It also cited the European Commission’s White Paper on Pensions (2012), which said tracking services could give citizens accurate and up-to-date information about pension entitlements, as well as projections of income after retirement from statutory and occupational pension schemes.According to the report, there are two ways of setting up tracking services.One is to set up a database, or use an existing one, for consumers to log in to, while the other is to use a so-called ‘service bus’, which makes personal data instantly available to the consumer when logging in to the system.The Groupe Consultatif said, for national tracking services to succeed, it was necessary to have enough data sources, and for these to cover as many consumers in that country as possible.The services in the four countries in the report covered on average 90-100% of consumers’ pension benefits, the group said.A central secure log-in system makes it easy for people to “log in with confidence”.“The most efficient way to develop an EU tracking service will be to use the experience of the existing national tracking services, and build on this to create a portal that combines knowledge from the different countries,” it said.Such a portal should start with the facility to show a consumer’s current pension benefits, and this could be extended later to more countries, with a range of capabilities being introduced to model expected future pension entitlement, it said.The Groupe Consultatif said its Taskforce on Tracking Services would now look further into possible setups of national tracking services in other EU countries.The results of these investigations will be published in 2014, it said. A new report has laid the groundwork for developing an EU-wide pension tracking service to give people an easy way of tracing all their pensions savings and entitlements.The Brussels-based Groupe Consultatif Actuariel Européen (European Actuarial Consultative Group) has published a report on existing national pension tracking services, which gives advice on moving towards a scaled-up EU version of these services.The existing services in Denmark, Finland, Sweden and the Netherlands are widely used, according to the report, receiving more than 10m visits last year, which equates to around 10% of the total population of the four countries.The Groupe Consultatif said it produced the report in response to the growing interest in developing EU pension tracking services.
The London Pension Fund Authority (LPFA) has won a four-year contract from the Bedfordshire Fire and Rescue Service to administer its pension schemes and payroll.Under the deal, the LPFA said it would provide full pension administration and payroll services to around 1,000 active and retired firefighters and their families for the next four years.The authority said it had been chosen because of its skill in delivering Fire Fighter Pension Schemes, as well as the fact it had almost 15 years of experience administering pensions for fire fighters.The contract will cover full pension administration and payroll services for both new and old fire fighter schemes. It will also include secure employer and member portals, workflow management and communications services, the authority said.Meanwhile, private bank Berenberg has been appointed by Aerion Fund Management – which manages the National Grid UK pension fund – to manage a £3.5bn (€4.26bn) active currency overlay mandate.Aerion said it chose Berenberg to manage the underlying currency exposure of the pension fund’s overseas investments because of the bank’s risk-orientated and rule-based process.Tindaro Siragusano, head of asset management at Berenberg, said the currency overlay programme covered both developed and emerging market currencies, and had the potential to increase sterling returns generated by the fund’s overseas holdings. Against a 50% hedged benchmark, Berenberg aims to open the hedge when the overseas currency is appreciating against sterling and increase the hedge when currencies depreciate, he said.
Horeca & Catering, the €6bn pension fund for the Dutch hospitality sector, has appointed AlpInvest to manage its private equity holdings. The scheme has committed itself to investing €500m in private equity funds worldwide for the 2014-18 period.It said it selected AlpInvest because of its tailor-made solutions and its track record.Horeca & Catering said the investments were necessary to maintain its private equity allocation at 5%. “Due to the maturation of current investments, as well as the economic recovery, a relatively large amount of private equity assets is flowing back, while our assets have increased considerably in recent years,” it said.At the end of 2013, the scheme’s private equity holdings, managed by five different fund-of-funds managers, amounted to €188m.In other news, the €334bn civil service scheme ABP has said it will reduce its pensions contribution by 2 percentage points to 19.6% in 2015.It has ruled out granting indexation, however, as its current coverage ratio of 102.3% is almost 2 percentage points short of the level that allows for inflation compensation.As a result, indexation in arrears has increased to almost 10%, it said.ABP attributed the premium reduction chiefly to the phasing out of the temporary recovery levy, which it introduced in 2009.The social partners at ABP have agreed to reduce the workers’ part of the contribution by 2.2 percentage points to 32%, while the stake for employers will be increased by an equal percentage to 68%.Lastly, Bpf Meubel, the €2.3bn pension fund for the furnishing industry, has received a €20m payment for equity sales that went awry during the collapse of Lehman Brothers, which served as a transition manager for the scheme at the time.Bpf Meubel said it did not lose any assets directly as a result of the bank’s liquidation but incurred additional expenses for administration and the appointment of a new transition manager.It said it also incurred losses due to delays in the processing of the deals in question.With the compensation, Bpf Meubel’s funding rose increased from 109.8% to 110.2%.
