Month: September 2020

LGPS should consider single infrastructure asset pool, report says

first_img“We felt that a national pool for those areas – and all the pools that feed into that – would give it sufficient mass when appropriate opportunities become available,” he said.The London Pensions Fund Authority (LPFA) has already partnered with Greater Manchester Pension Fund to create a £500m infrastructure fund, which made its first investment late last year.The LPFA’s chief executive, Susan Martin, has also called for the creation of an infrastructure clearing house, a recommendation mentioned in the report. Similarly, Wynn told IPE it would be good to avoid a situation where each of the asset pools invested in private equity (PE), instead opting for cooperation with a limited number of pools that could oversee the asset class on behalf of all authorities.It report recommends that LGPS move away from funds-of-funds for PE, and that direct investment instead be employed by the pools acting on the system’s behalf.A small number of asset pools for PE was preferred over a single fund, as was the case with infrastructure, as it would avoid capacity constraints, and, according to Hymans Robertson, the opportunities in small and medium-sized buyout funds were preferable to those offered to large vehicles.The report also estimated that pooling active equity mandates alone could reduce management fees by around £64m over a 10-year period.Overall, Project Pool estimated that less reliance on fund-of-fund structures and cutting management fees would cut costs by up to £183m over the next decade.Despite the estimated savings from management costs, the report warns that initial costs stemming from the launch of the new management structures and transitioning assets to new managers will outweigh any savings.“For some asset types,” the report says, referencing private equity, hedge funds and infrastructure, “it will be necessary to let existing investments run to their natural termination date to avoid the costs of early termination.“This means the potential annual savings from pooling and new investment platforms will not be fully achieved until year 10 or later.”Wynn also said the asset pools would need to decide how best to minimise the costs associated with transition management, arguing that one possible approach would be for a national procurement framework covering transition managers.To date, eight potential asset pools have emerged from talks between 89 local authority funds, the largest – a £40bn pool – created through the co-operation of Greater Manchester with West Yorkshire Pension Fund and the Merseyside Pension Fund. Local authority funds in the UK should consider a single infrastructure asset pool, allowing schemes to better access the asset class, according to a report compiled by two dozen local authorities.The report suggests the national platform could tailor to all of the schemes’ risk appetites by offering low, medium and high-risk infrastructure assets while reducing costs.It includes input from dozens of the local government pension schemes (LGPS) in an effort to avoid 89 separate submissions to the Department for Communities and Local Government (DCLG) ahead of the 19 February deadline for proposals on the creation of asset pools.Mark Wynn, who heads up the participating Cheshire Pension Fund, said the government’s aspiration for the LGPS to increase investment in infrastructure from its current £2bn (€2.6bn) would not be possible with the six asset pools proposed by the DCLG.last_img read more

‘Freedom of choice could lead to bad pension outcomes’: Dutch professor

first_imgPension funds’ participants are better served with a tailor-made pension plan than with increased freedom of choice for pension arrangements, according to Fieke van der Lecq, professor of pension markets at Amsterdam’s Free University (VU).Speaking during the annual congress of IPE’s sister publication Pensioen Pro, she argued that “if people knew what they wanted at all, freedom of choice could lead to a bad outcome”.The discussion related to the ongoing debate about the future of the Netherlands’ pension system.Van der Lecq said she always wondered what the purpose was of allowing individuals a choice of pension arrangement. “Would it be the comfortable feeling that there is something to choose from, or is it about ending up with arrangements that match your needs?” she said. In the latter case, Van der Lecq argued that “tailor-made” pension plans would be preferable. In her opinion, the danger of people making wrong choices was likely to make them worse off than under the current Dutch pension system.Joep Sonnemans, professor of behavioural economics at Amsterdam University (UvA), emphasised that real tailor-made solutions should also take people’s preferences into account, in addition to objective criteria such as age, accrual capital, and property ownership.However, he said this would be very difficult to measure. “People’s answers differ if you put the question in a different way, as people often don’t know what they want themselves,” he said.Sonnemans said that this would also likely be the case for questions about participants’ need for certainty regarding outcomes.He cited a survey at the occupational scheme for medical consultants, which suggested that younger participants in particular sought much more certainty than expected.“They would rather receive lower benefits with little chance of rights discounts than a considerable upward potential combined with a bigger change of cuts,” Sonnemans said.The impact of robotsAlso during the congress, futurist Richard van Hooijdonk predicted that robots would make many jobs in the pensions sector redundant.He said that work with a predictive and repetititive nature would be taken over by robots, and suggested that up to 80% of current jobs could disappear within 20 years.Van Hooijdonk predicted that technology would make half of all current processes and related jobs around benefits payments superfluous.He further emphasised that technology would considerably reduce the costs of pensions.last_img read more

