IORP II to remove EU member states’ ability to cap equity exposure

first_imgUnder Article 20 of the revised Directive, member states will no longer be allowed to prevent IORPs that offer guarantees, such as those offered by defined benefit funds, from investing up to 70% of assets in “shares, negotiable securities treated as shares and corporate bonds admitted to trading on regulatory markets”.Wiedner added: “Obviously, that doesn’t mean that, within that 70%, the supervisor should not check which investments are coming out.”In a move meant to allow pension funds to invest in infrastructure, aided by Commission proposals for a central database on infrastructure loan credit history, national supervisors will also now be unable to restrict exposure to any instruments deemed to have a long-term economic benefit, even if these are unlisted.However, the change to the ability of member states to impose “relative weight” restrictions on pension funds will be more significant, especially in countries such as Germany, where pension funds are significantly underweight equities when compared to their counterparts in the Netherlands and UK, where national regulators have a more positive view of stock investments. The European Commission will no longer allow national regulators to restrict a pension fund’s exposure to assets such as equities, removing a member state’s ability to cap allocation to equity to as little as 10%.The revised IORP Directive, released today, proposed a number of amendments to investment rules, such as removing from member states the ability to restrict investment in assets that could promote growth.Discussing the changes at a press conference attended by internal market commissioner Michel Barnier, Klaus Wiedner, head of the pensions and insurance unit, said national regulators’ ability to limit exposure to as little as 10% of assets had been taken away.“Now what we have is 70% [of assets as] the only restriction possible that the supervisor can impose on pension funds,” he said.last_img read more

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Rockwool’s pensioners ask in vain for €20m indexation contribution

first_img“Following the rights cuts, as well as the lack of inflation compensation since 2006, purchasing power for Rockwool’s 700 pensioners has fallen by as much as 38%,” argued Riekus Wolzak, the VGR’s chairman. The lobbying organisation has 150 members, and was established in 2012.Wolzak said the VGR based its claim in part in a report from an external expert – commissioned by the pension fund in 2007 – who at the time concluded that an additional €14m contribution from the employer was necessary to improve the scheme’s financial position.The pensioners attributed the problem chiefly to insufficient premiums paid by the employer, making it impossible for the pension fund to accrue adequate financial buffers.“Until 1998, the employer was in a position to pay contributions dependent on the scheme’s returns. As a consequence, the employer’s premium was sometimes lower than the contribution paid by its workers,” Wolzak pointed out.“Between 1995 and 2003, the pension fund had to meet a combined premium shortfall of €10m from its own assets,” he said, referring to the report from 2007.In the opinion of the VGR, the employer has abused its dominance by saddling up its pension fund – through a board of three employers representatives and three employees – with financial arrangements and articles of association that mainly benefited the company.As an example of inadequate contributions in the past, the VGR cited the former final-salary arrangements under which the employer and workers contributed 6-10% and 5.6% respectively, compared with the current average salary plan, with premiums of 20% and 12.5% respectively as well as the scheme’s returns now fully benefiting the pension fund.Although Wolzak acknowledged that the employer may have stuck to the legal rules, in the VGR’s opinion, it was morally wrong, he said.The chairman nevertheless indicated that VGR’s members are considering bringing a legal case against their former employer.In a response, the company said it was not considering the requested additional contribution, and denied it had made unilateral agreements. “The content and financing of the pension plan have been agreed with the unions during negotiations about the collective labour agreements,” it stressed.Referring to the shortfall in 2007, it said that, instead of a paying a one-off contribution, it had opted for a structurally higher employer’s contribution, totalling €7m until the end of 2013, adding that its premium is to rise further this year.Erwin Capitain, the pension fund’s chairman, declined to comment, explaining that the dispute was a matter between the VGR and the company.The Rockwool scheme has approximately 3,000 participants in total. During 2012, it returned 9.5% on investments with a portfolio of approximately 73% of fixed income investments, 22% equity and 5% property.Following its own rules, it cannot grant any indexation as long as its funding is less than 110%. Full inflation compensation is only possible if the coverage ratio is more than 135%. The pensioners’ association (VGR) of insulation manufacturer, Rockwool’s Dutch subsidiary has asked the employer in vain for an additional €20m pension fund contribution. In the opinion of the VGR, the pension fund is entitled to such financial boost, as in its opinion, the company had proportionally paid insufficient premiums in the past and had concluded arrangements with its pension fund that were unilaterally beneficial to itself.The €20m would have enabled the scheme to link pensions paid to inflation for the first time in eight years.Last year, the €240m Rockwool scheme was among 19 pension funds that had to cut pension rights at the maximum rate of 7% as part of its recovery plan. Currently, its funding is 107.9%, almost 3 percentage points above the required minimum level.last_img read more

