Therefore, 47% of trustees in small schemes have professional qualifications, compared with 16% for large schemes.Additionally, smaller schemes seem to have a greater propensity to delegate externally, and larger schemes internally, consistent with available resources.This, in turn, explains why large schemes spend on average 5.4 basis points on governance, while mid-sized schemes face a cost of 9.7bps and small schemes 13bps.The index found that third-party adviser costs accounted for the largest proportion of governance spending, at 70% for larger schemes and 52% for smaller schemes, and the vast majority of these costs are for actuarial and investment advice.Chris Hogg from the Royal Mail Pension Plan said the survey came from a desire to better understand the governance structures of others, as a context for decision making and formulating ideas.Sorca Kelly-Scholte, managing director of client strategy and research at Russell Investments, added that it was common for governance arrangements to develop and grow over time.“For the governance structure to be sound, it needs regular attention and review, just like any other arrangement a scheme puts in place,” he said.“Good governance doesn’t guarantee better outcomes, but it can materially improve the chance that schemes will reach their objectives.” Pensions funds in the UK are increasingly concerned about their governance structure and most of them have undertaken a process to improve it, a new survey has found.According to the Russell Pensions Governance Index – launched in partnership with the Royal Mail Pension Plan, Telent and Saul pension schemes – 70% of large and 69% of mid-sized schemes said they were in the process of changing their governance structures.In comparison, only 27% of small schemes said they were engaged in such a process.However, the report stressed that smaller schemes had a higher proportion of trustees with professional qualifications on their committees than larger schemes.
The multi-employer pension scheme for higher education workers in the UK said long-dated derivatives were becoming expensive for counterparties to roll over with banks when break clauses are reached.Yorkshire Water’s break allowed USS to offer an alternative, adding an inflation match in the scheme’s liability-driven investment (LDI) portfolio.Ben Levenstein, head of private debt and special situations at USS Investment Management, the scheme’s in-house asset manager, said it restructured Yorkshire Water’s inflation swap to match its own requirements.“We got to a situation where both parties were happy with the predicted stream of cash flows from the new swap put in place,” he said.USS, which has 7.4% of its assets in LDI, purchased long-dated inflation swaps from Yorkshire Water that mature in 2063.It also removed any further break clauses.Levenstein said USS began discussions with the water company a year ago, knowing it would require inflation-linked financing.Water companies in the UK are owned privately, but their revenues are regulated by the government and include annual adjustments in line with the retail prices index, the same inflation measure used by USS to increase pensions.He said the scheme was keen to continue sourcing direct inflation-swap deals with companies that require counterparties with a longer-term perspective.“We are very keen to explore new opportunities,” he said. “USS is perfectly suited to this sort of investment with inflation and duration exposure.“There have not been many of these transactions before, so we have developed the process to undertake ones like this.”USS declined to comment on the structure of the deal, including whether the swap was collateralised.Levenstein, however, said Yorkshire Water was a “strong” counterparty.The pair set up a special-purpose vehicle, Aysgarth Finance, to manage the swap’s cashflows.Earlier this year, Yorkshire Water announced it held £2bn in inflation swaps, with further breaks in 2018, 2020, 2023 and 2025 but plans in place to manage the breaks in 2018.Yorkshire Water said its inflation-linked derivatives portfolio was putting pressure on the company’s credit quality, downgraded recently by Moody’s. The £49bn (€67bn) Universities Superannuation Scheme (USS) has become a direct counterparty to a UK utility company in an inflation swap used to manage liabilities.Inflation swap derivatives are normally run through banks that act as counterparties to both sides.The cost of managing these transactions, however, has increased due to banking regulation since the financial crisis.The deal with Yorkshire Water, thought to be worth more than £130m, was arranged when the company’s previous swap deals approached a break clause – where banks and customers often renegotiate the pricing of derivatives.
