He said an increasing number of such companies had found a home at the industry-wide scheme “not only because it was mandatory but also on a voluntary basis”.Over the past six years, PME has seen its pension assets grow by €6.8bn to the current €34bn after 26 pension funds joined the scheme.PME said it was currently in talks with a number of other pension funds and their sponsors about joining. The pension fund of space technology firm Dutch Space has voluntarily joined PME, the €34bn industry-wide scheme for the metal and electro-technical engineering industries in the Netherlands.The €115m pension scheme of the space company will add 225 participants to PME’s population of approximately 630,000, affiliated with almost 1,300 companies.Commenting on the transfer, Pieter Pieterse van Wijck, chairman of the joining scheme, said it had found a “reliable and future-proof” pensions solution in PME.Hans van der Windt, general director at PME, pointed out that other high-tech companies such as Siemens, Canon and Océ had already joined the metal scheme.
“This continuing deficit and the volatility which exists within the scheme funding position mean that there are some difficult decisions to make in the coming year.”USS said it is currently working with scheme stakeholders to “develop an appropriate response” to the expected deficit, which included a wholesale covenant analysis of the scheme’s sponsors.The open fund is also looking at closing off its final salary section and moving all members to career-revalued earnings (CARE) benefits – which it began providing in 2011 – after the final salary section shut to new members.Over the last financial year the fund’s investments, 85% of which are managed in-house, performed relatively well, backed by rising equities.Its 7.6% investment return was demonstrated by a £3bn rise in the value of the fund as USS’ internal team delivered a 7.9% return on investments, 1.4% above its benchmark.Despite positive returns from equities, the fund continued its divestment of the asset class in favour of longer-term alternatives.It reduced its equity exposure from 50.3% to 43.8% over the year, continuing a decline that saw it reduce holdings by almost 30 percentage points since 2009.Infrastructure saw its share of the fund rise from 3.6% to 5.1% as USS continued its investment belief by purchasing holdings in Heathrow Airport and air traffic control business NATS.USS also bumped up its fixed income exposure by 8.3 percentage points, shifting assets towards sovereign debt and increasing its liability-hedging portfolio – which looks to reduce inflation and interest rate risks.Its longer-term investment strategy could change after consultation of the fund’s stakeholders is completed, Harris said.Due to auto-enrolment, the fund increased its membership by 4% over the year, adding in 31,000 members to the CARE section, which now accounts for a third of the fund. The £41.6bn (€50.3bn) Universities Superannuation Scheme (USS) saw a 7.6% return in its last financial year as it continued to consult on resolving its funding shortfall.The scheme, which provides benefits to the UK’s higher education sector, had a deficit of £7.2bn at the end of March 2014, a fall of £4.3bn from a year previous as liabilities reduced on the back of rising Gilt yields and relatively successful investment performance.However, the 319,000-member scheme is now undergoing its triennial review which is expected to reveal a more substantial deficit, according to USS chairman Sir Martin Harris.“We anticipate that, once the formal valuation is complete, we shall continue to report a substantial deficit,” Harris said in the fund’s annual report.
European pension funds have moved away from the belief that asset allocation drives investment returns after having grasped the true impact of internal governance, research has showed.A survey of 190 European pension funds conducted by CREATE-Research showed that schemes were increasingly aware of the concept of ‘implementation leakage’.Speaking at the IPE Conference & Awards in Vienna, CREATE chief executive Amin Rajan said the trend of investors grasping their governance responsibilities was a significant change from the survey of three years ago.‘Implementation leakage’ – a term coined by a survey respondent, according to Rajan – relates to the structure and governance behind investors’ asset allocations and investment practice. He said, over the last decade, pension funds investigated the difference behind expected and realised investment returns and found their own implementation strategies were at fault.“Pension funds realised what they do has a big effect on the outcomes,” Rajan told the conference.“The old mantra that asset allocation would be followed by returns does not apply any more.”He said this was a painful lesson for many funds in the last decade during the growth of alternative investments.“Investors moved into alternatives only to find that they struggled,” he said.“The key lesson there was, if you go into anything different, you need to have the skills and governance structures to facilitate that.”Rajan said the research showed the mindset had changed, and that where 80% of returns was attributed to asset allocation, it was now around 50%, and the remainder allocated to implementation.“Implementation largely depends on governance practices and the execution capabilities,” he said.Rajan said that, while the funds continue to study asset manager performance, they are continuously looking at how much their own structure contributes to lower-than-expected investment returns.“This will serve as an interesting development,” he said. “Before, the tendency was to blame asset managers, but now there is an recognition that investments have become very complicated. In this situation, what investors do matters – as much as what their service providers do.”Rajan’s research also showed that more than 25% of pension funds still set investment targets at 6% or higher, despite the ongoing low-yield environment.He also spoke to IPE regarding his research’s detail on the growing dynamism of pension fund investments.CREATE’s research was originally published in IPE’s November magazine.