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European pension fund tenders $10m low-volatility equity mandate

first_imgThe mandate size is stated as $10m, but is to grow in the future.Companies responding should have at least $250m in assets under management in the mandate, and a track record of three years at least, though four years is preferred, according to the search.The closing date for applications is 1 December.For full information, please go to http://www.ipe-quest.com/search.htm An undisclosed pension fund based in Europe has put out a search for managers to take on a low-volatility equities mandate for $10m (€12.6m) in assets initially.According to a search 1474 on IPE-Quest, the pension fund is hunting for asset managers for information purposes (RFI) and says a manager may not be appointed.The pension fund said the main target for the mandate was the reduction of volatility and drawdowns.The investment universe is global, but the preferred currency is euros, according to the search.last_img read more

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EIOPA confirms IORP solvency, HBS advice timeline

first_imgThe European Insurance and Occupational Pensions Authority’s (EIOPA) 2016 work programme has confirmed the authority will by the end of March deliver its own initiative advice on solvency for IORPs and the use of the holistic balance sheet (HBS).The advice constitutes a “product” that falls under the second of five strategic objectives for the authority, namely “to lead the development of sound and prudent regulations supporting the EU internal market”.The work falls under the operational activity heading of “occupational pensions regulation”, identified as high priority.This means it is a legal requirement that must be delivered this year and is “strategically aligned”. The authority lists two other products for delivery in this context alongside the advice on solvency and the use of the HBS.The first is “advice on IORP II: key input, on information to members and beneficiaries, and risk evaluation for pensions”.There is no fixed due date for this, with delivery instead being “contingent on demand”.The other product is “improvements to pensions data including via the Market Developments Report”, with a deadline of the fourth quarter of this year.EIOPA’s work on occupational pensions “will be maintained with existing resourcing levels in 2016”, it said.The work programme also has EIOPA delivering to the European Commission its advice on a single market for personal pensions.Earlier this month, EIOPA launched a consultation on its final advice on the development of a so-called 2nd regime for pan-European personal pension products (PEPPs). This year, EIOPA added a fifth objective to its work programme, which, unlike the others, is not based on the tasks and responsibilities the authority has been mandated in its regulation.The fifth objective was added to reflect that “EIOPA’s operational success is dependent on its reputation as a capable, well managed and credible organisation”, according to the authority.The objective is for EIOPA to act as a “modern, competent and professional organisation, with effective governance arrangements, efficient processes and a positive reputation”.No decision on carbon-asset risk in stress testsMeanwhile, a spokesperson at EIOPA told IPE it was too early to know whether carbon-asset risk would be included in the next stress tests on European occupational pension funds.In a report published last week, the European Systemic Risk Board (ESRB) examined the potential risk of a late low-carbon transition and proposed that future stress testing of the financial sector by the European Supervisory Authorities (ESAs) incorporate the risk of a “hard landing” scenario.EIOPA is one of three ESAs and, as noted by the EIOPA spokesperson, is represented at the ESRB, as the ESRB is at EIOPA.“Market-adverse scenarios for both insurance and pensions’ stress tests conducted by EIOPA are developed in close cooperation with the ESRB,” said the spokesperson.“The shocks against which the insurers’ in 2016 and IORPs’ balance sheets in 2017 will be stressed are not yet known.”The final decision will be taken by EIOPA’s board of supervisory shortly before the stress tests are launched.For the insurance sector, this will be in May 2016, while the timeline for the pensions sector stress test will be released in early 2017.,WebsitesWe are not responsible for the content of external sitesLink to EIOPA 2016 Work Programmelast_img read more