The Dutch Cabinet has rejected the standardised pan-European pensions product (PEPP) proposed by the European Insurance and Occupational Pensions Authority (EIOPA).In a letter to the Dutch Parliament and EIOPA, it argued that a PEPP would serve only third-pillar pension systems and questioned whether the vehicle would “add anything” to existing arrangements.It also claimed EIOPA had failed to determine exactly which problem the PEPP would solve, or what its scope would be.“Second-pillar products in the Netherlands,” it pointed out, “are, like in many other European countries, the domain of the social partners, which conclude the pensions contract after negotiations on labour conditions.” Because these contracts are fine-tuned to the needs of participants from a given company or sector, a harmonised pensions product would be “unuseful and unacceptable” for the Netherlands, the Cabinet said. Last month, the Dutch Pensions Federation questioned the added value of a PEPP, and warned of the difficulty of achieving a level playing field for pension funds, insurers and banks due to differences in regulatory regimes. However, according to Hans van Meerten, a professor of international pensions law at Utrecht University, PEPPs will provide Dutch pension providers, pension funds and insurers with new opportunities across Europe, “particularly Eastern Europe, where the options for accruing a pension are limited”.He warned the Dutch pensions sector that a “European pensions union” was beginning to take shape, as European legislation supersedes local law.He also noted, however, that Dutch legislation had been at odds with European law before, citing the mandatory participation of companies in industry-wide schemes as an example.To address this potential problem, he recommended linking ‘mandatory participation’ to a pension plan rather than a provider.He also called for the harmonisation of pension funds’ capital requirements at the European level to prevent providers in different countries from being subject to different requirements for the same pension arrangements. He said opponents of harmonisation could not complain about Dutch employers moving pension plans to Belgium because of its “more flexible rules”.
This allocation, it said, was not set to change in the near future, “at least not until the negative inflow into the AHV/AVS is reversed”.It added that the fund’s conservative asset allocation had to “fulfil the high liquidity demands of the three buffer funds”.Another contributor to the negative performance was the Swiss federal bank’s removal of the peg to the euro at the beginning of 2015.Compenswiss said the negative interest on its “necessarily high” cash holdings could be “kept to a minimum” with good risk management.As at the end of 2015, liquidity made up just over 10% of the portfolio, while the lion’s share – approximately 45% – was invested in bonds, mostly non-domestic.The compenswiss scheme is facing a difficult time, as money for the first pillar will now be withdrawn based on demographic developments.The government is seeking to offset the draining of the fund by increasing the VAT part used to fill the first-pillar buffer scheme.This proposal is currently being negotiated as part of the Altersvorsorge 2020 reform package and will eventually have to pass a public referendum.Meanwhile, a new chairman of the board is taking over at compenswiss.Marco Netzer is leaving as scheduled after serving two four-year periods in the position.He has been replaced by Manuel Leuthold, who joins from Edmond de Rothschild in Geneva, where he was group chief administrative officer. The compenswiss fund – the umbrella fund for Swiss first-pillar scheme AHV/AVS, among others – has reported a slightly negative return of -0.77% for 2015.Assets under management increased from CHF33.1bn (€27bn) in 2014 to CHF33.6bn a year later.In a statement, the fund claimed the return “would have been better” had it made more direct investments in domestic real estate.Due to its “low-risk profile”, the fund had allocated just 0.3% to the asset class, as of the end of 2015.
