Month: September 2020

  • Irish DB funds only de-risking ‘begrudgingly’, regulator says

    first_img“Clearly, what that means is the schemes have built themselves some buffers, and they will have built in some flexibility as they are faced by possible investment losses over the coming 10 years,” he said.“We all know that, whatever else happens over the next 10 years, it won’t be a straight line, that there will be gains and losses over that time.”However, he said the story was different when it came to trustees complying with revised funding standard demands that require the exposure to fixed income and cash to mirror the expected pensioner population in a decade’s time.Kennedy stressed that all submitted funding proposals complied with the regulation, “but it is very clear from those funding proposals that they are doing this de-risking begrudgingly and at the minimum rate possible”.He cited one scheme’s proposal to hold matching assets within less than 1% of its pensioner population by 2023, noting that there was “clearly” a difference of opinion between the regulator, trustees and their advisers on how to invest.The chief executive also expressed some concern about the use of contingent assets in submitted funding proposals.He said a limited number of funding proposals had made allowances for contingent assets to be put in place during its 10-year lifetime, but that the approach was unlikely to be acceptable.“We need more certainty in the funding proposals before we approve them,” he said.He also signalled a more proactive approach on the part of the regulator as the number of DB funds declined, revealing that the Board’s own predictions were for around 750 active funds at the end of the year compared with nearly 1,000 in December 2011.Kennedy further said that the Board would publish a guide on best practice in DB governance before Christmas.“We look forward to liaising with the IAPF to discuss these,” he said, “but our objective will be to move towards a basis for engagement with the remaining defined benefit schemes, and we will use our best practice as basis for that engagement.”He said the DB funds that remained after 13 years of market turbulence “can only be described as damaged”.He said the Board’s concern, despite all the regulatory changes in recent years, remained that the outcome for the industry would be no different if events surrounding the more recent financial crises were to repeat themselves.“And I am not convinced it would be,” he said, “and that is what is driving us to further work on defined benefit governance.” Trustees in Ireland are striving to de-risk defined benefit (DB) schemes as slowly as possible and are doing so only begrudgingly, despite regulation requiring a shift into liability-matching assets, according to the head of the Pensions Board.Brendan Kennedy also raised concerns about the use of contingent assets as part of DB funding proposals and said schemes should prepare for a regulator looking to engage with them on issues of governance, as he revealed that the number of funds was expected to fall by one-quarter by the end of the year.Addressing the Irish Association of Pension Funds (IAPF) annual benefits conference in Dublin this week, the Pensions Board’s chief executive both praised and admonished those running the country’s DB funds.He welcomed funds, having completed their funding proposals following the 30 June deadline, granting themselves “some wiggle room” to meet minimum funding and risk-reserve requirements prior to 2023 by applying more stringent standards during in-house calculations than in submitted proposals – a move “very much to be welcomed”.last_img read more

  • Hill: Holistic balance sheet decision will ‘balance’ stability, growth

    first_imgThe European Commission has stood by work on the controversial holistic balance sheet (HBS) undertaken by the European Insurance and Occupational Pensions Authority (EIOPA), arguing that future regulation should balance the pension sector’s financial stability with the Continent’s growth prospects.Addressing the National Association of Pension Funds (NAPF) Investment Conference in Edinburgh, Jonathan Hill, commissioner for Financial Stability, Financial Services and Capital Markets Union, said he was aware of concern among pension funds around EIOPA’s independent work on potential solvency requirements.The Frankfurt-based regulator is currently working on the HBS design expected to take shape in either solvency requirements, minimum funding level or a risk management tool, with final proposals scheduled for next year.However, Hill said he would not pre-judge the outcome of the Commission’s response. “I will examine [the HBS] on its merits, bearing in mind our goal of financial stability but also the likely impact on the wider economy, including jobs and growth,” Hill said.Responding to accusations EIOPA was running its own agenda rather than falling in line with Commission plans, Hill said the authority’s job was to provide technical advice, and that it did this thoroughly.“It is important EIOPA is independent, but, ultimately, it operates within a political system, and the Commission will exercise that political judgment,” he said.“The buck stops with me. [This is] about trade-offs and where you strike the balance on the spectrum.”Referring to a focus on risk reduction over growth since the 2008 financial crisis, Hill said: “When you are in the middle of a huge financial crisis, people, regulators and politicians are going to strike a balance on one end of the spectrum than another.“That thought is one I will have in mind when I go about my job and think about regulations, and make the difficult judgments about where to come down. I will look at regulation through that prism.”The Commissioner did, however, announce a review of the European Markets Infrastructure Regulation (EMIR), and the requirement for pension funds to clear over-the-counter derivatives centrally with counterparties.Pension funds have been granted exemption from the rules until August 2015, with a two-year extension currently being reviewed by the Commission.“I know you are concerned EMIR will increase the cost of hedging through the requirement of the posting of an initial margin and consequently lead to a reduction in equity investments,” Hill said.“While it is too early to take a decision, I will be launching a review of the EMIR legislation shortly, which will provide an opportunity for reflection.”Hill added that he recognised pension funds did not generally hold cash and that the requirement to clear centrally and post for margin calls could ultimately reduce pensioner incomes.“No possible alternative solutions for the posting of non-cash assets by pension schemes have yet been found.”Read Jonathan Williams’ analysis of the industry reaction to EIOPA’s holistic balance sheet proposalslast_img read more

