Founding investors of the Pensions Infrastructure Platform (PIP) are displaying a growing understanding of construction risk, according to the chief executive of the Pension Protection Fund (PPF), signalling a potential willingness on part of the fund to invest in greenfield projects.Alan Rubenstein said there was “more willingness now than there was at the start” to consider infrastructure projects with construction risk, despite founding investors initially completely opposing any such investments.Discussing the PIP’s future on the fringes of the National Association of Pension Funds (NAPF) annual conference in Manchester after briefing members on the progress, the organisation’s chief executive Joanne Segars also said the fund – the result of a memorandum of understanding between the PPF, NAPF and UK Treasury – was on track to invest by the end of the year.Segars said a “very extensive” manager selection, launched in February, was drawing to a close, but that she was “not in a position today to announce the manager or managers”. Asked about the PIP’s view of construction risk, Segars indicated that the view of the 10 founding investors was evolving.“It would be fair to say the views on construction risk have modified over the last year or so, as people’s understanding of construction risk has grown – but also as it has become more apparent that there are ways of managing construction risk from an investment perspective,” she said.Rubenstein agreed with Segars that investors had changed their attitude towards construction risk.“There has been a growing understanding among the founders of just what’s involved in construction risk, and there is perhaps more willingness now than there was at the start, where people were just directly opposed to it,” he said.“Again, as Joanne said, we’ve always been very clear construction risk wasn’t an issue in the sense that there are ways to lay that off.”Segars also made light of suggestions the National Employment Savings Trust would invest in the PIP after its CIO repeatedly expressed an interest.“Every time I open one of your magazines, Mark Fawcett is saying NEST is going to invest, which is very nice,” she said.She noted that the PIP did not exclude defined contribution (DC) funds from investing, despite the nine named founding investors being defined benefit (DB) schemes.“This isn’t something that’s for DB schemes – this is something that is for pension schemes that want to invest,” she said.Asked what the PIP could do to address any regulatory hurdles that may preclude DC funds from investing in infrastructure, Segars added: “A lot of that is about pricing issues, which is an issue for the schemes to deal with.”Rubenstein echoed the sentiment that the PIP would be open to DB and DC scheme alike.“We’ve always said this is open, frankly, to anybody who isn’t going to damage our tax position,” he said.
The letter came ahead of the G7 meeting of finance ministers in Dresden, with host nation Germany placing climate change at the heart if its presidency ahead of the UN Climate Change Conference in Paris this December.Signatory Philippe Desfossés, chief executive of the French supplementary civil service scheme (ERAFP), argued that a united front on climate change would allow investors to know they would be “supported, not harmed, by future policies”.Desfossés also backed the letter’s desire for national emissions pledges and actions plans on a country-by-country basis.“A low carbon future is an imperative. Delaying strong policy on climate change would be a false economy.”A similar letter last year, also backed by members of the Institutional Investors Group on Climate Change, its American, Asian and Australian sister organisations, as well as the Principles for Responsible Investment, argued climate policy gaps were holding back low-carbon investment.,WebsitesWe are not responsible for the content of external sitesLink to letter for G7 finance ministers Investors worth $12trn (€11trn) have urged G7 finance ministers to push for a long-term carbon reduction goal as part of the UN climate change conference in Paris, for the first time endorsing a cut in emissions.In a letter backed by 120 investors – including the Swedish AP funds, the UK’s BT Pension Scheme, the Church Commissioners for England, ATP and ABP – the signatories argued that the right signals from policy makers could attract investment to low-carbon projects, reducing the economic damage posed by climate change.It also called for “well-designed” policies that moved the current investment incentives offered from the high to low-carbon intensive industries.“Delaying action will require more stringent policies later if we are to remain within the 2°C emissions budget, exacerbating risks associated with energy investments and potentially stranding assets,” investors warned finance ministers.
