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

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Presentation on theme: "ING Group and Pension Funds: International Differences Drs. Peter de Bruijne AAG MBA Armenia - 29 May 2005."— Presentation transcript:

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

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

3 3 Agenda ING Group as source of my experience Pension Funds Value chain ING examples from the Value Chain 1.Technology 2.Administration 3.Marketing 4.Distribution 5.Client-Service Relevance for Armenia?

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

5 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 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 Banking Insurance Asset Management Operations Ukraine United Kingdom Last update: March 2005

6 6 Operating profit before tax in EUR million %change Insurance 4,005 3, Europe1,7331, Americas1,6691, Asia / Pacific Other Banking 3,4142, Wholesale Banking1,9321, Retail Banking1,1701, ING Direct Other Total ING Group 7,4195, Profit contribution of business lines* *Excludes component other in banking and insurance Europe 22% Americas 22% Asia / Pacific 10% Wholesale Banking 25% Retail Banking 15% ING Direct 6% Insurance A good balance of businesses

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

8 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 9 Pension Funds Private financial institutions with purpose to provide retirement income from invested funds

10 10 Asset management & Risk Management Pension Scheme development AdministrationDistribution 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

11 11 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

12 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

13 13 National Culture Example UAI Uncertainty Avoidance Index Flexible Pragmatic Gamble Rules/regulations Conservative Control

14 14 Cultures 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 15 Hypothesis rejected Hypothesis not rejected P < 1 Promille incorrect Culture explains 55% of Equity investments non OECD OECD Culture explains Asset Allocation ?

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

17 17 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

18 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 2 nd sales moment with commission expenses Will concentrate the longevity risk Will create more focussed companies Will promote lump sum payments Dependents? Disability? Choice?

19 19 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

20 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 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 InvestmAdmin

22 22 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

23 23 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 (1 st Q 2005): 32% Advertising in media 23% Mediators 16% Acquaintances 9% Publications 8% Independent experts

24 24 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

25 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 Q 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 26 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

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

28 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 change the method and frequency of supplementary pension insurance payments Application to suspend payments Application to change or add a beneficiary (beneficiaries) Application to change or add a beneficiary (beneficiaries) We used to let the actuaries and lawyers decide on texts: DONT Keep the ultimate reader in mind

29 29 Asset management & Risk Management Pension Scheme development AdministrationDistribution Support and customer service Value Chain adjusted for Pension (McKinsey and Co) Marketing technology product design manufacturing marketing distribution service 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

30 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 INGs international experience


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