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Interest, currency hedges hit 2015 returns at Dutch transport scheme

first_imgThe 27.4% equity allocation returned 10.4%, with Japanese, US and low-volatility stocks performing best.Real estate and infrastructure holdings generated returns of 1.5% and 11.8%, respectively.In its 2015 annual report, the transport scheme said it made a €35m target investment (contributing to the UN’s Millennium Development Goals) in the SME Financial Fund of Actiam-FMO, which provides loans to financial institutions in developing countries.According to director Willem Brugman, Vervoer has committed to a total investment in the fund of more than €46m.He added that the scheme had already committed €30m to the Actiam Institutional Microfinance Fund 2 as a target investment in 2008.As of the end of April, funding at the scheme – which has 623,000 participants and pensioners, affiliated with more than 7,900 companies – stood at 98.8%. Vervoer, the €19.8bn sector-wide pension fund for private road transport in the Netherlands, reported a -1.5% loss in 2015 due to negative results on its interest and currency hedges.The pension fund achieved positive returns on all of the “traditional” asset classes, according to its 2015 annual report, yet this failed to offset losses incurred through its hedges.Vervoer reported a 2.5% loss on its 63% interest hedge, while its full hedge on the US dollar, the British pound and the Japanese yen caused a 5.1% loss after those currencies appreciated against the euro.The pension fund’s 69% fixed income allocation produced a 4.7% return over the period, in spite of losses on long-term, euro-denominated government bonds and local-currency emerging market debt.last_img read more

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UK roundup: BT confirms DB scheme closure for 10,000 managers

first_imgThe company said in a notice to the stock exchange that it was “still reviewing feedback” on a consultation to close the scheme for employees that were not managers, and remained in discussion with another union, the CWU.Alison Wilcox, BT Group HR director, added that the company was “working hard to ensure fair, flexible and affordable provision for members of our pension schemes”.Prospect national secretary Philippa Childs said: “During a very difficult negotiation we secured decent protections for those having to transfer for future service, as well as improved employer contributions for people already in the BTRSS. Since the ballot result, and the end of BT’s own consultation with staff, we have gone back to the employer and won yet more concessions.”Master trust fined over administration failingsThe UK’s Pensions Regulator (TPR) has fined the trustees of DC master trust NOW: Pensions £70,000 for “persistent administrative failings” and given the company a deadline to fix its problems.The master trust has been plagued with back-office issues that have caused some members’ contributions to not be collected or invested. NOW: Pensions – which was set up by Danish pensions giant ATP in 2011 – removed itself from the regulator’s list of approved master trusts last year in relation to the issues.As well as the fine for the trustees, TPR issued an “improvement notice” to the trustees and a “third party notice” to NOW: Pensions Ltd (NPL), the entity that manages the master trust. The notices were sent “to ensure that the trustee and NPL take key steps to resolve the issues by set deadlines”, the regulator said. NPL appointed Dalriada as an independent trustee last year to assist with the company’s ongoing attempts to resolve the issues. Nicola Parish, TPR’s executive director of frontline regulation, said: “This package of measures, together with those voluntarily taken by the trustee, should ensure that the issues with NOW: Pensions which have persisted for so long are finally resolved. We will continue to monitor progress and will issue further fines if necessary to ensure that the trustee and NPL focus on resolving the issues as swiftly as possible.”Troy Clutterbuck – who has been interim CEO at NOW: Pensions since the departure of Morten Nilsson in August – said he was “truly sorry” for the delays in processing pension contributions, adding that the company had made “significant progress” on addressing the problems. Telecoms giant BT has confirmed plans to close part of its defined benefit (DB) pension scheme to future accrual from 31 May 2018, affecting roughly 10,000 managers within the company.The group is attempting to address a pension deficit estimated at £14bn (€15.7bn). From 1 June the affected employees will begin contributing to the BT Retirement Saving Scheme (BTRSS), a defined contribution (DC) scheme. Labour union Prospect said yesterday it had negotiated improvements to the scheme and additional concessions from the employer to aid the transition from DB to DC.The DC improvements included a higher employer contribution rate of 11% of salary for the first five years, Prospect said. Managers would be permitted to make additional voluntary contributions to the DB section until the end of September 2019. NOW: Pensions interim CEO Troy Clutterbuck apologised for delays in processing contributionsHe added: “I’m pleased to say that the vast majority of schemes are now up to date. Work continues on a small percentage of larger and more complex schemes and these will be updated by April – the deadline set by the regulator.”Chair of trustees Nigel Waterson emphasised that members’ funds were “completely safe” and said NOW: Pensions would ensure members would be put back “in the same position they would have been in had their contributions been processed in a timely manner”.Clutterbuck said the company had invested in new systems to help improve the quality of member data.NOW: Pensions is the pension provider for IPE International Publishers. Prudential backs Scottish Widows longevity reinsurance dealScottish Widows has transferred the longevity risk linked to $1.8bn (€1.5bn) of annuity liabilities to the Prudential Insurance Company of America.It is the first longevity transaction Scottish Widows has completed.Michael Downie, finance director for annuities and investment strategy at Scottish Widows, said: “[Prudential’s] financial strength and long-term commitment to the market was a key consideration for Scottish Widows when selecting a counterparty. Throughout the negotiations, they took the time to understand our needs and actively tailored their offering to meet our requirements.” Scottish Widows has backed notable buy-in transactions with the ICI Pension Fund and Monsanto since entering the market in 2015.Prudential has completed more than $45bn worth of reinsurance transactions since 2011, according to the company. This included the mammoth £16bn longevity swap transaction with the BT Pension Scheme in 2014 – still the biggest single derisking deal ever completed in the UK.last_img read more