“We would need a new negative shock to inflation before the ECB would ramp up their monetary policy,” he said, adding that there would be a bias in the markets towards further easing in the coming quarters.Meanwhile, Anders Schelde, CIO at Nordea Life & Pension in Denmark, said: “We are not too bullish on equities globally for next year because there are too many problems in emerging markets and the energy sector.”“Europe offers very good value, and I don’t think the ECB’s decision yesterday really changed that.”Schelde put the afternoon sell-off in the markets yesterday down to bad communication by the central bankers in the run-up to the announcement, rather than seeing it as evidence ECB policymakers had misjudged the economic situation when formulating their response.“At the end of the day, their number-one priority is to get the European economy going, and they will do what is needed,” he said.“If it turns out the economy needs a little more down the road, they will also do that.”PFA’s Pilegaard said: “It’s pretty safe to say the market got carried away prior to yesterday’s ECB decision.”However, one lesson to be learned from yesterday’s events was that the market was still showing clear signs of herd behaviour, he said, adding that he expected 2016 to be significantly more volatile compared with 2015. The European Central Bank (ECB) is likely to remain under pressure to cheapen credit despite yesterday’s decision by its governing council to extend its quantitative easing (QE) programme and cut its discount rate by 10 basis points, and may react further if later warranted by economic data, according to investment experts at two Danish pension providers.Rasmus Pilegaard, senior strategist at PFA Asset Management, said: “Looking ahead, some pressure will persist on ECB to do more.“Especially considering that ECB project inflation to increase to a meagre 1.6% by 2017, which is clearly below the ECB target – despite low interest rates oil prices, and foreign exchange.”But he questioned whether ECB president Mario Draghi would in fact be able to loosen policy again at a time when inflation was increasing, owing to base effects.
The UK government actuarial department has raised concerns about pension funds within the Local Government Pension Scheme (LGPS) and whether they can continue with their current accrual rate, singling out two closed transport schemes.In a “dry run” report ahead of the 2016 round of statutory valuation of the 91 separate funds in the scheme, the Government Actuary’s Department (GAD) signalled concern about two passenger-transport funds now closed to new entrants – the West Midlands Integrated Transport Authority Pension Fund and the South Yorkshire Passenger Transport Authority Pension Fund – about future solvency. GAD said it was unaware there was any plan in place to ensure solvency for these two funds. The department was carrying out the trial version of a review it will conduct under section 13 of the Public Service Pensions Act 2013. Section 13 will apply for the first time to the 2016 valuation round.Commenting on the two transport funds, GAD said: “In particular, we might have sought to better understand whether the relevant administering authorities had a plan in place to ensure that the fund continues to meet benefits due in an environment of no future employer contributions being available, if section 13 had applied as at 31 March 2013.” While the assessment of these two funds had led to “red flag” labelling for some aspects, a number of open funds within the LGPS had been given amber flags for some of the solvency criteria evaluated.The report uses a traffic-light system of green, amber and red flags to highlight whether action needs to be taken on individual issues.“We may have engaged with some of these administering authorities to discuss the reasons behind these flags,” the department said in its report, noting that none of these open funds had attracted red flags.The section 13 legislation requires GAD to report on whether four main aims are achieved: compliance, consistency, solvency and long-term cost efficiency.In the dry-run report, GAD said there was no evidence of material non-compliance but that there were some inconsistencies between the valuations of the schemes, in terms of the approach taken, assumptions used and disclosures.“These inconsistencies make meaningful comparison of local valuation results unnecessarily difficult,” it said in the report.In terms of long-term cost efficiency, the report concluded that the actuarial department would have engaged with the Royal County of Berkshire Pension Fund and the Somerset County Council Pension Fund – if it had been conducting an official report – to investigate in more detail whether the aims of section 13 were met.“We may also have engaged with some other administering authorities that had a significant combination of amber flags if section 13 had applied as at 31 March 2013,” it said.