“Moreover, such a construction would increase the exposure to US equity, including the uncertainty posed by the upcoming presidential elections,” it said, adding that it would incur a cost of a couple of basis points as a result of the transaction.The metal scheme further made clear that it had kept its investment portfolio “as neutral as possible” by keeping the scale of its asset classes closely to the centre of pre-set bandwidths.The pension fund said it expected to benefit from its decision last year to reduce the hedge of the US dollar from 75% to 50%.It added that it expected the currency to appreciate against the euro, “as investors are likely to flee into the ‘safe haven’ of the greenback in the event of a Brexit”.Early last year, PMT reduced the dollar hedge in anticipation of a possible Grexit.The metal scheme emphasised that the possible effects of a Brexit were unclear, but it predicted pensions would be affected if coverage ratios were to fall as a consequence of turbulence on the financial markets.“The main question is what the scale of the volatility would be and for how long it would last,” it said.The €417bn asset manager APG declined to comment on whether it had adjusted its hedge of the main currencies.Spokesman Harmen Geers said APG had anticipated the possible consequences of a Brexit by ensuring it had sufficient liquidity available as collateral in the event of currency movements.He added, however, that the large Dutch pension funds, with their broad investment portfolios, could hardly be immune to the effects of a Brexit. PMT, the €63bn pension fund for the metalworking and mechanical engineering sector in the Netherlands, said it has refrained from taking short-term measures to reduce the potential negative effects of the UK’s leaving the EU.The scheme said the protective measures available would prove too costly if the UK were to decide to remain in the EU in today’s referendum. It said it had the option of moving assets from its return portfolio to its matching portfolio but that it had considered that an overweighting of its matching holdings would result in lower returns if the UK voted to remain within the EU.PMT also said that “exchanging returns” on British equities for those on US equities through future contracts could negatively impact overall returns if the UK remained.
The €168m pension fund of Ardagh Glass Nederland is seeking to liquidate and join the €21bn PGB on 1 January.Unions said they would support the plan if the company maintains average salary arrangements.In a letter to Ardagh, they said they opposed any shift towards a collective defined contribution arrangement.Unions also called on the company to pay all costs of the transfer and said the pension fund should grant all participants and pensioners indexation if the coverage ratio still exceeds PGB’s funding. Coverage at the Ardagh scheme, as of the end of June, stood at 98.6%, while PGB’s stood at 97.5%.The company and union De Unie said negotiations were ongoing but declined to provide details on the outstanding issues.Ardagh Glass, in a newsletter for its workers, argued that the pension fund was “too small to keep complying with legislation and legal rules for the scheme’s board against reasonable costs”.In its 2015 annual report, the pension fund reported costs for pensions administration of €273 per participant.Over the same period, it spent 0.24% on asset management and 0.05% on transactions.A working group at the scheme concluded that joining PGB was its best option, in part because PGB’s pension plan is quite similar to the arrangements of the Ardagh scheme.In other news, the €1.5bn pension fund of Gasunie has awarded Cardano a €300m government bond mandate, managing inflation-linked bonds (ILBs) and interest derivatives in its matching portfolio.Until now, the scheme’s government bonds and ILBs had been managed by Lombard Odier, with the pension fund managing the derivatives in-house.The Gasunie scheme said it selected Cardano because of its expertise on risk management, as well as its integrated deployment of bonds and derivatives.
Third-quarter returns of 1.4% by occupational pension funds in Portugal brought year-to-date returns into positive territory for the first time in 2016 – 1% for the nine months to 30 September – according to figures from Willis Towers Watson (WTW).Returns for the 12 months to the same date were 2.6%, giving annualised returns of 4.6% for the three years, and 6.2% for the five years, to that date.This compared with a 1.62% return for the first nine months of 2015 and a 2.75% return for the 12 months to 30 September 2015.Performance figures were submitted by so-called closed funds, which are generally pension plans for a single employer or group of companies and which make up the vast bulk of occupational plans. The WTW universe covers around €13bn in assets, which is 80% of the closed pension fund market in Portugal. It includes more than 100 pension funds for the nine-month and 12-month figures to end-September 2016.It also includes the five biggest pension fund managers in Portugal.The figures are based on median performance over each time-frame.Gaudêncio Guedes, an investment consultant at WTW, said: “The third quarter was strong for equities in general, while euro-zone bonds also continued to contribute positively to portfolios.