total ING Group
7,419
5,857
26.7
*Excludes component ‘other‘ in banking and insurance

7. ING Advisory concept Asset Management Insurance Wholesale Banking
Retail
Banking
ING Direct

8. 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

9. Estimated real asset growth
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.
Kazakhstan
Ukraine
Bulgaria
Romania
Mexico
Peru
Chile
Columbia
Argentina
Uruguay
Cuba
Venezuela
Swiss
South Africa
Czech
Hungary
AUS
Greece
India
Taiwan(1)
Sweden
Brazil
Norway
Australia BE
Lux
Finland
Denmark
Poland
Japan
France
UK (USD 6 trillion)
Ireland
US (USD 24 trillion)
Canada
NL (USD 1.3 trillion)
Estimated real asset growth

10. Value Chain Influence of culture on the value chain often discussed
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
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

11. Value Chain differences from ING
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
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

12. 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
Uncertainty Avoidance This dimension refers to how comfortable people feel towards ambiguity. Cultures which ranked low (compared to other cultures), feel much more comfortable with the unkown. As a result, HIGH uncertainty avoidance cultures prefer formal rules and any uncertainty can express itself in higher anxiety than those from low uncertainty avoidance cultures.
Power Distance According to Hofstede & Bond (1984), power distance is defined "as the extent to which the less powerful members of institutions and organizations accept that power is distributed unequally" (419). In other other words people in high power distance cultures are much more comfortable with a larger status differential than low power distance cultures.
Masculinity-Femininity This dimension tends to draw unwarranted criticism for its name alone. It basically refers expected gender roles in a culture. The cultures that scored towards what Hofstede referred to as "masculine" tend to have very distinct expectations of male and female roles in society. The more "feminine" cultures have a greater ambiguity in what is expected of each gender.
Individualism-Collectivism This dimension is the same as that proposed by Hall and was verified in Hofstede's study ( and other studies time, and time again).

13. National Culture Example UAI
Uncertainty Avoidance Index
Flexible
Pragmatic
Gamble
Rules/regulations
Conservative
Control
Uncertainty Avoidance This dimension refers to how comfortable people feel towards ambiguity. Cultures which ranked low (compared to other cultures), feel much more comfortable with the unkown. As a result, HIGH uncertainty avoidance cultures prefer formal rules and any uncertainty can express itself in higher anxiety than those from low uncertainty avoidance cultures.
Uncertainty Avoidance
Stems from the basic observation that the future is unknown and always will be. Some societies accept this uncertainty more easily than others, one could qualify them as being more philosophical. One can also link this factor to conservatism, in case of high uncertainty avoidance (e.g. Singapore).
With higher uncertainty avoidance comes the belief that dissidence is dangers, time is money and a need for written rules and regulations along with a belief in experts
Lower uncertainty avoidance indicates an acceptance of dissent, time is free, few rules, more risk, belief in generalist and common sense
RISK-ORIENTED STRUCTURE-ORIENTED
Flexibility. Rules should fit situations and may be broken Rules and procedures are specified and should not be broken
Pragmatism, practical principles Philosophical, normative rules
Risk-taking Conservative
Relatively open towards different or marginal people Relatively intolerant vis-a-vis original or marginal people
Information to share is power Information held is power

14. 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”.

15. Culture explains Asset Allocation ?
non OECD OECD
Hypothesis rejected
Hypothesis not rejected
P < 1 Promille incorrect
Culture explains 55% of Equity investments

16. Example Chile: influence of asset size
Expansion of investment freedom

17. Value Chain differences from ING
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
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

18. 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?

19. Value Chain differences from ING
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
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

20. 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)

21. 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
Investm
Admin

22. Value Chain differences from ING
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
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

23. Marketing: Promotion Price: Product: Work Site marketing
Sources used in Slovakia (1st Q 2005):
32% Advertising in media
23% Mediators
16% Acquaintances
9% Publications
8% Independent experts
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

24. Value Chain differences from ING
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
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

25. Distribution: + re-distribution!
Slovak Republic
mediators
savers (in week 16)
Initially estimated potential 1.1 – 1.3 million savers
Maximal potential 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

26. Value Chain differences from ING
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
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

27. Service: decide by Market or Legislation
Dutch market self-regulation on indexation
Category indexation Policy Payment Proposed Proposed Scheme Text Communication
Source: OPF

28. 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

29. Value Chain differences from ING
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
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

30. 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