The European lawmaker appointed as rapporteur for the IORP Directive has warned that the law must not damage existing pension systems and insisted he would take time to engage with stakeholders as he drafted his report on the legislation.Brian Hayes, an Irish MEP and member of the Economic and Monetary Affairs committee (ECON), said it was vital that the European Parliament took its time while drafting an opinion on the IORP Directive, the basis of the chamber’s negotiating position ahead of talks with member states and the European Commission next year.Speaking at the Brussels launch event for the TTYPE project’s report into a European pension tracking service (ETS), he said it was important the revised Directive not “unpick” systems that had been successful.“We are not going to rush this – this is going to be a piece of legislation we are going to take our time with because it’s crucially important we get this right,” he said. He also distanced himself from the notion there should be a single rule book across the common market, insisting he did not believe in a ‘one size fits all’ approach.“Ultimately, in my view, [IORP II] cannot be so prescriptive as to cut across the success that many countries have in this area,” he said.Instead, successful pension systems should be seen as “gold-plated benchmarks” to which other pension systems should aspire.Hayes also praised the Italian government for achieving consensus between member states for an IORP negotiating mandate that emphasised the relaxation of prudential regulation for cross-border pension funds, after the Commission seemingly dropped such changes from its final draft in March last year. “It’s not an exaggeration to say [there was] a fair degree of surprise when the Council [of the EU] came to their general approach on this, and it’s obviously a huge success for the Italian presidency that they did that, and they should be congratulated on that,” he said. Hayes said it would be important to reflect the Council’s “very strong view” in the upcoming discussions on IORP II.The MEP said he would publish a working document on IORP II in April, followed by a public hearing of ECON in May. His own report would then be published shortly before the Parliament’s summer recess, with amendments from his fellow ECON members discussed once Parliament returned – resulting in a timeline that was unlikely to see Parliament reach a position before the end of the year.Speaking on the same panel, Jeroen Lenaers, the Employment and Social Affairs committee’s IORP rapporteur, said the proposed ETS was something that could quite easily fit into IORP II.“But then we have to make sure that whatever we agree on, this recast of the IORP Directive does not make such a system impossible,” he said.He expressed his surprise that the Commission’s initial proposal for a Pension Benefit Statement (BPS) had sought to limit it to two pages, “especially if you then, as a legislator, need six pages to tell everybody what needs to be in the Pension Benefit Statement”.Instead, he suggested that any rules should be flexible enough as to allow member states to adapt the rules to their individual needs.A draft report published by Lenaers earlier this month called for the revised IORP Directive to emphasise the introduction of occupational schemes in countries in which such a system had yet to develop, as well as the launch of a European pension working group.