Pensions at cigar-maker scheme boosted by 17% following merger

first_imgA further 3% was added to the pension rights immediately after the merger and another 3% rise is to follow in 2018.The pension fund’s supervisory board (RvT) said that the scheme had refrained from putting part of the surplus into a separate fund, as this was deemed at odds with a balanced approach to all participants.In the RvT’s opinion, the 2,500 participants of Sigarenindustrie were better off at BPL Pensioen on balance, despite its substantially lower funding.It said that the advantage of the increased pension rights as well as the better pension arrangements at BPL Pensioen far outweighed any possible future drawbacks.Last year, Sigarenindustrie charged a 19% contribution rate for an annual accrual of 1.75%, while BPL Pensioen’s contribution rate was 21.7% for an annual accrual of 1.875%.Costs per participant at the cigar scheme were €427, against €111 at BPL. Combined asset management and transaction costs were 0.71% and 0.40% for the two schemes, respectively.Sigarenindustrie had contracted out both its administration and asset management to Achmea. BPL has only outsourced its asset management to Achmea. TKP Pensioen carries out its administration.Sigarenindustrie is expected to liquidate in September. Members of the Dutch pension scheme for the cigar-making industry (Sigarenindustrie) are to receive a 17% increase in pension rights following a merger with the agriculture sector scheme.The rise was due to the differing coverage ratios of the two schemes, according to Sigarenindustrie’s annual report.The €211m Sigarenindustrie scheme was 114% funded at the end of 2016, when the funds merged, while the €16.4bn BPL Pensioen was 97% funded.To avoid negative tax consequences, the increase came in a three-stage process, with an 11% rise at the time of the merger – the maximum allowed for indexation in arrears.last_img read more