“Emerging markets have delivered a very strong performance and confirmed what has been a year of recovery for this particular market, after a very troubled start at the beginning of the year. Asia, including Japan, also contributed substantially over the quarter.”According to regulator ASF (Autoridade de Supervisão de Seguros e Fundos de Pensões), debt is still the single biggest asset in Portuguese pension fund portfolios, with 49% invested directly in the asset class as at 30 September 2016.Of this, 31% was in public and 18% in private debt.Direct equity holdings were 7%, while direct real estate made up 9% of portfolios.A further 8% was in cash.Investment funds made up 26% of portfolios, but the split between asset classes has not been published.However, separate figures from the Portuguese Association of Investment Funds, Pension Funds and Asset Management (APFIPP) show 24.3% of pension fund portfolios in investment funds, of which 6.9% was in bond funds, 11.3% in equity funds and 4.5% in real estate funds.The sample covered more than 90% of the Portuguese pension fund market.Guedes said: “The bulk of most portfolios continues to be in euro-zone bonds, sovereign and corporate. Considering this, on average, Portuguese closed funds had a pretty decent third-quarter performance, even if less strong than for equities alone.“We should also consider the trend towards high cash holdings in portfolios, exerting a drag that partly offsets the outperformance of other assets.”Turning to strategic ways to improve performance, Guedes said: “Most closed pension funds are fully funded, or close to that, and this low-yield environment raises some tough challenges for management relating both to liabilities and assets.”He said achieving a better match between liability and asset risk profiles was now quite expensive.“What we have seen,” he said, “is a preference for bonds with lower durations to protect against an inversion in yields, while abdicating protection against any risk of a further decrease in yields, which seems very limited, given the already low yields.”But he predicted that, this financial year, pension funds will have suffered a negative impact on their funding ratios as a result of further downward adjustments in the discount rates applied in actuarial valuations
The UK’s Pensions Regulator (TPR) is to prosecute the owner of collapsed high street chain BHS for failing to provide information to its investigation.Dominic Chappell – who was director and majority shareholder of Retail Acquisitions Limited (RAL), which bought BHS in 2015 – has been summoned to appear in court on 20 September in Brighton.In a statement, the regulator said Chappell had failed to comply with three notices requesting information about BHS and its pension schemes, sent between April 2016 and February 2017.RAL was placed into administration in June, just over a year after BHS was shut down. RAL bought BHS from Arcadia, a conglomerate owned by Sir Philip Green, in 2015. When BHS was placed into administration last year, Sir Philip and Chappell were criticised by MPs and national media for their perceived roles in the collapse and the uncertainty surrounding the company’s pension scheme.The scheme was eventually rescued earlier this year when TPR negotiated a settlement of up to £363m (€396.2m) with Sir Philip. The money was pledged to plug a shortfall in the pension schemes, which are being restructured to keep them out of the Pension Protection Fund.Failure to provide documents to the regulator during an investigation “without a reasonable excuse” can face an unlimited fine, TPR said.IPE was unable to reach Chappell for comment at the time of publication.Last year, giving evidence to MPs on the Work and Pensions Committee, Chappell claimed that RAL was being “held to ransom” over the pension schemes. He also argued that the regulator was pursuing a “cavalier crusade” against Sir Philip and Arcadia.
“His long experience as a leader in various types of organisations and his deep knowledge of asset management will be very valuable for Alecta and for the execution of Alecta’s mission.”Frennberg left in the wake of a disagreement with the chief executive about the company’s business response to increasing digitalisation.He had worked at Alecta since 1995, rising to the position of CIO and a becoming a member of the leadership group in 2009. Before his job at Skandia, Sterte worked at LänsföRSäkringar, an insurance group, and before that he held roles at Sweden’s Finance Ministry and the central bank, Riksbanken.Sterte said: “Alecta’s asset management model, with successful active management and direct ownership in more than 100 companies, had created great values for corporate and private customers.”After Sterte’s arrival next year, Persson will go back to his job as head of the company’s interest and strategy group, Billing said. Sweden’s biggest pension fund Alecta has hired Hans Sterte as its new permanent CIO, filling the top management gap left after the swift departure of Per Frennberg in May.Sterte, who is coming to the SEK800bn (€83.5bn) pension provider from a corresponding role in Skandia, will start his new job in the first quarter of 2018.He will take over from Tony Persson, who has been acting as interim CIO since Frennberg’s departure.Magnus Billing, Alecta’s chief executive, said: “I am very pleased to welcome Hans as new manager of Alecta Asset Management.