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‘Clearer, quicker, tougher’: UK regulator sets out three-year plan

first_imgFrom October this year, DC master trusts such as NEST and The People’s Pension will be subject to a new authorisation regime to be implemented and monitored by TPR according to regulations and best practice guidelines that will be confirmed during the summer.TPR said in its corporate plan: “In delivering the new authorisation and supervision regime, we will continue to engage with the UK’s master trusts before they apply for authorisation.“We will clearly set out the standards they will need to meet, and we will work closely with those who intend to exit the market, to encourage a smooth transition process.”TPR and BrexitThe UK regulator laid out its plan for preparing for the UK’s withdrawal from the EU in March next year. One of its eight priorities for the next three years outlined the importance of “building understanding and resilience, with an appropriate regulatory response to the Brexit outcome”.“We will continue to work closely with the government and wider pensions industry to build our understanding and response to the potential effects of Brexit on schemes. “This work will include responding to any changes to European pensions law and requirements into UK law, and assessing the implications for cross-border schemes. “As further analysis of the effects of Brexit on UK pension schemes becomes available, we will provide specific guidance to schemes and the industry where appropriate.” The UK government proposed new powers for the regulator in its DB policy white paper, Protecting Defined Benefit Pension Schemes, published in March.These included an expanded remit to fine directors and companies to tackle irresponsible activities that might hurt pension schemes, and a tightening of the rules around mergers and acquisitions.“We have a wide range of powers that we use flexibly, reasonably and appropriately,” Titcomb and Boyle wrote. “We are likely to take enforcement action where we encounter wilful or persistent non-compliance, where our earlier efforts to encourage compliance with the law have not had the desired effect, or where we uncover evidence of malpractice.”TPR said it would intervene “more widely” and would tailor its actions towards specific circumstances. “This will enable us to use our resources more effectively and to be clearer in our expectations, quicker to respond and tougher where we need to be,” it said.The regulator has come under fire in recent months from politicians in the wake of the collapse of engineering firm Carillion and the transfer of its pension schemes to the Pension Protection Fund. It was also criticised for failing to protect members of the British Steel Pension Scheme from poor advice during the scheme’s high-profile restructure.DC’s growth gives regulator new focusA core focus for TPR over the next three years would be the defined contribution (DC) market, it said. Following the introduction of auto-enrolment, DC funds have overtaken defined benefit schemes in terms of membership. The UK’s Pensions Regulator (TPR) plans to increase its staff by 12% ahead of the introduction later this year of new powers granted by the UK government.In its latest three-year corporate plan, covering the 2018-21 period, TPR vowed to become “a clearer, quicker and tougher regulator”.“Over the next year you can expect to see us improving our effectiveness further by taking action in a broader and more visible way to improve outcomes for retirement savers,” chief executive Lesley Titcomb and chair Mark Boyle wrote in their introduction to the plan. “We will ensure our expectations are better understood and use a wider range of regulatory tools, with the aim of putting things right and keeping schemes on the right track for the long term so members receive the benefits to which they are entitled.”last_img read more