Private capital must be mobilised to meet SDG goals: PensionDanmark chief

first_imgSource: UNSecretary-General António Guterres presents at the UN General AssemblyHowever, it was not always necessary to mix pension fund capital with public money to create investments that can contribute to meeting the SDGs, he added.“We recently launched the Africa Infrastructure Fund alongside other pension funds and AP Møller Holding, which is an example of private-private partnership – a big industrial company with deep expertise and long experience in this asset class linking up with pension fund money,” he said.“This is a promising new structure which can be used as a model in other areas,” he continued, adding that is was similar to how Copenhagen Infrastructure Partners (CIP) worked – a private equity firm set up by PensionDanmark back in 2012 to invest in renewable energy assets in Europe and North America.Möger Pedersen said there were still a number of unresolved issues concerning individual projects where governments and institutional investors were investing together, but these hurdles were not so high that they could not be overcome.“Attitudes within governments to public-private partnerships are quite good and I think this will become a growth industry in the coming years,” he said. Möger Pedersen said it was critical for pension funds to identify where they could invest in assets at the right level of risk.“This is why we have been stressing the potential for using blended finance in this, where the structure of the investment can be designed to combine finance from public budgets with that of pension funds, so you end up with risk mitigation in a way that makes it attractive for pension funds,” he said. “These blended finance initiatives are also attractive for governments because they get leverage by working together with the pension funds.”The 17 SDGs were adopted by world leaders in September 2015 at a UN summit as part of the 2030 Agenda for Sustainable Development, and came into force at the beginning of last year. The targets involve countries acting to end all forms of poverty, fight inequalities and tackle climate change. Source: UNSecretary-General António Guterres (right) meets Danish prime minister Lars Løkke Rasmussen at the UN General AssemblyMöger Pedersen has been speaking at the United Nations’ annual conference in New York this week. He led a discussion at the organisation’s Private Sector Forum, and took part in the launch of the international initiative Partnering for Green Growth and Global Goals 2030, headed by Danish prime minister Lars Løkke Rasmussen.He talked about the partnerships in which PensionDanmark was involved, including the Danish Climate Investment Fund and Danish Agribusiness Fund, both of which are run by the Danish Investment Fund for Developing Countries and funded by pension funds and public development money.As an example of how the money is actually being deployed, PensionDanmark said that in late August, the Danish Climate Investment Fund – in which the pension fund has invested DKK200m – contributed $15m (€12.5m) to Mongolia’s third privately-financed windfarm as part of an international financing package.“It was very promising to hear at the UN that there is very strong support for the Danish model of blended finance,” Möger Pedersen said.center_img Private capital is needed on a large scale in order to realise the United Nations’ Sustainable Development Goals (SDGs) by 2030 – and partnerships between pension funds and other actors are the way forward, according to PensionDanmark’s chief executive.Torben Möger Pedersen, chief executive of the DKK224bn (€30bn) labour-market pension fund, told IPE: “If we are not able to mobilise capital on a relatively large scale, we will not be able to realise the goals.”But he said he was quite optimistic that the international community would be able to get capital working to achieve this.“Because of the low level of interest rates, investors are all looking for new assets in which to deploy capital, and if you look at the national action plans made by almost all governments on the SDGs, you will see that they realise large infrastructure assets that fit in well with most pension fund portfolios,” he said.last_img read more

Providers must improve systems and services to survive: Deloitte

first_imgTraditional Dutch pensions providers, including pension funds, must “strongly improve” their services for their clients in order to survive if the mandatory participation of companies in industry-wide pension funds is abolished, according to Deloitte.Speaking at a congress of the Netherlands’ Circle for Pension Specialists (KPS), Deloitte partner Evert van der Steen argued that providers still operated like “wholesale organisations”.He said he expected that the “large mandatory participation” in sector schemes – in addition to the “small mandatory participation” in a pension fund for employees in the Netherlands – would be abolished within five or six years.As a consequence, providers would have to compete with commercial insurers, which he said were much better prepared for the future. In Van der Steen’s opinion, industry-wide scheme providers offered insufficient diversification in client service, communication and when facilitating individual choices.He contended that it was absolutely necessary that the pensions sector fully focused on technical innovation for client services.“In particar in the interaction with clients, we noticed that the pensions sector is significantly behind the commercially driven insurers and banks,” he said.Another problem is that traditional providers in the pensions sector usually struggle with legacy issues, like outdated systems.“By contrast, newcomers such as Centric focus on IT, the options for scaling up and continuation,” said the Deloitte partner. “The pensions sector had to work with low budgets for a long time, whereas banks and insurers already started investing heavily in innovative IT solutions 10 to 15 years ago.”If there was a sufficient budget, it was often spent on keeping existing systems running, which would also negatively affect providers if there was a change in the pensions system.Changes such as the increase of the target age for the state pension often need to be carried out manually.Van der Steen recommended that pensions providers focus on how to improve their IT systems for scaleability, robustness and sustainability.Last year, pensions provider Syntrus Achmea Pensioenbeheer said it would stop servicing 23 industry-wide pension funds, as its new IT system could not  cope with the multitude of pension arrangements of the sector schemes.The new system was introduced to replace several legacy systems in the wake of past mergers. Errors caused by the old systems had already triggered an exodus of pension fund clients.Several of the leaving industry-wide pension funds decided to take Centric as their new pensions provider.last_img read more