The German pension fund for a Catholic aid organisation in Cologne is one of three Pensionskassen in talks with the country’s regulator BaFin regarding the potential impact of 2017 losses.The €546m Caritas Pensionskasse (Caritas PK) is currently discussing its 2017 balance sheet “in close coordination with the actuary, the accountants and the BaFin”, the pension fund told IPE in a statement.Last week, BaFin issued a statement saying it had banned Caritas PK from taking on any new business since May, after finding that its recovery plan for meeting its solvency requirements was “inadequate”.It is the first time BaFin has issued a Pensionskasse with such a ban. However, over the past year the regulator has frequently issued warnings to insurance-based pension funds regarding their funding structures. BaFin’s office in BonnA detailed account of the solvency issues will only become available once the annual reports for both pension funds have been approved. A spokesperson for Caritas PK told IPE that its annual report would only be published once the general assembly had approved it. However, the general assembly was not due to hold another meeting this year, the spokesperson said.Industry sources told IPE that it was unlikely the Caritas PK would take on new business any time soon.Kölner PK blames rulebookThe Kölner PK is also currently not taking on any new business as it lacks funding to continue operations under the regulatory framework for mutual insurance companies.If this situation continues, the fund will have to start planning for internal runoff.In its 2016 annual report the Kölner PK’s board blamed – in part – “nonsensical measures” deriving from regulation for starting the fund’s solvency problems.Some regulatory requirements had forced the fund to sell off assets at the wrong point in time, the pension fund said, while some money put aside for the Zinszusatzreserve – the interest rate buffer – could have been better spent on filling the funding pool. Germany’s Bundesrat building in BerlinThe regulatory burden and reporting requirements for Pensionskassen and other German pension vehicles are unlikely to reduce any time soon.Germany’s lower chamber of parliament, the Bundestag, this month approved the government’s draft rules implementing the EU’s IORP II pension directive, known as the EbAV II.The pension fund association aba said “there is hope” that its objections to the prospect of EU-wide harmonisation for occupational pension funds had been heard.The draft bill has to be passed by the upper chamber of parliament (the Bundesrat) in a vote scheduled for today, with BaFin then due to issue circulars and guidelines on the actual implementation and industry-specific issues.What is already certain, however, is that the EbAV II will mean more reporting and internal risk assessment requirements for pension funds.“Overall the requirements for providers will increase significantly,” said Michael Hoppstädter, managing director of consultancy Longial.– Barbara Ottawa Earlier this year Caritas PK and its affiliated pension fund, the €329m Kölner Pensionskasse (Kölner PK), informed members about difficulties regarding the funding situation and possible cuts to pension payouts. Cologne’s Caritas and Kölner Pensionskassen face solvency problemsBoth the Caritas and Kölner funds are structured as mutual insurance companies – Versicherungsverein auf Gegenseitigkeit (VVaG) – which brings with it certain solvency and interest rate “buffer” requirements.The talks with BaFin now fall under the remit of Olaf Keese, who takes over joint management of the Caritas and the Kölner Pensionskassen this month. As a result of his appointment Keese will resign his seat on the board of the Peugeot pension fund in Germany at the end of the year.Tax consultants’ fund talking to BaFinFunding problems have also been reported at the pension fund for German tax consultants, the €992m Steuerberater Pensionskasse VVaG, with BaFin involved in negotiating a recovery plan. The fund itself declined comment.“All this is completely uncharted territory for the industry and the regulator,” one source told IPE.Insurance-based Pensionskassen had been performing well in Germany despite the funding requirements placed on them by their guarantees, but a mix of the low interest rate environment, challenging demographics and regulatory requirements has caught up with them.Some providers have chosen to sell their Pensionskassen business to run-off companies, with Frankfurter Leben having bought two funds earlier this year, from AXA Germany and Cofra Group.More regulation incoming as Bundestag passes IORP II bill