The UK regulator’s proposals for the asset management industry are “raising the bar for fiduciary standards”, according to the former chief executive of the industry’s trade association.In a 208-page report published this morning, the Financial Conduct Authority (FCA) proposed a range of measures for asset managers to improve governance and value-for-money.Daniel Godfrey, who left the Investment Association (IA) last year, told IPE the FCA’s report had made it clear that “treating customers fairly is no longer enough” for asset managers.“It needs to be that asset managers always act in their clients’ best interests,” he said. This includes addressing practices that may be strictly within FCA rules but may not be providing the best outcome for investors.The FCA has proposed placing value-for-money requirements on existing fund boards to scrutinise costs and regularly review investment management agreements.But Godfrey said existing board members – very few of whom were independent, according to the FCA’s report – already had a wide range of responsibilities and might not have time to focus on the new rules.Instead, he recommended the creation of a single independent board within each asset manager with responsibility for fund governance.The regulator has also laid out four options for an “all-in fee” to incorporate all investment fund costs incurred by consumers.Godfrey highlighted the second option listed in the report, which would mean all costs within an asset manager’s control are laid out within the ongoing charges figure, with estimates for variable costs such as transaction costs.“This will make it much easier for consumers to compare – to get a much clearer sense of what a fund is trying to do and how much you’re going to pay,” he said. “You can then measure after the event whether you have got the value for money you were promised.“The asset management industry has always said it is different from banks and insurers because it is an agency business. The agent is the service you’re paying to act as your champion. There is no reason why it can’t make a profit from that role, but, once you’ve agreed a fee, you should stick to that.”During his tenure at the IA, Godfrey attempted to introduce a standardised template for illustrating costs clearly to investors – in part as a result of pressure from campaign groups.He left the IA after several member firms threatened to abandon it over disagreements regarding a renewed Statement of Principles.The FCA subsequently hired Godfrey on a short-term contract to feed in to its asset management review.Godfrey declined to comment on his input into the FCA’s review but made clear his support for its main proposals.“If a fund’s objectives are woolly, and it’s hard to get a handle on costs, it’s difficult for the investor,” Godfrey said.“If we can change this, it will make the industry more Darwinian. Then it becomes stronger, with better outcomes for consumers – and it also grows.”Regarding the regulator’s assessment that price competition among active managers was “weak”, Godfrey said: “What’s being challenged is the model of trying to beat the benchmark by 1-2% gross of fees. I don’t think it’s a death knell for active management but a chance to reinvigorate itself and become a force for better returns and better social and economic outcomes.”Since leaving the IA, Godfrey has taken up non-executive positions at Big Issue Invest and fintech start-up Digital Moneybox.In October, he co-founded The People’s Trust, a crowd-funded investment trust.
Aon Hewitt has presented its blueprint for a new, alternative pensions system in the Netherlands, focusing on fine-tuning the current one rather than radical change.The consultancy recommended splitting pensions into compartments for workers and pensioners within an individual pension fund, and introducing age-dependent indexation.Aon said its plan, unlike others under discussion, would avoid a complex transition and deliver better results than those produced by the current system.At the moment, the Dutch Social and Economic Council (SER) is considering two alternatives for a new, sustainable pensions system. In addition to a variant of individual pensions accrual combined with collective risk-sharing, the SER is also assessing a pensions contract based on real pensions, rather than nominal pensions.The latter option is to be combined with degressive accrual, rather than the current average accrual, which would be more equitable for younger participants.However, according to Mike Pernot, an actuary at Aon, the SER’s first alternative would be complicated “because of the required financial buffers, while it would not provide certainty, as it is basically a defined contribution system”.He added: “Besides the degressive accrual, the latter variant would not differ much from the current system, and it would also have its drawbacks.“Our blueprint would provide more stable pension rights for pensioners, as well as advantages for younger participants, because the solidarity between the generations would, in part, disappear from the system.”Aon cited age-dependent indexation as an alternative for the introduction of degressive accrual, as pension rights accrued as a 25 year old would entitle workers to full inflation compensation sooner than rights accrued close to retirement age.Indexation for all age groups, however, would start at a scheme’s funding of 105%, according to the consultancy, which noted that pension funds would face increasingly complex administration.By separating pensions rights into compartments for active participants and deferred members and another one for pensioners, the latter group could be offered a defensive investment mix.If funding for pensioners falls short of 100%, any necessary rights discount could be limited in scale through a contribution from the workers’ compartment.On the other hand, any surpluses relative to a coverage of 130% would flow back to the workers’ compartment, Aon said.Pernot pointed out that indexation for pensioners would already be possible at 100% funding but would be less following the defensive investment policy.In Aon’s plan, younger workers would be entitled to inflation compensation as soon as their funding exceeded 105%, as financial buffers to protect pensioners against cuts would no longer be needed.Under the rules of the current financial assessment framework, pension funds can start indexing in part with funding of 110%, while full indexation is only possible with a coverage of 125%.In Aon’s plan, retiring workers would migrate to the pensioners’ compartment at ‘neutral funding’ – i.e. their rights would be discounted in the event of a shortfall and they would be granted additional rights if there were a surplus.Measuring its plan against 2,000 economic scenarios used by the Dutch regulator, Aon concluded that the current pensions system only performed better in the worst scenarios.Pernot said Aon’s system could be introduced relatively easily, and before 2020, by adjusting the nFTK.