European attempts to foster long-term thinking among investors must not rely on “flawed” proposals for differential voting rights, a leading governance association has insisted.Ahead of next week’s European Parliament vote on the Shareholder Rights Directive, the International Corporate Governance Network (ICGN) warned against creating systems that would reward long-term shareholders with higher dividend payments or additional voting rights.The organisation said that, even if the motivation for introducing such a two-tier structure were a worthy one, it should be discouraged, as it could have a detrimental impact on minority shareholders and the long-term performance of companies.Kerrie Waring, the ICGN’s managing director, said: “This is an issue of global resonance, and our Global Governance Principles call for any divergence from a one-share, one-vote standard that gives certain shareholders power that is disproportionate to their economic interest to be disclosed and explained.” ICGN policy director George Dallas added that the approach was “flawed”.He said investment management agreements could instead be amended to enshrine the long-term goals of asset owners into contracts with asset managers.In its policy paper, the ICGN noted that it had opposed differential voting rights proposed in Italy – an idea eventually abandoned by the government – and that it had already voiced its opposition to the double voting rights proposed by MEP Sergio Gaetano Cofferati, rapporteur for the Shareholder Rights Directive.It suggested that, rather than introduce separate voting rights for long-term investors, greater attention should be paid to the development of stewardship codes similar to the ones in place in the UK and Japan.The paper added that there was no silver bullet to encouraging long-term investment behaviour, and that differential voting rights and loyalty shares risked doing further damage.“Ultimately, there is scope for building trust among both companies and investors,” the paper concluded.“Investors need to gain the trust of companies by demonstrating their overarching concern is long-term commercial success for companies, not simply short term.“At the same time, companies need to build trust, particularly amongst their minority investor base, that the rights of all shareholders are respected and that controlling shareholders do not exercise a disproportionate or undue influence in ways that might work against the interests of minority shareholders or the long-term success of the company.”A leading civil servant at the European Commission previously said it hoped the legislation would pass the Parliament by early summer.
The Church of England Pensions Board (CEPB) – the £1.8bn (€2.5bn) scheme for 35,000 of the Church’s clergy and church workers – has issued £100m worth of index-linked bonds to finance the purchase of houses to be rented to retired clergy and their spouses.The bonds – the first-ever sterling issue with the coupon but not the principal linked to the consumer prices index (CPI) – are repayable in tranches between 2038 and 2048.The bond’s coupon of 3.126% increases annually with CPI, subject to a 4% cap and a floor of zero, and is intended to provide a good match for the rental income.Part of the proceeds will be used to acquire 196 additional properties for the Church Housing Assistance for Retired Ministers (CHARM) scheme, which provides houses at subsidised rents. The properties were previously owned by the Church Commissioners, and the purchase forms part of a long-term strategy to keep or acquire suitable properties, giving retiring clergy a wider choice of accommodation.The bonds were issued by a special purpose vehicle, CHARM Finance, since the CEPB, as a charity, cannot issue listed bonds directly.Of the total, £70m of the bonds were placed with Pension Insurance Corporation, with the remaining £30m retained to provide quick access to the capital markets if required in the future.Ian Theodoreson, CFO at the National Church Institutions of the Church of England (which include the CEPB), told IPE: “The CEPB was seeking longer-term funding to replace the short-term bank funding that was put in place in 2010 to manage interest rate risk and to give funding certainty for the next 25-plus years. “As a charity, it is not in a position to raise finance in other ways.”The CEPB runs a number of pension schemes and also a charitable arm, accounted for separately.The bonds will be included on the balance sheet of the charity.Theodoreson said the bond would be repaid through monies generated by the business model and by profits on selling surplus properties.He added: “The investors considered the bond to be investment grade and have taken a view on the support that the CEPB is able to generate from the wider Church of England family.“The structure of the bond is unique, but we understand there is a growing interest among pension funds for CPI-linked investment products.”Alan Fletcher, chair of the CEPB’s housing committee, said: “This new long-term financing arrangement will bring greater certainty over borrowing costs by taking advantage of the current low-interest-rate environment.”The bond was structured and arranged by TradeRisks, the CEPB’s corporate finance advisers.Ben Fry, managing director at TradeRisks, said: “This is a groundbreaking transaction, which represents a new step forward in the CPI-linked bond market.“We worked with CEPB and investors to develop an innovative and bespoke solution for CEPB that combines a low all-in cost of funding with structured indexation tailored to match CEPB’s cash flows.“The use of standardised bond documentation allowed the addition of retained bonds, which will provide funding flexibility in the future.”
