Q. I am a manager of a footwear production company with international factories and operations in Vietnam, Myanmar, Malaysia and Cambodia. I started the company with three other partners about two years ago. Since then, the company has become steadily profitable; but we’re also facing more competition from other firms catering to our specific product niche who have entered the market. Because of this increased competition, 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 international universities.
We believe that expanding our employee benefits through group health-care plans, would be one strategy to attract top talent. 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?
Sven Roering, Managing Partner at Tenzing Pacific Investment Management, advises:
A: Expanding your employee benefits offering is certainly a key element of a robust international recruitment strategy, particularly in frontier Asia. You may find that many prospective employees are drawn to regional metro-poles such as Singapore and Hong Kong, and can often feel uncomfortable accepting positions from other Asian countries. This is why providing quality employee benefits such pension and healthcare provisions is a sensible way to attract top talent and differentiate your business from competitors.
I would suggest setting 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 an attractive option:
- 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
- Withdrawal is 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
- Employees do not need to be residents in Hong Kong to be members of a plan; therefore employees operating in various international regions will be able to become members
One of the Hong Kong-based firms specializing in the construction of occupational retirement schemes is Sovereign Trustees Limited. They are able to construct and administer what is known as a ‘defined contribution’ plan – 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 different to ‘defined benefit’ (final salary) schemes, which guarantee employees a fixed income during retirement, regardless of the performance of the underlying investments.
A ‘defined contribution’ would thus be shifting risk from your company to your employees.
Your company has the option to dictate specific rules within the plan, such as:
- The minimum retirement age
- What percentage of an employee’s salary the company will contribute to a plan
- Employees are able to contribute as much to the plan as they like, and may remain members if leaving the company
Once the scheme has been set up 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. For professional financial advice, don’t hesitate to get in touch with TPIM for private wealth management across Southeast Asia and beyond: http://tpim.co/contact-us/.