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DC consolidation could come at expense of members, experts warn

first_img“The downside of consolidation is that the market becomes so bland and low cost that the products being provided to members end up not being any good,” said Sarah Smart, chair of the trustee board at TPT Retirement Solutions. “That it’s only big bland vanilla products that members get – and that’s not what the intention was at all.“The intention was to enable the economies of scale to happen and allow the market to be broad enough to be able to distinguish between [the individual schemes].”The DWP has estimated that the number of master trusts could fall over the next few months from the 81 registered by TPR in January to 56 post-authorisation.#*#*Show Fullscreen*#*# Source: Department for Work and PensionsHow the DWP sees the UK master trust market developingMembership of master trusts has grown by 42% over the past year to almost 10m members, according to data from TPR. Assets have doubled since 2010 to more than £10bn (€11.4bn).Over the past few years, several smaller schemes have been acquired by larger providers.Last month, Salvus Master Trust boosted its assets to more than £100m through consolidation with the £7m Complete Master Trust.In 2016, the trustees of My Workplace Pension moved the scheme’s assets to Smart Pension, and BlueSky Pensions UK swooped on the separate Wessex Pension and Pensions Umbrella trusts.Master trusts have grown in popularity following the launch of auto-enrolment for all UK employees. In effect, each master trust acts as an umbrella structure for many different occupational DC schemes, with each employer gaining its own division within the overall plan.As there is only one overall trustee board, responsibilities such as governance are ceded to the master arrangement.“With the rapid growth in the master trust sector as a result of automatic enrolment, the Pensions Regulator’s new authorisation regime is essential to safeguard savers,” said Tim Gosling, DC policy lead at the Pensions and Lifetime Savings Association, the UK trade body.“The requirements for authorisation have been created to challenge the sector and there will likely be consolidation of the market as a result. Some schemes are looking to grow by acquisition and we anticipate that these ones will take most schemes wishing to exit the market.”However, Gosling said there were “residual concerns” over the possibility of a small number of schemes exiting the market “in difficulty”.“We anticipate that TPR will be monitoring these schemes closely in the run up to 1 October,” he added. A spokesperson for TPR said there was no target as such for the number of schemes that should be in the market.“Inevitably there will be some market consolidation as some schemes will chose not to or be unable to meet those standards and wind-up, so the number of master trusts schemes operating in the market will reduce,” the spokesperson said. “We have already seen some schemes leave the market and we expect that more will go.” The ongoing consolidation of UK master trusts could lead to “big bland vanilla products” for members, flying in the face of the government’s aim for the best and most effective schemes to survive authorisation at the start of October, industry experts have warned.The sector faces a shake-up in advance of the need for master trusts – multi-employer defined contribution (DC) schemes – to seek authorisation from the Pensions Regulator (TPR) from 1 October 2018.The UK’s Department for Work and Pensions (DWP) estimates that as many as 17 schemes might not seek TPR approval.While the process of mergers and acquisitions might be broadly positive for larger schemes, keen to achieve economies of scale, experts have warned that members’ interests might be left behind.last_img read more

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USS: Further delay to funding agreement risks regulatory action