The UK’s main opposition party has pledged to maintain the ‘triple lock’ on the country’s state pension in its election manifesto, published this week.The Labour party said it would guarantee to raise state pension payments by at least 2.5% a year for the duration of the next parliament, should it win the 8 June poll.A government-commissioned report by John Cridland, former director general of the Confederation of British Industry, recommended in March that the triple lock be scrapped and the state pension age increased to 68.The Pensions and Lifetime Savings Association, the UK’s trade body for pension funds, has backed a simplification of the state pension, while the ruling Conservative party has yet to formally decide its stance. In addition, the Labour party – led by Jeremy Corbyn – pledged to amend the UK’s takeover code “to ensure every takeover proposal has a clear plan in place to protect workers and pensioners”.While lacking in detail, it follows a pledge from prime minister Theresa May to give The Pensions Regulator powers to veto mergers or acquisitions if pension funds are not given sufficient protection.The Labour party also vowed to “restore confidence in the workplace pension system and put people rather than profit at its centre”. The manifesto included a promise to “end rip-off hidden fees and charges”, and backed the idea of consolidation among pension funds.Finally, the party said it would review a surplus-sharing arrangement with the UK’s mineworkers’ pension schemes. The government is entitled to take a share of any surplus from the schemes, an arrangement that has long angered mineworkers’ unions.Tax rules lead companies to drop pension contributionsSome of the UK’s largest companies are cutting back on pension provision in favour of cash rewards due to new rules limiting the amount individuals can pay into their pensions every year.Under rules introduced in April 2016, employees earning more than £150,000 (€177,000) will see their annual tax-free allowance for pension contributions tapered. In addition, the lifetime allowance – the maximum a person can save into their pension without paying tax – was reduced to £1m.A survey from consultancy firm LCP found 90% of FTSE 100 companies had changed their policies due to the new rules. The vast majority (84%) had begun offering cash as an alternative to pension contributions to employees at risk of exceeding their annual or lifetime allowances.In addition, LCP said one in five FTSE 100 companies offered all employees – not just the highest earners – cash as an alternative to pensions.“This is consistent with our wider experience that the tax regime is hitting more employees than first thought,” said Alasdair Mayes, partner at LCP. “It’s no longer limited to the highest earners. What is clear is that changes to the tax system are having a significant impact on behaviour.“Our survey shows just how sensitive pensions are to changes in the tax regime. Threats to change the tax treatment further will lead to a continued, and rapid, shift to flexible alternatives to pensions. This could have a significant impact on retirement incomes in the decades ahead.”Tullett Prebon secures £270m buyoutTullett Prebon, an investment broker, has sealed a £270m derisking deal with insurer Rothesay Life for its defined benefit pension scheme.In a statement regarding the transaction, the insurer said the trustees had secured pricing for the deal against a basket of assets already owned by the Tullett Prebon Pension Scheme, “providing price certainty during execution and ease of premium payment once executed”.Guy Freeman, co-head of business development at Rothesay Life, said: “Pricing for long-duration bulk annuities continues to be lower than trustee estimates in our experience. As a result we’re seeing increased appetite from corporate sponsors in full derisking and we’ll continue to focus on adding value in structuring and executing each transaction we work on.” Andrew Baddeley, chief financial officer of TP ICAP, the scheme’s sponsor, said: “This transaction will provide additional security for members of the scheme and will also help to de-risk TP ICAP’s balance sheet.”