Dutch employers and unions deny agreement over new system

first_imgThe three main trade unions in the Netherlands have vehemently denied that agreement has been reached on a new pensions system, following the publication of a leaked draft in a national newspaper.The unions FNV, CNV and VCP have all stated that an accord regarding the update of the pensions system would only have been reached after their members’ approval.Tuur Elzinga, the FNV’s pensions negotiator, said nothing had been signed yet, and that the published concept was merely one of the documents in the negotiating process.CNV and VCP also emphasised that the leaked document was not the result of a tête-à-tête between the FNV and employer organisation VNO-NCW, as the newspaper had suggested. Wouter Koolmees, minister of social affairs, told journalists that he would not respond until he had received a formal proposal from the Social and Economic Council (SER), which has been tasked with advising on the issue.He reiterated that the SER not only comprised representatives of the social partners, but also “crown members” – independent experts appointed by the king.Roald van der Linde, pensions spokesman for the VVD party, part of the coalition government, also said he would only comment when a full agreement had been concluded.Martin van Rooijen, MP for the party for the elderly (50Plus), said the concept was a step in the right direction.He noted that political tensions were likely, as the accord seemed to be at odds with the cabinet’s coalition agreement.Meanwhile, the leaked concept accord has confirmed that employers and workers want to link the update of the second pillar to the first pillar.They have insisted that the pace of raising the retirement age for the state pension – as already announced by the government – must be slowed down, explaining that raising the retirement age by a year for every year of additional longevity seemed socially unsustainable.The social partners also wanted more scope for older workers to retire earlier, for example through a flexible state pension.They indicated that, without an agreement on these issues, the other parts of the accord wouldn’t stand.The new pensions contract under real terms – as envisaged by employers and workers in the leaked document – is a collective arrangement without hard promises, based on market rates with the application of the ultimate forward rate (UFR).As the pensions promise is a soft one, the contract needs adjustments to the current financial assessment framework (nFTK).In the opinion of the social partners, individual pensions accrual – the contract favoured by the government, and for a long time investigated by the SER – would still be possible without legal changes.last_img read more

Accounting body delays work on DB surplus refund rules

first_imgThe board could attempt to align the release of the amendment with any work it does on its research project into pension benefits that depend on asset returns.IASB member Mary Tokar said: “I very much agree with not finalising the amendment that was proposed.”The former KPMG audit partner added that she did not want to stall the project while the board made progress on the research effort.Instead, Tokar urged the board to complete the IFRIC 14 amendment and then assess the timeline on the research project in order to determine when best to release the amendment.IASB staff said they expected to start work on the pensions research project “imminently within a month or two”.The board’s interpretations committee started work on IFRIC 14 in 2014, looking at the surplus reporting issue, and published a series of draft amendments for public comment in June 2015.The IASB decided at its September 2017 meeting to carry out further research into the issue before finalising the amendments. In particular, the board wanted to see whether it could establish a more principles-based approach to enable sponsors to assess the availability of a refund of a surplus.As it currently stands, the proposed amendments to IFRIC 14 are narrow in scope. In particular, they explain that, if a third party, such as a board of trustees, has the right to wind up a plan, the sponsor cannot assume the plan will unwind in accordance with the plan assumptions. Instead, the sponsor must account for the full settlement of the plan’s liabilities in a single event.The IASB has also established that sponsors can dodge the impact of the changes by making what staff called “non-substantive changes” to scheme rules.As a result, the IASB said it wanted to carry out further work on the project in a bid to develop a more principles-based approach.The staff noted in the meeting paper that it should be possible to develop principles to assess when a sponsor should assume a gradual or more sudden settlement of plan liabilities.Although staff did not set out in detail what the wider scope might involve, they did say that it was a factor in their decision to align the work on IFRIC 14 with the separate research project.In the UK, the Financial Reporting Council has encouraged companies to apply the requirements of the now-abandoned IFRIC 14 amendment as if they had been finalised.IASB staff confirmed that some UK companies “were already making some disclosures”. The International Accounting Standards Board (IASB) has delayed work on a controversial project to amend rules regarding how defined benefit (DB) scheme surpluses are treated.During a board meeting last week, IASB staff indicated that they would develop a revised amendment to the IFRC 14 rules, with scope for the board to release it for a further round of public feedback.The proposed amendment to IFRIC 14 was intended to clarify how a DB scheme sponsor should assess its right to a refund of a surplus – and therefore how it should report this on its balance sheet – if the scheme rules allowed parties such as a trustee board to control the surplus.The IASB has indicated that the impact of the changes would be felt most in the UK.last_img read more