Jetta Klijnsma, state secretary for social affairs in the Netherlands, has warned Dutch pension funds that their deteriorating financial position does not yet justify changing the rules.In a recent consultation with Parliament, she suggested the government could change its mind at a scheduled assessment of the situation in May, but she categorically ruled out any adjustment of the discount rate for liabilities.Klijnsma said she wanted to assess pension funds’ position on a quarterly basis, using figures from pensions regulator De Nederlandsche Bank (DNB).While she conceded that the outlook for this year and 2017 was “not rosy”, she said it was not yet serious enough for immediate measures. She pointed out that beleaguered pension funds, thanks to the new financial assessment framework (nFTK), were not required to apply rights cuts straightaway. During the meeting with Parliament, Klijnsma said she expected the outcome of a survey into individual pensions accrual combined with collective risk sharing – currently being conducted by the Social and Economic Council (SER) – could be presented in March.She also announced that she would start talks with the Pensions Register to factor in a longevity-dependent age for the state pension AOW into its overview of pension rights.The register currently draws its prediction for combined pension rights from a retirement age of no more than 67. However, the social security bank (SVB) – responsible for the payout of AOW benefits – already takes a retirement age into account of 69 years and nine months for somebody born in 1975.
“The turnover in our upper echelons is low, and, following several mergers in a shrinking market, the organisation had become top-heavy,” he said.“As a result, career opportunities for younger colleagues stagnated, which posed the risk of our losing talented people.”According to Zaghdoudi, WTW informed its staff and clients at the end of September.“Because we have tried to match our remaining consultants with our client pension funds, we hope clients will find out in a couple of months that nothing has changed for them,” he said.Zagdoudi said the consultants made redundant were free to join competitor consultancies under the sole restriction that they are not allowed to advise pension funds that have been clients with WTW.Over the last 10 years, the number of pension funds in the Netherlands has dropped from 800 to about 325 following an ongoing process of consolidation.Last year, regulator DNB said this number was expected to fall further to no more than 265. Willis Towers Watson (WTW) in the Netherlands has made 13 of its senior consultants redundant, partly as a consequence of the falling number of pension funds in the country.Hamadi Zaghdoudi, head of WTW’s Dutch pensions operations, told IPE sister publication Pension Pro that the company’s desire to create promotion opportunities for younger workers also played a part in the decision.Zaghdoudi took pains to emphasise that the redundancies did not represent a reorganisation, “as the number is too small relative to the more than 200 consultants that are employed”.The head of pensions operations said there had been discussions about a reduction of the number of senior consultants for several years.
Regulatory pressure has been increasing for the world’s economy to become more “circular”, meaning that plastics and other materials no longer become waste but are re-incorporated into the system as a resource. Investors should be alert to the possibility of the chemical sector facing a regulatory clampdown due to its links to plastic packaging that ends up as waste, CDP has suggested.“Just as carmakers faced a regulatory backlash when the consequences of diesel on air pollution became clear, chemical companies could face a similar ‘diesel moment’ because of their links to plastic packaging,” the research provider said upon releasing a report on the chemical sector, ‘Catalyst for Change’.Some 8m tonnes of plastics end up in the oceans every year, and it is estimated that there will be one tonne of plastic for every three tonnes of fish by 2025.