How to set up an employee pension plan in Southeast Asia

I am a manager of a footwear production company, with factories and operations in Vietnam, Myanmar, Malaysia and Cambodia. I started the company with three partners about two years ago. Since then the company has become profitable, but at the same time we face more competition from similar companies entering the market. Because of this we would like to improve our employee recruitment drive and begin hiring some of the best professionals in the industry, as well as the best graduates from overseas universities. We’ve figured that expanding our employee benefits, through group healthcare plans, would be one strategy. We would also like to explore the viability of setting up a company pension plan for the benefit of our employees, as many of our multinational competitors do. Would this be possible from here?

Expanding your employee benefit options is most definitely a key element of a robust recruitment strategy, particularly in frontier Asia, as many prospective employees are drawn to regional metropoles like Singapore and Hong Kong, and can often feel uncomfortable accepting a positions in, say, Myanmar from abroad. Quality employee benefits, through pension and healthcare provisions, are great ways to attract top talent and differentiate your SME from competitors.

It is, in fact, possible to set up a company pension scheme for the benefit of your employees, also known as an occupational retirement scheme. Various companies providing fiduciary services (trustees) will be able to construct your scheme/plan, which would be tailored according to the needs and requirements of your organization.

Selecting the correct jurisdiction from which your plan will be constructed and administered is of particular importance. Hong Kong is quite attractive, as the introduction of the Occupational Retirement Schemes Ordinance in 1993 brought Hong Kong into line with other jurisdictions that incentivize pension provision for employees—income tax relief may be available at the time of investment, accumulated interest is not taxed and withdrawal is also tax-free. Hong Kong also has a growing network of tax treaties that can assist in avoiding pension-related tax liabilities in the employee’s home country.

One of the Hong Kong-based firms specializing in the construction of occupational retirement schemes is Sovereign Trustees Limited. They would be able to construct and administer what is known as a “defined contribution” plan; for example where the employer and employees make joint contributions to the plan, and the employees are entitled to benefits based on total contributions plus interest at retirement. This is a contrast to defined benefit (final salary) schemes, which guarantee employees a fixed income during retirement, regardless of the performance of the underlying investments. You would thus be shifting risk from your company to your employees.

Your company would have the option to dictate specific rules within the plan, such as the minimum retirement age and what percentage of an employee’s salary the company will contribute to a plan. Employees do not need to be residents in Hong Kong to be members of a plan; therefore employees operating in various regions will be able to become members. Employees are able to contribute as much to the plan as they like, and may remain members when they leave the company

Once the scheme has been constructed and is able to accept contributions, the underlying funds would have to be invested in order to realize interest and growth over-and-above inflation to maintain your members’ purchasing power during retirement. With interest rates at historically low levels, it would be necessary to invest in corporate equities, bonds and possibly real estate. Tenzing Pacific provides investment advisory services, and would be able to construct a portfolio of active mutual fund managers or direct equity, bond and commodity investments, on behalf of your plan, subject to your requirements and restrictions.

BIOSven Roering is a Managing Partner at Tenzing Pacific Investment Management. He holds an Economics Degree from Rhodes University in South Africa, and is a candidate in the Chartered Financial Analyst (CFA) program, having successfully completed level 1 and is currently working towards the level 2 exam.