  • Friday people roundup [updated]

    first_imgUBS Global Asset Management – Peter Cazalet has been appointed executive director of UK business development, focusing on the local pensions market. He joins from JP Morgan, where, for more than 19 years, he held a number of client and business development roles. Before then, was a director at SG Warburg investment bank and director of broking firm Hoare Govett.Morningstar Switzerland – Stefano Petracca has been appointed chief executive at Morningstar Switzerland, while Frédéric Vallé is now head of business development for the region. Both appointments are effective immediately. Petracca, who joined in 2005, replaces Mark Roomans, who Morningstar named chief executive for Morningstar UK in January. Vallé joined in 2010.Cording Real Estate Group – Ewan Montgomery has been appointed director of investment in London. He joins from Aberdeen Asset Management, where he was a property fund director with responsibility for two mixed portfolios across the UK. He has also worked for CBRE in London. PGGM, PwC Netherlands, JP Morgan Asset Management, UBS Global Asset Management, Morningstar Switzerland, Cording Real Estate GroupPGGM – Evalinde Eelens, senior multi-client investment strategist at the €188bn asset manager PGGM, has been appointed CIO for the pension plans in Europe, the Middle East and Africa of confectionary company Mars as of 1 June. She joined PGGM in 2014, when the asset manager took over A&O Services, the pensions provider for the industry-wide scheme for painters and decorators, where Eelens was a senior investment strategist at the time. At Mars, Eelens is to replace Fred Nieuwland, appointed CIO of the company’s global pension plans, with €14bn in assets, in February.PwC – The Dutch branch of accountancy PwC has appointed an external supervisory board (RvC). The board will include Jan Maarten de Jong (chairman), Nout Wellink (vice-chairman and former president at Dutch regulator DNB), Naomi Ellemers, Frits Oldenburg, Cees van Rijn and former state secretary for economic affairs and MEP Yvonne van Rooy. The RvC said it wanted to attract a seventh, and female, member with broad experience of governance. The new board will also supervise tax, human resources and advice at PwC. Until recently, a representation of the company’s partners oversaw supervision at the company. The RvC members have been appointed for four-year terms.JP Morgan Asset Management – John Stainsby is leaving JP Morgan, where he has been head of the UK institutional team since the beginning of 2012, having held other roles at the investment bank before that. JP Morgan’s European head of institutional Christoph von Reiche will assume daily management of the team while he seeks a replacement, the bank said.last_img read more

  • AbbVie relocates Dutch pension fund to Belgium

    first_imgAbbVie is the first named participant in Aon Hewitt’s Brussels-based vehicle.The consultancy said another scheme had also joined, and that four pension funds were awaiting supervisory approval.Hans Rekker, client executive at Aon Hewitt, said AbbVie opted for the Belgian scheme due to the flexibility of its policy on investment and contributions.United Pensions, with two-thirds of its portfolio invested in fixed income, is less defensive than the Abbott scheme, which had an 80% fixed income allocation at the end of 2014.Belgian legislation offers pension funds more leeway for indexation, which can be granted at a funding ratio of 100%.As a result, the AbbVie scheme was able to give its participants a one-off 3% inflation compensation as part of the rights transfer.This boosted the coverage of the scheme to 115%, approximately 10 percentage points higher than under the Dutch rules.An increasing number of multinational companies, including Aon, BP and DuPont, is considering relocating their Dutch pensions to Belgium.In some cases, however, ‘work councils’ (ORs) are resisting such move due to governance and regulation concerns.The Dutch pension funds of clearinghouse Euroclear and pharmaceutical company Johnson & Johnson are among schemes that have been relocated to Belgium successfully. Pharmaceutical company AbbVie has moved its Dutch pensions to Belgium, where they have been placed with United Pensions OFP, the multi-scheme vehicle run by Aon Hewitt.Both players confirmed that the €40m of pension assets of AbbVie’s 600 former participants and pensioners were transferred to the United Pensions OFP at the end of last year.Pensions accrual for its 325 active participants has been taking place at the Belgian multi-scheme since the start of 2015.Until then, their pensions were housed at Pension Fund Abbott, the scheme of the former parent company, which was divided into medical product company Abbott and drug manufacturer AbbVie in 2011.last_img read more

