Pension funds for DAX companies unfit for future challenges – survey

first_imgAccording to the survey, 55% of companies in Germany are planning to revamp their pension plans to better suit changing demographics in the workforce, as well as to increase flexibility, transparency and predictability.Towers Watson calculations for DAX companies’ pension plans confirmed earlier preliminary calculations by Mercer.The average return on the pension plans was 5.1%, and plan assets increased from €192bn to €198bn year on year.Liabilities came down from €314bn to €303bn as discounts rates were on the rise again.This means the average funding ratio increased from 61% to 65%.But Towers Watson also noted widely varying funding levels among the companies within the DAX, ranging from 22% for Deutsche Telekom to 99% at Deutsche Bank.Like Mercer, Towers Watson also concluded that companies in the DAX were aiming to increase funding levels in their pension plans.The consultancy also pointed out that diversification within each asset class in pension funds’ portfolios was increasing.At year-end 2013, the average asset allocation was 24% in equities, 55% in bonds, 5% in real estate and 16% in “other” investments.Thomas Jasper, head of retirement solutions at Towers Watson Germany, pointed to a shift towards alternatives, infrastructure, insurance contracts and private equity.“We assume that the equity allocation will remain relatively stable at 25%, as the last few years have shown that this more or less corresponds to the strategic asset allocation in the DAX companies,” he said.In 2007, DAX schemes’ average exposure to equities was 30%, dropping to 23% in 2008. Only one-third of German companies are confident their pension funds are “fit for 2020”, according to a survey by Towers Watson.Another third is sure their plans will have to be adjusted, while the remaining third did not comment or was unsure.Alfred Gohdes, chief actuary for occupational pensions at Towers Watson Germany, told IPE: “The low interest rate environment has increased the costs for traditional pension promises considerably.”He added that companies had “already done a lot to ‘immunise’ themselves against interest rate volatility” – shifting to funded pension plans, for example.last_img read more

Brussels postpones implementation of MiFID to 2018

first_imgThe Commission said the European Securities and Markets Authority (ESMA) informed it that national authorities and trading venues responsible for putting the infrastructure in place were not in a position to do so by the initial deadline.“In light of these exceptional circumstances and to avoid legal uncertainty and potential market disruption, an extension was deemed necessary,” it said.The extension comes after the Commission had in August ruled out notions of delay.The new deadline does not affect the timeline for the adoption of the so-called level II implementing measures under the directive and the corresponding regulation (MiFIR), however.MiFID II does not directly apply to European institutional investors, but they should take an interest, IPE contributing editor Joseph Mariathasan has argued. Indeed, in the UK, the new rules are a pressing matter for local authority funds, as they could face a “fire sale” of up to half their £230bn (€314bn) in assets if they are reclassified as retail investors under the directive. The European Commission has extended by one year the deadline for MiFID II due to “exceptional technical implementation challenges”.The new deadline for the entry into application of the revised Markets in Financial Instruments Directive is 3 January 2018. The new trading rules were initially supposed to become operational on that same date in 2017.The deadline was extended because of the “complex technical infrastructure that needs to be set up for the MiFID II package to work effectively”, according to the Commission.last_img read more

BlackRock sells UK DC platform business to Aegon

first_imgBlackRock has sold part of its UK defined contribution (DC) business to Aegon, deciding to focus on investment management over administration.The asset manager said it reached an agreement to sell its DC platform and administration business, which has £12bn (€15.3bn) in assets under management, to Aegon, boosting Aegon’s DC platform to £30bn.Paul Bucksey, head of DC at BlackRock, will become managing director of the new combined workplace business, while BlackRock will remain focused on its DC investment management capabilities, where it is responsible for £65bn, according to a statement by the company.David Blumer, head of BlackRock EMEA, said the changes to the UK pensions landscape over the past five years – such as the end of mandatory annuitisation and the resulting focus on drawdown products – had led to its decision to sell part of its business. “BlackRock believes Aegon’s broad retail product and digital capabilities will best serve the increased demand from employers for holistic retirement solutions in the future,” Blumer said.“[It is a] perfect partner to deliver on our DC platform and administration clients’ growing needs.”Blumer said BlackRock would continue to work with other clients in the occupational pensions space and on investment products for providers including master trusts.Both BlackRock and Aegon declined to disclose the sales price, but the former said in a statement the financial impact of the deal was “not material”.Alongside Bucksey’s move to head the combined business, BlackRock said its DC platform staff would be retained by Aegon, providing “stability and ongoing continuity” for the affected pension trustees.Adrian Grace, chief executive at Aegon UK, said the company’s strength made it a “compelling” partner.“With employers demanding additional solutions to meet employees’ needs to and through retirement, workplace savings are no longer just about traditional DC pensions,” he said.last_img read more