The Church of England Pensions Board (CEPB) has appointed John Ball as its new chief executive, starting on 1 July.Ball’s appointment follows the unexpected death of former CEPB chief executive Bernadette Kenny last October.Jonathan Spencer, chair of the CEPB, said: “John brings a wealth of experience and a thorough understanding of the need and challenges faced by many of our key partners, having worked as CEO for one of the Church’s largest and most diverse dioceses.”Ball is currently chief executive and secretary for the diocese of Chelmsford, having joined in 2011. The diocese covers the church’s work in east London and the county of Essex. He gained a degree in philosophy, politics and economics from the University of Oxford before joining London Underground, part of Transport for London. He spent 11 years with the transport organisation, where he became head of strategy and asset management.The CEPB provides pensions for clergy and church workers and its schemes have over 38,000 members.It made a record investment return of 21.2% for the 2016 calendar year on a portfolio currently worth £2.4bn (€2.7bn). Assets are split between return-seeking (80%) and liability-matching (20%) pools.As at 31 December 2017, equities made up 67% of the CEPB’s total portfolio, real estate 10%, fixed income 9% and infrastructure 6%.Pierre Jameson, chief investment officer at CEPB, recently spoke to IPE about the church’s investment strategy.
The advisory board to Scotland’s £42bn (€48bn) Local Government Pension Scheme (SLGPS) has proposed pooling its 11 local authority funds to boost economies of scale and cut costs.As part of a consultation process on the future of the SLGPS, the scheme’s advisory board is seeking views on four options, ranging from retaining its current structure to merging into one fund.According to the consultation document, the main aim was to determine whether the sustainability of the overall scheme – and members’ interests – can be improved “by reducing the investment management costs of the system”.However, the paper warned that this could be “with the trade-off of potentially diminishing local governance and oversight” Jonathan Sharma, joint secretary to the SLGPS advisory board, said the potential changes had “always been on the agenda”.“Looking at the wider landscape, obviously there’s been movement elsewhere in England and Wales, in addition to what’s been happening around pension schemes internationally,” he said. “What we’re focused on now is more about how they could invest in a more effective way.”The proposal reflects moves in England and Wales to consolidate the assets of 89 LGPS funds into eight separate pools. In Scotland, at present, the Falkirk and Lothian pension funds already work together to invest in infrastructure – with plans to collaborate further across additional asset classes.Unison, one of the UK’s largest unions, said its own research backed the benefits of scale. However, in a statement, the union warned that “the reality of pooling of assets on the scale of the Scottish LGPS is not without significant challenges and costs”.Unison added: “It should be obvious that this is not a straightforward or easy decision. It is also complex, with few hard numbers to support any option because other economic factors impact on any evaluation.”The SLGPS has more than 406,000 members, including from the police, and the education and voluntary sectors. Out of the 11 funds, Strathclyde is currently the largest with more than £20bn in assets and 210,000 membersThe advisory board is expected to report its findings to the Scottish government’s cabinet secretary for finance and constitution, Derek Mackay, by April next year. A spokesperson for the Scottish government said they were interested to gain views from all perspectives. “We are keen to see pension funds play a part in increased investment in infrastructure and support for stable and sustainable growth,” the spokesperson said.