  • UK pension fund hedging activity ‘significant’ in Q4 – LDI survey

    first_imgUK interest-rate hedging activity increased by 13% in the final quarter of 2015, according to the latest liability-driven investment (LDI) survey by BMO Global Asset Management. The level is the second highest in the seven-year history of the survey.Total interest rate hedging activity amounted to £28.8bn (€39bn) in Q4.Inflation hedging grew by 8%, to around £19.7bn. The LDI survey polls the derivatives trading desks of investment banks on volumes of hedging transactions, and has been carried out since the first quarter of 2009.It covers UK/sterling hedging.Simon Bentley, head of LDI client portfolio management at BMO Global Asset Management, told IPE the figures include other institutional investors besides pension schemes, as banks do not differentiate between investor types when aggregating the data.But he said the asset manager expects pension scheme investors to represent the large majority of the data “given the overall make-up of the market”.The highest level of quarterly interest-rate hedging activity was in Q2 of 2015, a spokesperson told IPE.The activity over the fourth quarter of last year coincided with some structural changes in the Gilt repo market, the asset manager noted.According to BMO, recent changes to banking regulations have made it more capital-intensive for banks to hold Gilts on their balance sheets, increasing Gilt repo pricing, and these changes have also “initiated a general shift towards cash collateral rather than Gilt or cash and Gilt collateral”.Bentley added: “Longer-term concerns around Gilt repo liquidity, combined with a short-term seasonal increase in Gilt repo pricing, led to a bias towards swap-based hedging at the expense of Gilts in Q4,” said Bentley. “This further exacerbated the relative cheapness of Gilts compared with swaps.”The headline figure for hedging activity last quarter is unrelated to the seasonal increase in repo pricing, he told IPE.“Anecdotally,” he said, “it appears many schemes set targets to initiate or increase hedges earlier in the year and were simply keen to complete this activity before year-end, resulting in a significant amount of activity during Q4.”Respondents to the survey had predicted a rise in nominal, inflation and real rates in the first quarter of 2016, but, said Bentley, “there is a reasonable probability that the first UK rate hike won’t now occur until 2017”. This is due to unfavourable economic data releases and uncertainty over the referendum on whether the UK should remain in the European Union.Still, there will probably be some volatility around market expectations for a rate rise, “which could create opportunities for nimble investors”.last_img read more

  • Ruston Smith steps down from Tesco roles

    first_imgIn February, Smith was named as one of three expert advisers to the UK government’s review of auto-enrolment, alongside Jamie Jenkins, head of pensions strategy at Standard Life, and Chris Curry, director of the Pensions Policy Institute.Smith joined Tesco in 2001, and was most recently group director for people, pensions, and insurable risk. He was chair of the National Association of Pension Funds – now the Pensions and Lifetime Savings Association – for two years until October 2015. He remains a non-executive director at the trade body.Among his other portfolio positions are non-executive roles at JP Morgan Asset Management International Limited and JP Morgan Funds Limited, and trustee director for Standard Life’s DC master trust. Ruston Smith – former chairman of the UK’s pension fund trade body – has left his role as Tesco’s group pensions director in favour of non-executive roles at the pension fund.He has also stepped down as CEO of the supermarket chain’s in-house asset management company, Tesco Pension Investment.A spokesperson for Tesco confirmed Smith’s departure at the end of March, but said he would “continue to work for Tesco in a non-executive capacity as chairman of the trustee board for the UK Pension Scheme and Tesco Pension Investment Limited”.Alongside his new non-executive roles at Tesco, Smith has this week been announced as the non-executive chair of PTL, an independent trustee firm, following the company’s management buyout. He is also a trustee director at the People’s Pension, a defined contribution (DC) master trust.last_img read more