Russia’s non-state pension funds (NPFs) generated an annual weighted average investment return of 6.3% on pension savings in the first half of 2017, according to sector regulator Bank of Russia (CBR).The return on pension reserves – which finance current pension payouts – was 4.7%, on a par with the inflation rate for the period.The €28.6bn State Management Trust Company, which runs the pension system for state-owned Vnesheconombank (VEB), outperformed the NPF average, with the expanded and state government securities portfolios returning 8.8% and 11.4% respectively.The lower return of the NPFs was largely due to their increasing investment in equities, which as a share of the portfolio grew to 17.8% from 13% a year earlier. This compared to just 0.2% in VEB’s expanded portfolio. The investment policy on NPF reserves was even more aggressive, with shares accounting for 22.5% and mutual funds a further 16.1%Last November’s election of Donald Trump as US president led to expectations that the sanctions imposed following the annexation of Crimea would be eased or even lifted, sparking a bull market for Russian stocks.This lasted until February, when deteriorating US-Russian relations caused stock prices on the Moscow Exchange to plunge: over the first half of the year the composite index of the 50 most liquid stocks fell by 29.1%.By contrast, the exchange’s corporate bond index rose by 12.4%, tempering the NPFs’ equity losses as this asset class accounts for the biggest share of their portfolios (51%) as well as the biggest allocation by VEB (41%).Despite the weaker NPF performance, especially among the larger, more equity-weighted funds, the CBR emphasised that, over the long term, returns remained relatively stable.The NPFs have also grown at the expense of VEB, with their total investment portfolio as of end-June up by 18.8% year-on-year in Russian rouble terms to RUB2,415.4bn (€37.3bn), while VEB’s assets fell by 3.8% to RUB1,839.4bn.Over the period the total number of NPF clients grew by 14.9% to 34.4m.CBR’s review of the first six months’ performance also highlighted continuing consolidation among the NPFs. As of the end of June 2017, the number of licensed funds had shrunk to 69, from 89 a year earlier.In the second quarter of 2017 two funds had their licences revoked, while NPF Gazfond Pension Savings absorbed three other funds, propelling it into second place in terms of assets, after NPF Sberbank.The market has also become more concentrated, especially among the 38 NPFs that signed up to the Deposit Insurance Agency’s guarantee scheme, a condition for participating in compulsory pensions provision.Here, the top 10 funds have 93.4% of the client base and manage 92.6% of savings.
Allan Johnston, chair of British Steel Pension Scheme, gives evidence to Work and Pensions Select CommitteeJohnston estimated that as many as 20,000 pensioners could be transferred to the PPF by default. While their pension benefits would not be cut, the PPF applies limits to indexation and does not apply any uplifts to benefits earned before 1997. Those having taken early retirement may face limits as well, according to the lifeboat fund’s website.New BSPS takes shapeTrustee chairman Allan Johnston also revealed to the MPs’ committee that more than half of members had chosen to transfer to BSPS2.Roughly 84,000 people had responded to the trustees’ Time To Choose campaign, he said, with 89% opting for the new scheme.This would likely give BSPS2 roughly £8.5bn-£9bn of assets under management, according to the chairman. The existing scheme has approximately £15bn of assets.BSPS2 will be officially set up in the first few months of 2018, ready to take on members from the end of March. Tata Steel UK will sponsor the new scheme.Members transferring to BSPS2 will have their benefits linked to a lower measure of inflation, but most other aspects of the current scheme rules will be carried over to the new scheme. More advice problems come to lightAt the hearing this morning, the UK regulator revealed that it had barred four firms from providing pension transfer advice following concerns raised around advice given to BSPS members.Many members yet to retire can decide against either of the DB schemes in favour of joining a separate, defined contribution scheme of their choosing. However, such activity is strictly regulated and requires professional advice before it can be carried out.“We’ve had 12,200 people apply for transfer out quotes. Dealing with that massive upsurge has been almost impossible.”Allan Johnston, BSPS trustee chairmanMegan Butler, director of supervision at the Financial Conduct Authority, was persuaded by MPs to name three of the four companies that had been barred or voluntarily stopped providing advice: Active Wealth, Pembrokeshire Mortgage Centre, and Mansion Park.Active Wealth director Darren Reynolds was due to appear in front of MPs today along with Clive Howells, managing director of unregulated introducer firm Celtic Wealth Management. Neither attended the session.Frank Field said: “We are surprised that Mr Reynolds and Mr Howells have chosen, at late notice, not to take up our invitation to put their side of the story in a public forum. No doubt it is more of a loss to them than it is to parliamentary process. We will be putting further questions to them in writing. If their answers are not satisfactory, we may require them to come in.” Allan Johnston, chair of BSPS trustees, said he had lobbied the Department for Work and Pensions to change the default option for members. The trustee board has long maintained that the majority of members would be better off in BSPS2. Megan Butler, FCAMore firms are under investigation, Butler told MPs.