first_imgThe pension fund for the UK’s higher education system will not incorporate revised risk appetite information from sponsoring employers into its latest funding agreement in part because of concerns a further delay could bring a regulatory penalty. The £60bn (€67.8bn) Universities Superannuation Scheme (USS) has started a consultation with employers on a deficit recovery plan and schedule of contributions that would finalise the 31 March 2017 valuation. Disagreements between unions and employers about the valuation ultimately led to strikes on campuses across the country this year and the formation of an independent panel of industry experts to attempt to resolve the dispute.The proposals put forward by USS were based on planned contribution increases arising from a default cost-sharing process that kicked in when Universities UK (UUK) – which represents employers – and University and College Union (UCU) – representing members – failed to agree on an approach to the scheme deficit. The joint expert panel (JEP) had recommended that sponsoring employers’ attitude to risk be reassessed, which it said could lead to lower contributions than those planned by USS, and that this and other measures be implemented within the 2017 valuation.   University employers have expressed willingness to bear more risk through USSHe explained that the scheme was also proposing to stick with deficit recovery contributions of 6% for the 2017 valuation after having considered funding and market developments since 31 March 2017.As at the end of October the scheme’s funding position, based on the distance from its ‘self-sufficiency’ benchmark, was not markedly better than that of March 2017, Galvin noted, and Gilt yields were somewhat lower than projections made in 2017.The scheme would, however, review its stance on the deficit recovery contributions in January following the consultation with the UUK, and before submitting the completed valuation to TPR.Galvin also reiterated USS’s intention to proceed with a new valuation using data from 31 March 2018, after sponsoring employers agreed to more risk. The scheme expected to issue a technical provisions consultation to UUK in the coming weeks.He asked UUK CEO Jarvis to provide feedback on the draft contributions schedule and recovery plan by 11 January to allow USS to complete the 2017 valuation and submit the final valuation report to TPR.Alternative approach?In an explanatory note to UUK on USS’s proposal, Aon consultants floated an alternative approach to the two-valuation route being pursued by USS, which it said could effectively create a problematic “backstop” position if the 2018 process was not satisfactorily resolved within a reasonable amount of time after the conclusion of the 2017 valuation. Instead, Aon said, the scheme could implement an interim plan for contributions before completing the 2017 valuation, replacing current contributions with those due from 1 April 2019 (19.5% for employers, and 8.8% for members). These would apply until the 2018 valuation were agreed. Under USS’s proposal, contributions contributions would increase from 1 October 2019 and then again on 1 April 2020. An interim schedule based on the 1 April 2019 contributions would have several benefits, according to Aon, including that it “would be consistent with the trustee’s position of a 2018 valuation being the most appropriate approach to consider the JEP’s recommendations, and to the agreement of all parties to a resolution ahead of JEP phase 2”.The consultants noted that further information would likely be available before the deadline of USS’ consultation on the deficit recovery plan and contributions schedule. According to Aon, USS was looking to submit the completed 2017 valuation to TPR in February. In a letter to Alistair Jarvis, chief executive of UUK, Bill Galvin, his counterpart at USS, said the scheme acknowledged the prospect of “a material change in the views offered to the trustee to date on such fundamental issues as market risks, investment strategies and contribution levels” since USS had consulted with the UUK in September last year.“It is clear at this stage of the process that the consequences of any such delay could include the very real risk of regulatory sanction”Bill Galvin, USS chief executiveHowever, reopening the discussion “on such fundamental issues” in relation to the 2017 valuation would introduce further delays in increasing the contributions to the scheme and meeting the costs of the benefits currently accruing, said Galvin.“It is also clear at this stage of the process that the consequences of any such delay could include the very real risk of regulatory sanction, with the Pensions Regulator [TPR] ultimately having powers to direct the trustee on how to calculate the technical provisions, change the benefits and/or set the contribution rates for members and employers,” wrote USS’ chief executive.The statutory deadline for completing the 2017 valuation was 30 June 2018 – 15 months after the valuation date – and Galvin noted the scheme “has been in breach of the law ever since”. last_img read more

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National Grid UK pension scheme de-risks further with £1.6bn buy-in

first_imgThe £20bn (€23bn) National Grid UK Pension Scheme has further protected its future funding by entering into a £1.6bn buy-in with Legal & General.Announced today, the transaction covers more than 6,000 pensioner members, including spouses from section B of the scheme, which is primarily for former employees of the gas industry.The deal was funded with UK fixed interest securities held within the section. It comes on top of a recently disclosed £2.8bn buy-in that the pension scheme completed with Rothesay Life with respect to some pensioner and dependent members of Section A.In a similar vein to their comments about the deal with Rothesay, the pension scheme and sponsor respectively welcomed the transaction with Legal & General as “another step in our de-risking journey” and “a further step in our long-term pensions strategy”. Nearly £40bn of bulk annuity deals have been announced this year as improved pension scheme funding levels and better-than-ever insurer pricing have paved the way for record activity.Martin Bird, senior partner at Aon, which advised the trustees, said they and the employer had “navigated through a busy bulk annuity market”.Laura Mason, chief executive officer of Legal & General Retirement Institutional, highlighted that Legal & General had been able to leverage its asset management mandate with the pension scheme.Aerion Fund Management, the then in-house manager for the National Grid Pension Scheme, was sold to Legal & General Investment Management in late 2015.last_img read more

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