Researchers urge IASB to launch hybrid pension accounting project

first_imgTim Marklew, partner at Lane Clark & Peacock , said: “Accounting standard setters have been grappling with this problem for many years without making a great deal of progress.“This lack of rules can matter. In the UK the problem is that pension schemes are either defined contribution [DC] or defined benefit [DB], and the risk falls either on the employer or the employee.“It is very difficult to make hybrid plans work given the lack of rules for dealing with them. And that has been a barrier to their take-up.” The International Accounting Standards Board (IASB) should tackle the accounting challenges presented by hybrid pension plan designs, according to Canadian lawmakers.The Canadian Accounting Standards Board (AcSB) urged the IASB to consider the research and “either add it as another dimension” to its existing feasibility study into pension benefits that depend on asset returns, or to take it on as a separate project.“Our findings point to the need for further guidance on accounting for hybrid pension plans to better reflect their economic characteristics and reduce diversity in practice,” said the AcSB.The comments came as AcSB presented the findings of an international research effort into hybrid pension plan accounting .  Royal Mail wants to introduce a CDC scheme for its UK workforceThe UK has been debating the introduction of collective DC plans – a form of hybrid pension provision – for months, with the Royal Mail Pension Plan leading the support. However, many commentators have expressed concern over regulation and accounting, among other aspects.Alistair Russell-Smith, head of corporate consulting at Hymans Robertson , said the time was right for the IASB to consider the issue.“It feels like it is a sensible time to be thinking about this sort of plan,” he said. “[Hybrid plans] are rising in profile – we see it happening in the Netherlands.”The Canadian-led research is a summary of the results of research carried out by standard setters in Canada, Germany, Japan, the UK and the US on hybrid pension plans.The rise of hybrid pensionsSuch arrangements have proliferated in many countries as schemes have ditched traditional DB provision and moved instead towards forms of DC provision with features such as an investment-return guarantee or other promises.However, these types of pension arrangements can give rise to accounting challenges under both local GAAP and International Financial Reporting Standards (IFRS).In particular, the binary ‘DB or DC’ nature of classification under International Accounting Standard 19 (IAS 19) causes both classification and measurement issues for hybrid schemes.The IASB is currently weighing the feasibility of running a research project on asset-return linked pension plans .Staff signalled last month that they were about to bring papers to the board for its consideration.Complications ariseFurther complicating the landscape, however, was the IASB’s decision to consider its previously separate work on IFRIC 14 and the IAS 19 asset ceiling, against the context of this research stream.Researchers took as their starting point the question of whether IAS 19 was “fit for purpose” in terms of its outcomes representing the economic characteristics of the pension obligations being reported.From that starting point, staff surveyed both plan designs and also their accounting characteristics, taking feedback from 25 audit firms and consultancies.The analysis identified four broad types of plan alongside traditional DB and DC plans: two types of shared-risk plans, cash-balance plans and security-linked plans.It also established that there were differences in how these plans were classified both within and across jurisdictions.The 10 July meeting also heard that, where scheme sponsors had relied on actuarial input to value their pension liabilities, those actuarial approaches were potentially opaque to users of the accounts. As for the way forward, the AcSB said it had identified no clear solution to the various challenges posed by the different types of plans.It indicated that the IASB could consider unbundling the DB and DC elements within its rules and look to bring in “a specific measurement methodology with also a focus on guarantees”.last_img read more