“We have made 10 visits to firms where we have had direct intelligence on concerns around the quality of their advice, or where they are particularly active [in pension transfers],” Butler said.“When we see high numbers of transfers going through, we ask [firms] expressly why it is they have satisfied themselves that it is suitable in so many cases to transfer, where for most people most of the time staying in a DB scheme is a better outcome.”Earlier in the day, MPs heard from members of the scheme that the pension office had been “overwhelmed” by requests for transfer values.Local advice firms had also been inundated with enquiries from BSPS members – so much so that many had to close their doors as they could not cope with the volume of calls, according to retired steelworker Stefan Zaitschenko.Johnston admitted that the trustee board had not envisaged the “massive upsurge” in transfer activity.“We’ve had 12,200 people apply for transfer out quotes,” he said. “Dealing with that massive upsurge has been almost impossible. We can’t just hire in staff to do this because it’s very detailed and has to be done properly.”Members must select the PPF route or BSPS2 by 22 December. The moves will take place at the end of March. A parliamentary committee is considering lobbying for a change to pension rules to prevent thousands of members of the British Steel Pension Scheme (BSPS) from being automatically transferred to the Pension Protection Fund (PPF).During a hearing this morning, Frank Field, chair of the Work and Pensions Select Committee, indicated that he would consider writing to the Secretary of State for Work and Pensions, David Gauke, to recommend the change.As part of a restructuring to prevent the insolvency of the scheme’s sponsor, Tata Steel UK, 130,000 members have been asked to choose between the default option – moving to the PPF – or joining a new scheme. The new scheme, dubbed BSPS2, provides lower benefits than currently available but will not cap payouts in the same way as the PPF.An estimated 30,000 pensioner members of the BSPS have yet to respond to communications from the trustees about what they wish to do with their benefits.
The record longevity risk deal insured 25% of BTPS’ longevity risk. The pension scheme created a wholly owned insurance company subsidiary to access the reinsurance market directly. It remains the largest single pension derisking transaction ever completed in the UK.In December 2017 it emerged that BTPS had terminated a contract with its administrator, Accenture, in order to bring the function in-house.Before joining BTPS, Haughey was at the pension fund of chemicals company ICI, where she was chief executive of the trustee’s secretariat and support function. Before that she was a partner at Deloitte, and also worked as head of corporate finance at Marks & Spencer for more than five years.Haughey said: “It has been a privilege to have worked with the trustee over the last five years. I am immensely proud what my team and I have achieved in the interests of members, and I wish the trustee, scheme members, BT and my colleagues all the best for the future”. Paul Spencer, chair of the trustee said: “The trustee board and I are very sorry that Eileen has decided to leave. We wish to thank her for her immense contribution to the scheme over the last five years and wish her well for the next stage of her career.” BTPS is the 11th largest in Europe, according to IPE’s Top 1000 Pension Funds report.BT is seeking to make changes to its pension arrangements in order to address a large deficit in the defined benefit scheme. According to the company’s annual report for the 12 months to 31 March 2017, BTPS had a shortfall of £7.6bn. However, a funding update issued by the trustees later put the deficit at nearly £14bn as of 30 June 2016.The sponsor has proposed closing BTPS to future accrual in April. It has also sought to change the index it uses to calculate inflation-linked pension increases, but so far has been told this was not compatible with the scheme rules. The chief executive of the £49.3bn (€56bn) BT Pension Scheme (BTPS), the largest UK private sector pension plan, has decided to leave.Eileen Haughey, who joined the scheme in 2013, will be stepping down after the 2017 actuarial valuation is finished.During her time at the scheme Haughey has overseen a period of substantial development in the management and operations of the scheme, the trustees said in a statement today.This included the implementation of a £16bn longevity hedge in 2014 and, more recently, the in-sourcing of the scheme’s administration.