“Plastic packaging, which accounts for 26% of the total volume of plastics used, has come under increasing scrutiny as it clogs up our urban infrastructure and pollutes our oceans and seas,” said CDP. Credit: National Oceanic and Atmospheric Administration, Ben MierementThere is interest in the circular economy, in particular at the level of the European Union.Plastics consume the majority of petrochemical products, using 6% of global oil consumption a year, according to CDP. MEPs urge fossil fuel divestmentA resolution passed by the European Parliament on Wednesday states that pension funds should commit to divesting from fossil fuels. The relevant passage of the resolution, which was adopted by a show of hands, states that the European Parliament: ”Calls on governments and public and private financial institutions, including banks, pension funds and insurance firms, to make an ambitious commitment to aligning lending and investment practices with the global average temperature target of well below 2°C, in line with Article 2(1)(c) of the Paris Agreement, and divesting from fossil fuels, including by phasing out export credits for fossil fuel investments; calls for specific public guarantees to promote green investment and labels and offer fiscal advantages for green investment funds and the issuing of green bonds.”Finnish first for IIGCCElo Mutual Pension Insurance Company has become the first Finnish member of the Institutional Investors Group on Climate Change (IIGCC).Hanna Hiidenpalo, Elo’s chief investment officer, said: “We recognise the importance of international collaboration with other investors and are proud to become the first Finnish investor to formally recognise the importance of IIGCC’s work.”Kirsi Keskitalo, the pension investor’s responsible investing specialist, added: “We look forward to supporting IIGCC’s efforts going forward, particularly their dialogues with policy makers and their growing programme of collaborative investor engagement to drive corporate climate action to strengthen governance, business strategy and disclosure.” Elo has €21.8bn of assets under management, according to IPE’s Top 1000 Pension Funds survey.NILGOSC voting activityThe Northern Ireland Local Government Officers’ Superannuation Committee (NILGOSC) has published figures about its shareholding voting activity. It said that during the 12 months to 30 June it cast a total of 8,143 votes, including 30.6% against management recommendation. It voted at meetings held by companies listed in various countries, voting in 30 jurisdictions in total. ‘Out of whack’ CEO payPay taken home by chief executive officers at US listed companies is just as out of line with long-term shareholder returns as awarded pay, according to MSCI.Awarded pay sets out the range of their potential earnings, while realised pay is how much the CEOs actually pocket after exercising equity grants.MSCI said it found that realised pay was just as poorly aligned with long-term performance as awarded pay.“More than 61% of the companies we studied exhibited poor alignment relative to their peers,” it said.It found little correlation overall between realised pay and long-term investment returns. ”These findings suggest that the 40-year-old approach of using equity compensation to align the interests of CEOs with shareholders may be broken,” said MSCI.Ethical funds: Not what they say on the tin?Vanguard, Aberdeen and Friends Life offer funds with holdings that are at odds with the funds being billed as sustainable, according to a review of UK ethical and environmental funds by financial adviser Castlefield.It categorised them as “spinners”, potentially misleading negatively screened funds with some investments in companies contributing to environmental and social problems.At Vanguard, Castlefield took issue with its SRI European Stock Fund because it featured British American Tobacco and Royal Dutch Shell in its top 10 holdings. In the case of the Aberdeen Ethical World Fund, it felt the inclusion of EOG Resources – a US crude oil and natural gas company that uses flaring and has faced accusations of illegally burying waste – was at odds with the fund’s ethical label.The adviser also felt the Friends Life Stewardship Fund’s holdings in mining companies Rio Tinto and BHP Billiton were misaligned with the fund’s investment remit. The Friends Life business is run by Aviva. Management of the Stewardship fund range has been outsourced to Schroder Investment Management.The WHEB Sustainability Fund, Liontrust UK Ethical Fund and Rathbone Ethical Bond Fund were Castlefield’s “winners”. The adviser saw them as organisations “demonstrating transparency whilst making a significant contribution towards the growth of the responsible investment market”.The adviser is calling on the UK’s Financial Conduct Authority to change marketing rules to stop “greenwashing”. Its report, which relays comments from some of the managers, will be publicly available on its website from Monday.