Re-enrolment key to ‘nudge’ UK into saving: survey

first_imgGregg McClymont, former Labour party pensions spokesman and now director of policy at BC&E, said: “Re-enrolment is pretty effective. People’s individual circumstances change. Initially they may make a quick judgement about whether a pension is the right thing for them at the time, but the second time around it might be different.”Under the rules of auto-enrolment, which came into force in the UK in October 2012, every three years an employer must offer a pension saving scheme to employees who had previously opted out. Tim Sharp, TUCTim Sharp, policy officer at the Trades Union Congress, said re-enrolment rates were “very high”, but added that employers and unions had a responsibility to explain the full benefits to potential savers – and continue to do so even if staff had initially opted out.One conference attendee noted that some people – including a single parent who had been interviewed by Ignition House – had valid reasons for turning down pensions initially. The automatic re-enrolment of staff into a workplace pension is key to engaging staff with saving, according to evidence presented at the Pension and Lifetime Savings Association’s (PLSA) annual conference last week.In a plenary session on defined contribution (DC) engagement, market research firm Ignition House showed a series of interviews they had conducted with UK workers who had opted out of their workplace pension.  The interviews illustrated the various reasons why the workers had chosen to not pay into a scheme, with several indicating they had not been fully aware of potential benefits, including tax relief. Currently, around 10% of all workers opt out of joining their workplace pension scheme, according to official figures cited by the panel.Once the benefits had been reframed and explained clearly to the interviewees, several said they would reconsider signing up to a pension. Others said they had not been at a point in their lives when it would have been possible to sign up when a scheme was first offered.center_img Gregg McClymont, B&CE“People are not stupid,” said McClymont. “They often make decisions depending on their circumstances. While pensions are central to our lives – sad as it is – for most people it isn’t.”Sharp added that most people didn’t actively think about pensions “as life gets in the way”.Research published last week by personal finance comparison site Finder.com showed 35% of people living and working in the UK did not have a pension.The research estimated that millennials were £395,000 (€446,000) short on their pension pot estimations, while around half of baby boomers were unaware of how much they needed for retirement.Some 21% of adults in the UK said they thought they would need a pension pot of £50,000 to enable a comfortable retirement, which would amount to an average of around £3,333 a year, according to Finder.com.last_img read more

BT slashes cost of legacy pension equalisation

first_imgPremier Foods this week reported a £41.5m provision for GMP equalisation, or 0.89% of its liabilities. The highest reported cost so far came from HSBC, which said GMP equalisation would cost it roughly £177m – although this was still less than 0.9% of its DB obligations.The revisions reflect findings from accounting and audit giant KPMG’s annual pension accounting survey , which found that 70% of its defined benefit (DB) pension clients recorded a liability increase of less than 1%, with 13% reporting an increase of less than 20 basis points.Consultancy Hymans Robertson has estimated that the final combined cost to UK DB schemes could hit £8bn, but this is roughly half the initial estimate reported immediately following October’s court case.The issue of GMP equalisation hit the headlines in October last year when the UK’s High Court ruled that the payments – which date back to 1990 – must be recalculated to ensure men and women are paid equally.IPE research has found that, of 191 listed companies to have reported GMP equalisation estimates, 140 had costs of less than 1% of liabilities.GMP cost estimates as a percentage of liabilitiesChart Maker The UK’s biggest corporate pension scheme has cut the estimated cost to legacy pension benefits of a gender discrimination case by almost 75% following analysis.The £50.7bn (€58.5bn) BT Group scheme initially estimated the cost of equalising guaranteed minimum pension (GMP) payments at “around £100m”, according to a results statement on 31 January.However, a subsequent results statement published on 9 May reported the estimated cost of the work at just £26m – or 0.05% of its liabilities.Separately, hospitality services company Compass Group today reported an estimated GMP equalisation cost of £12m, down from its initial estimate of as much as £40m.last_img read more