Members owed average 15% indexation payments – surveyDutch pension fund participants and pensioners have missed out on 15% of indexation on average since 2010, a survey has suggested.According to Nibud, a foundation that researches and advises on family finances, only Dutch retirees with an additional pension of less than €5,000 had not lost purchasing power during the past eight years. It found that Dutch retirees with highest additional pension had lost the most purchasing power.Pensioners with occupational and third pillar pensions of €10,000 losy 3.4%, while those with €30,000 had lost 8.3%, Nibud reported.Nibud, which assessed 10 pensioner households in a static situation, attributed the loss of purchasing power in particular to the lack of inflation compensation by pension funds.However, it said that the income of households had also been affected by new and means-tested fiscal rules.The survey – commissioned by 50Plus, the Dutch the political party for the elderly – found that retirees with an additional pension of €5,000 had gained 2.7% in purchasing power.Pensioners without an occupational pension, and dependent on the state pension (AOW), gained 4.4%.Dutch pension funds have granted barely any inflation compensation since 2010, with a number having been forced to cut pension payouts during 2013-14.In 2018, indexation has been 0.2% on average and Nibud said it expected a similar percentage to be granted in 2019.Of the five largest pension funds, only BpfBouw, the €58bn scheme for the building industry, has given its participants and pensioners inflation compensation this year, paying 0.59%. The €1.3bn Dutch Nedlloyd Pensioenfonds is to stop offering its individual defined contribution (DC) plan as of 2020.In its annual report for 2017, the pension fund explained that the DC arrangements would not remain viable because of the limited take up by employees.The company scheme for the Dutch workers of Danish shipping firm Maersk introduced the individual DC plan for the employees of the company’s six subsidiaries in the Netherlands in 2015, and has attracted roughly 480 participants.At the time, Nedlloyd was among the first Dutch schemes to offer members the option of converting part of their accrued pension rights into pension claims at from the scheme’s collective DC pot. Since 2015, the participants have accrued €10m under the individual DC arrangements.Nedlloyd said it had hoped to attract other Maersk subsidiaries in the Netherlands to join the individual DC plan, which was operated by the pension fund with assets run by Robeco.The number of members in this part of the scheme was too low to achieve benefits of scale, Nedlloyd said.The pension fund added that it was not yet sure that the assets accrued in the individual DC plan would be added to the scheme’s assets, as members had the legal right to transfer their pension savings to another provider at retirement.The Nedlloyd Pensioenfonds is to continue as a closed scheme as of 2020. Frans Dooren, its director, said he couldn’t provide additional details yet, as the employers involved hadn’t yet informed their workers.
Dutch pension funds made a net loss of 1.2% on investments on average last year, according to pensions adviser LCP.The consultancy, which used statistics provided by supervisor De Nederlandsche Bank (DNB), said 80% of the 184 surveyed schemes had reported negative investment results.LCP indicated that the figure of -1.2% included the result of schemes’ hedging the interest risk on their liabilities.It said the outcome was a weighted average, corrected for a scheme’s scale. The unweighted average was -1.3%. According to the consultant, the weighted average return in the first quarter of 2018 was -0.7%.The result had improved to 2% and 0.9% in the second and third quarter, respectively, but became a 3.4% loss during the last three months of last year.The 2018 result contrasted sharply with the 5.7% generated on average in the previous year, when merely 2% of the surveyed schemes had incurred a loss on investments.Jeroen Koopmans, partner at LCP, said the DNB statistics did not offer clues as to why the results were so much lower last year.“In general, this was caused by returns on investments in particular and not by fluctuations in interest rates,” he said.LCP’s analysis showed that, with a 2% loss on average, general pension funds (APF) had performed worse than occupational schemes (-1.3%), industry-wide pension funds (-1.2%) and company schemes (-1%).Within the company pension funds category, the larger ones usually performed better than smaller ones, whereas for sector pension funds the opposite was the case. The pension fund for shipping firm Nedlloyd was one of the five best performing schemes in 2018The five best performing schemes last year were Kappers, the sector pension fund for hairdressers (2.3%), and the company pension funds for IBM Netherlands (2.2%), Mercer Netherlands (2.2%), shipping firm Nedlloyd (1.6%), and PepsiCo Netherlands (1.5%).LCP’s Koopmans attributed their results to the fact that most of them had a securities allocation of less than 30%, which had limited their losses as a result of declining equity markets in the last quarter of 2018.The five worst performing schemes last year were the pension fund of former cruise company HAL (-12.9%), the Pon compartment of multi-company scheme Pon (-5.3%), the pension fund of payment services firm Equens (-5.1%), industry-wide pension fund Sportfondsen (-4.5%), and the fund for publisher VNU (-4.2%).However, all of these pension funds had a coverage ratio exceeding their required funding level.Koopmans said the DNB figures did not directly explain the low returns and the difference in loss between the pension fund HAL and the Pon compartment, which both had invested around 67% in securities.“Moreover, with a securities allocation of 62%, civil service scheme ABP reported a loss of no more than 2.3%,” he noted.The LCP partner suggested that returns were also affected by the scale of schemes’ interest and currency hedge, the other asset classes they had invested in, the geographical areas of their holdings as well as whether investments were passively or actively managed.The number of pension funds in the Netherlands currently stands at around 230, with more than two dozen in liquidation.