Mercer said this had caused liabilities to drop by approximately 1% on average.Aon highlighted that the funding level of a number of pension schemes was still short of the required minimum of 104.3%, indicating that the risk of benefit cuts next year still existed.This applied in particular to the large metal and engineering sector schemes PME and PMT, whose funding still stood at 100.9% and 102%, respectively, at January-end.At the same time, the coverage ratio of civil service scheme ABP and healthcare pension fund PFZW was 103.1% and 101%, respectively.These pension funds face cuts in 2021 if their funding is still short of the required minimum at 2020-end.Mercer added that developed markets equity without currency hedging rose 3.8% in January, whereas the gain under a 50% currency cover would have been 3.6%.Emerging market equity generated 1%, while commodities produced 1.8%, Mercer said.Aon reported that fixed income portfolios returned 0.7% on average during January, and overall investment portfolios gained a similar amount.Despite the mark gains, Mercer warned of the potential impact of geopolitical tensions between India and Pakistan and the lack of an agreement between the US and North Korea.Research network Netspar widens scopeNetspar, the Dutch think tank specialising in pensions, ageing and retirement, is to widen its scope to cover non-financial subjects.Presenting a new four-year research period, Casper van Ewijk and Marike Knoef, Netspar’s co-directors, said it would also look at pensions communication, behaviour of pension savers, technology, and sustainability of pension arrangements.As a consequence of the broadened research agenda, Netspar is to increase its co-operation with other disciplines, including sociology, psychology, epidemiology, communication and legal sciences, said Knoef, who is also professor of micro-economics at Leiden University.“Research into the life cycle, combined with care and housing needs and saving behaviour, is also useful for asset managers, care insurers and banks,” said Van Ewijk, a professor of economics at Amsterdam University.He highlighted that income after retirement would remain the core of Netspar’s research activities.“When we examine care needs, we focus on costs relative to income,” he said.Netspar not only had links with almost all Dutch universities, Knoef said, but also maintained an international science network.“We could quickly find out how, for example, paying of a lump sum at retirement or auto-enrolment works elsewhere, and what the experiences are,” she said.Netspar’s partners include the large asset managers APG and PGGM, insurers Aegon and ASR, and regulators DNB and AFM.The network is also supported by the ministry for social affairs, trade unions and employers. The financial position of Dutch pension funds has largely recovered from the market falls at the end of 2018, according to Mercer and Aon Hewitt.The consultancy firms found that schemes’ coverage ratios rose by 2 percentage points on average in the first two months of 2019 to stand at 108%, largely due to rising equity markets and higher interest rates.Both consultants attributed the improvement in particular to the expectation that the US and China would soon conclude a trade agreement and better than expected growth figures from the US economy.After four consecutive months of falls in the 30-year swap rate – pension funds’ most important criterion for discounting liabilities – it rose by 7bps to 1.3% in February.
“From a social point of view, these high performance fees for a relatively limited number of asset managers are no longer justifiable while millions of pension fund participants are facing rights cuts,” argued Jeroen Koopmans, partner at LCP Netherlands. Justifying high performance fees for alternative investments has become increasingly difficult as more and more Dutch pension funds are facing cuts to pension rights and benefits, according to consultancy firm LCP.In its annual cost survey Dutch pension schemes, the consultancy found that the country’s two biggest funds – the €431bn civil service scheme ABP and the €217bn healthcare pension fund PFZW – paid out €1.4bn in performance fees, the majority of which went to private equity managers.This accounted for more than 70% of the €1.95bn in total performance fees paid by the 184 schemes analysed by LCP.The pension funds reported combined asset management costs, including transaction costs, of €7.5bn. Jeroen Koopmans, LCP“Pension funds should wonder whether it makes sense to invest a limited part of their assets in asset classes against such high fees,” he added.Last year, ABP and PFZW paid €1.1bn and €356m, respectively, in performance fees. Both pension funds reported a decrease in performance bonuses paid out relative to 2017.Both schemes could be forced to apply discounts to pension payouts in 2020, if it becomes clear at the end of this year that their recovery potential is insufficient to improve funding to the required level within 10 years.LCP also reported that average returns – including the effects of interest rate hedging – of ABP and PFZW were barely higher than results produced by other pension funds during the past five years.The results of both schemes had actually dragged down the average returns of the surveyed schemes, while raising average asset management costs.Without the returns of ABP and PFZW, the average result would have been 6.8%, rather than 6.5% for the entire group, the consultancy concluded.In a position paper published last month, ABP defended its bonuses for illiquid investments, citing their contribution to its overall return as well as to diversification of its investment portfolio.LCP found that asset management costs at the surveyed pension funds dropped by 2bps to 0.56% on average last year. This included 9bps of transaction costs.According to the consultancy, company schemes and general pension funds (APFs) incurred total asset management costs of 0.46% on average, while sector and occupational schemes spent 0.56% and 0.52%, respectively, on asset management on average.LCP further said that administration costs per member dropped from €109 to €106 on average.Dutch pension funds’ combined assets under management rose by €32bn to €1,336bn on average in 2018.Further readingNetherlands: Transition path to a new system The latest agreements between stakeholders and a relaxation of rules bring pension reform closer, writes correspondent Leen Preesman in this article from IPE’s latest Top 1000 Pension Funds report