  • Belgian pension funds slash liability discount rates

    first_imgMany Belgian pension funds significantly reduced their discount rate for liabilities over the past year, lowering the level from approximately 4% to in some cases less than 1.5%, according to industry organisation PensioPlus.A survey of 62 schemes – representing €19.2bn, three-quarters of Belgian pension funds’ assets – indicated that more than a quarter of funds now apply discount rates of less than 3%.Supervisor FSMA said it was satisfied with this development, but it made clear that many schemes still had assumptions for future returns that were “too optimistic”.Henk Becquaert, board member of the watchdog, said FSMA was in discussions with schemes about reducing discount rates deemed to be too high. He declined to be specific about the numbers of pension funds involved. Becquaert said there were still investment consultants who recommended assumptions for returns that were too high.He said the supervisor took into account the expectations of international bodies – such as the International Monetary Fund and European Systemic Risk Board – but didn’t publish maximum figures, like the mandatory parameters in the Netherlands. “As long as pension funds listen to us, this isn’t necessary,” he said.PensioPlus, which presented the survey results during its annual congress this week, said the lower discount rate had a negative effect on coverage ratios.The 28 pension funds that produced figures saw their funding drop from 123% to 115% on average last year. The pension fund of bank KBC reported that it had to raise contributions in the wake of the reduced assumptions for returns.Pension funds in the Netherlands must discount their liabilities against the risk-free interest level. Dutch pension rights in Belgium-based cross-border schemes are subject to a discount rate equal to the Dutch discount rate for individual value transfers, which is 0.864% this year. In 2016, the rate was 1.629%.As a result of this decrease, one pan-European pension fund with Dutch pension rights incurred a “limited funding shortfall”, according to FSMA.The supervisor added that arrangements had been made to rectify this through an additional payment from the sponsor, who is legally bound to fill funding gaps.Becquaert warned that further professionalising was necessary, in particular for small funds (less than €25m) and some medium-sized pension funds (up to €125m), adding that co-operation or merging into multi-schemes would help.Philip Neyt, chairman of PensioPlus, also called for co-operation, particularly with insurers. He noted that insurers were establishing pension funds for their staff. Neyt said he expected that others would be allowed to join as well. At the congress, concerns were voiced about how schemes’ participants should be informed about the risks following a transition to defined contribution arrangements, how they could be assisted with investment choices, and how pension funds can keep control of costs. FSMA said it expected additional EU regulation on expenses.Last year, Belgian pension funds achieved nominal returns of 5.07% on average.According to PensioPlus, many of them were divesting government bonds in favour of equity, credit, emerging market debt, and illiquid investments, in part as an inflation hedge.last_img read more

  • Swedish mail operator withdraws SEK900m from pension fund

    first_imgThe Swedish regulator has voiced concern after a postal service company withdrew SEK900m (€94m) from its pension fund and quadrupled its discount rate.PostNord, the Swedish and Danish postal services company, raised the discount rate for its Swedish defined benefit scheme to 4%.Göran Ronge, actuary at the Swedish financial regulator’s (Finansinspektionen or FI) market conduct supervision division, said the company’s decision to increase the discount rate may not endanger scheme members’ pensions in the short run, but the longer-term effect was less clear.“There is now a stress on the pension foundation to provide a financial result of 4% a year, which might be not so easy to achieve, for example in a situation of [falling] equity values,” he said. “A 10-year state bond in Sweden has a market yield of 0.8% at the moment.” PostNord uses a combination of book reserves and a pension foundation to secure its occupational benefits, with the foundation holding around SEK19bn, according to Swedish newsletter Pensionsnyheterna.In 2016 the company raised its pensions discount rate to 4% from 0.8%, which helped reduce its pension debt significantly, the newsletter reported.A spokesman for PostNord Group said the company had been reimbursed roughly SEK900m for the pension payments it made into the scheme for 2015, in connection with the end of the 2016 accounting year end.According to PostNord’s annual statement, the change of the discount rate was made during 2016 and would take effect on 2017 liability valuations, Ronge said.The company said its pensions foundation, which covers employees in PostNord Group and PostNord Sweden, had changed the basis of its pension liability calculations to those of specialist provider PRI Pensionsgaranti following negations with trade unions.PRI Pensionsgaranti is an occupational pensions organisation that provides credit insurance and administrative services.“The compensation was made in full compliance with the Swedish Insurance Act, which regulates this type of pension management,” the PostNord spokesman said. “PostNord’s ability to honour pension obligations is not compromised.”He added that the pension fund’s consolidation level amounted to 134% at the end of June.Ronge said this matter was supposed to be supervised by company auditors in Sweden, rather than by FI, as the regulator had obligations to provide regulations but not to supervise supervise them.last_img read more