The trade unions for Dutch military staff are to lodge an appeal against a court ruling that Ministry of Defence (MoD) personnel can be switched from final to average salary pension arrangements as of this year.In the case against the MoD, the unions have demanded that the employees keep accruing under a final salary plan because the two parties have yet to reach an agreement about the change.In the opinion of the judge in earlier summary proceedings, the social partners, including the unions, agreed in 2017 that there would not be a final salary scheme in place for military staff in 2019.According to Teun Huijg, the unions’ lawyer, the unions demanded that the MoD appoint a provider that can implement a final salary plan this year, if civil service scheme ABP was unable or unwilling to keep on providing such arrangements. In the summary proceedings ABP had argued that its IT system – geared for average salary arrangements – could no longer cope with the final salary plan.The pension fund’s lawyer said last month that the mounting problems were about to cause “a short circuit in ABP’s administration machine”.In separate summary proceedings – brought by the unions against ABP – a judge at an Amsterdam court had ruled that ABP was able to implement a final salary plan, and that the pension fund was not allowed to imply that the pension plan for military personnel was not such a scheme.Jos van Dijk, spokeswoman for ABP, said that the pension fund hadn’t decided yet whether it would lodge an appeal.She acknowledged that ABP’s website stated that the final salary plan for military staff would apply until the end of 2018, but highlighted that this wasn’t relevant for the temporary plan it had put in place at the start of January 2019.Meanwhile, the MoD’s website still stipulates that its pension arrangements amount to an average salary scheme.
While AP7 is currently only allowed to invest in equities and bonds, the buffer funds’ rules allow them to invest in real estate, for example, and proposals are currently under way for them to have more leeway to make direct investments and invest in illiquid credit.Langensjö said: “This is to give the default option greater and better conditions to act as a truly long-term pension fund… The fund is one of the largest pension funds in the world and it will continue to grow strongly over the next 20-30 years.”Even though the PPM had lived up to its aims of delivering a higher return than the income pension (which is funded by AP1-4 and AP6) and to provide diversification, he said this had occurred during an exceptional period.In his report, Langensjö stated: “The falling interest rates of the last 30 years have created very favourable conditions for portfolios with a high proportion of shares and real assets. At the same time, the value of bond portfolios has benefited from falling interest rates.“This, however, means that historical results, more than ever, are irrelevant and difficult to assess in portfolio selection for the future.”Diversified growth proposalThe proposal advocated making a clear separation between the saving phase and the payout phase of the pension system.It also called for the default option to be redesigned as a single diversified growth portfolio, with more opportunities for long-term and alternative investment strategies, and with a more flexible approach to daily trading and valuation requirements.The fund should no longer offer savers the choice of different risk profiles, according to the proposal, with Langensjö arguing that this demand could be met instead by privately-run investment options available on what would eventually be a reformed and procured funds marketplace.He also suggested that the default fund should in future only be responsible for the savings phase of the premium pension, with the payout phase run in its entirety by the Swedish Pensions Agency. Currently, around 540,000 Swedes draw pensions from AP7’s default option rather than buying an annuity.Langensjö proposed that AP7 should be removed from the supervision of the Swedish financial regulator, which he said was not appropriate for several reasons.The amendments are slated to take effect on 1 January 2021, with the two building block funds now managed by AP7 being discontinued by 1 January 2022 at the latest.Further readingInterview: Mats Langensjö weighs options for Sweden’s giant AP7 Langensjö spoke to IPE’s Rachel Fixsen earlier this year about his review and the development of AP7AP7 chief backs calls for illiquids investment permission The default fund’s investment chief has been calling for additional investment flexibility for more than a year The default option used by almost half of savers in Sweden’s first-pillar premium pension system (PPM) should be changed radically, adding long-term strategies and alternative investments, according to a new proposal.Pensions expert Mats Langensjö presented his government-commissioned report – ‘Default option within the Premium Pension’ – to the Swedish cross-party Pensions Group yesterday afternoon, saying the goal should be to maximise the conditions for a good pension while minimising the risk of bad outcomes for savers.The report forms part of the ongoing reform process in Sweden to improve the nationwide PPM, which forms the defined contribution part of the state pension.Among the sweeping changes put forward in Langensjö’s 86-page memorandum is a proposal to align the investment rules for the SEK460.1bn (€43.6bn) AP7 with those for the main pension buffer funds AP1-4.