  • Dutch pensions reform ‘requires flexible approach’: Lundbergh

    first_imgThe lack of concrete results was, in his opinion, due to the sector’s “fixed mindset”, which focused on avoiding risks, such as mandatory pensions saving, financial education of participants, increased transparency and government regulation.“However, mandatory savings does not per se increase people’s motivation to increase saving,” he put into perspective.In his opinion, the sector must become more flexible and increase its focus on uncertainty, assess what does work and what doesn’t and adjust accordingly.“Look at how the world works and seek sufficient and robust solutions,” he said, “and keep on observing and adjusting to avoid the need for another system update in 15 years’ time.”Lundbergh is also non-executive trustee at AP4, one of Sweden’s first-pillar buffer funds.For more coverage of Pensioen Pro’s annual conference, visit the website. The Netherlands must not delay its pension system reform and should adopt a more flexible approach to achieve the overhaul, according to Cardano’s Stefan Lundbergh.“If conclusions are not drawn soon, history will hold us to account,” warned Lundbergh, director of Cardano Insights.Speaking at the annual conference of IPE’s Dutch sister publication Pensioen Pro in Amsterdam on Wednesday, he highlighted that discussions about a new pensions system in the Netherlands have been dragging on for 12 years.Recently, a Dutch daily newspaper published a leaked draft of a pensions agreement concluded between employers and trade unions, which suggested that a pensions contract under real terms was the favoured option of the social partners, rather than individual pensions accrual with collective risk sharing.last_img read more

  • Welsh pension funds eyeing investment in tidal power project

    first_imgA collaboration of Welsh public sector pension funds is considering backing a £1.3bn (€1.5bn) tidal power project.The £16bn Wales Pension Partnership (WPP) – formed by the country’s eight local authority funds – has committed to consider investing in the Swansea Bay Tidal Lagoon project. Under the terms of its investment parameters, WPP can spend up to 5% of its pension assets on infrastructure projects – potentially up to £800m.The much-vaunted – and much-delayed – tidal lagoon was a “viable project to invest in”, according to councillor Mark Norris, chair of WPP. He added: “We’re all in favour of looking at investing. It is now dependent on the Westminster government to back the project – and then from there we would take it forward to decide how much to invest.”Although the fund is able to invest up to 5%, Norris said it would “probably be a little less than that to start off”.However, he said the project could provide a viable source of energy to the region – and was much cheaper than building a nuclear power plant. In 2016, pension fund investment was suggested as a solution to a long-running debate about the construction of a nuclear plant on the island of Anglesey on Wales’ north coast.“This is why am little surprised by reticence by the Westminster government not to jump at it,” Norris said. “If you look at solar or wind power, both are sustainable but one relies on whether the sun is out one day and whether there is wind; whereas with tidal energy it is four times a day every day and never stops.”The UK government has been encouraging Local Government Pension Scheme (LGPS) funds to dedicate more money to infrastructure investments for several years. The eight LGPS asset pools have been encouraged to be “ambitious” with their targets for the asset class.  Source: TidalLagoonPower.comAn artist’s impression of the Swansea Bay Tidal Lagoon developmentDevelopment delaysFirst mooted in 2003, the tidal lagoon, which formed part of the government’s 2014 UK National Infrastructure Plan, could create thousands of jobs for the local economy.In 2016, the government commissioned former energy minister Charles Hendry to conduct a report into the role of tidal lagoons. In his final submission, Hendry noted “the evidence is clear that tidal lagoons can play a cost-effective role in the UK’s energy mix”.“My recommendation is… that the Tidal Lagoon Swansea Bay [is] one which would incidentally bring very real and substantial economic and recreational benefits to the Swansea Bay area,” he added.Earlier this week, the Welsh government signalled its approval for the project. In a letter to the UK’s business secretary, Greg Clark, Wales’s first minister Carwyn Jones said there was “a Welsh government commitment to an equity and/or loan investment of £200m”.Alun Cairns, secretary of state for Wales, told UK MPs on Wednesday that he “would really like the tidal lagoon to go ahead, but of course it must prove to be value for money”.Last month the Financial Times quoted a senior government figure as saying the project had not a “cat’s chance in hell” of going ahead. However, Cairns responded: “No announcement has been made on the tidal lagoon because we are still looking at the numbers.“We are doing anything and everything possible to try to make this fit.”A spokesperson for the UK’s Department for Business, Energy and Industrial Strategy said that the government was considering the findings of the Hendry review into tidal lagoons and “an announcement will be made in due course”.last_img read more