Funding steadies at large Dutch schemes, yet rights cuts still loom

first_imgThe civil service scheme said all asset classes had contributed positively to its quarterly return of 3.9%, which took the year-to-date return to 6.2%.Commodities, its strongest-performing asset class, produced a 14.5% return over the period. Within the fixed income portfolio, long-duration government bonds, credit and emerging market debt were the best performers, returning 7.4%, 3.5% and 6.9%, respectively.ABP’s stake in property, private equity and infrastructure returned 4.4%, 3.2% and 4.5%, respectively.The pension fund, however, lost 0.2% on balance on its interest, currency and inflation hedges.PFZW’s funding rose by 0.1 percentage point to 89%, 2 percentage points above the critical level set for the scheme.The healthcare pension fund, which reported an overall return of 4.3%, said its 4.4% commodities portfolio returned 17.7%.Local-currency emerging market debt and government bonds were PFZW’s best-performing asset classes, returning 5.7% and 5.3%, respectively.BpfBouw, the €54bn pension fund for the building sector, saw its funding increase by 0.9 percentage points to 104.8%.It posted a quarterly return of 4.9%, producing returns of 3.9%, 4.1% and 4.2% on fixed income, equity and property, respectively.PMT, the €66bn scheme for the metalworking and mechanical engineering sectors, returned 4.7%, leading to a 0.2-percentage-point increase in its funding, which now stands at 92%.However, Guus Wouters, its director, cautioned that the pension fund was “increasingly falling behind on its mapped-out recovery path”, and that rights cuts “seem to be coming closer”.He also argued that the new pension contracts arising from the new pensions system “would also generate disappointing pension results in the current financial environment”.PME, the €44bn scheme for the metal and electro-technical engineering sectors, reported a quarterly return of 3.9% and saw its funding remain stable at 90.8%. The financial positions of the five largest pension funds in the Netherlands were largely stable over the second quarter as investment returns largely offset the negative effects of falling interest rates, the criterion for discounting liabilities.The schemes reported quarterly returns of up to 4.9%, resulting in a slight increase in funding at all but one of them.The €372bn civil service scheme ABP and the €179bn healthcare pension fund PFZW, however, warned that rights cuts were still a distinct possibility next year, as funding at most of the five largest schemes has already fallen near the lowest level allowed.ABPsaw its funding increase by 0.2 percentage points to 90.6%, just above the critical level of 90%, which, at year-end, would trigger immediate rights discounts under the new financial assessment framework (nFTK).last_img read more

Funding dispute could lead to closure of KLM pension fund, scheme warns

first_imgMeanwhile, the pension fund is initiating legal proceedings of its own against the company for having unilaterally cancelled its contract.KLM has said it intends to establish a new pension fund if the current scheme is closed.Manel Vrijenhoek, spokeswoman for KLM, took pains to emphasise that the airline was not looking to save on pension costs.“The company wishes to mitigate the combined, unintended effects of the new financial assessment framework (nFTK) and the low-interest environment,” she said. “This would lead to a disproportionately high additional contribution of probably hundreds of millions, which threatens our operational management.”Vrijenhoek said KLM acknowledged that the additional contribution was part of the arrangement with the unions and the contract with the pension fund.But she argued that the clause in question had been based on the previous financial assessment framework, when the criterion for full indexation was a funding of 105%.“With the introduction of the nFTK last year, the minimum level for full indexation increased to 122%,” she said. As of the end of September, funding of the pilot scheme stood at 115.5%.KLM said a new pension fund would be “very similar” to the existing defined benefit scheme but offer indexation arrangements based on the previous FTK. The €8.3bn pension fund for KLM’s pilots has warned that it will have to close if the Dutch airline terminates its contract with the scheme.In a clarification on its website, the pension fund said it would only continue to manage accrued pension rights, and that the new situation would have an impact on its recovery potential and its ability to grant indexation.KLM and pilot union VNV are locked in a legal battle over whether the airline is required to plug funding gaps that would allow the pension fund to grant full indexation.The VNV is to appeal a recent verdict by the Amsterdam court, which concluded that this obligation does not apply to KLM.last_img read more

Accounting roundup: Hans Hoogervorst, LAPFF, FRC, FASB

first_imgThe IASB chairman Hans Hoogervorst has used a speech to the Dutch Instituut voor Pensioeneducatie to defend the board’s pensions accounting rulebook, International Accounting Standard 19, Employee Benefits (IAS 19).His comments come as the standard comes under increasing criticism over its reliance on a AA-corporate bond yield for discounting purposes.Hoogervorst told his audience the challenges facing Dutch pension schemes could not be attributed solely to the current low-interest-rate environment.“[P]ension funds would have suffered from the financial crisis under any scenario,” he said. He added that the board “rejects calls to fundamentally change pension accounting to eliminate or reduce pension deficits.”Hoogervorst did, however, concede that the IAS 19 measurement model “does not cater for recent developments in pension scheme design” such as Dutch hybrid plans.He added that the board was now looking “at whether improvements can be made” to the standard.The IASB recently confirmed it would add a limited-scope feasibility study into post-employment benefits that rely on an asset return.The project is in the board’s research pipeline and unlikely to progress to an active project.In other news, the chairman of the House of Lords Economic Affairs Committee has turned up the heat on the UK Financial Reporting Council (FRC).In the letter, the Labour Party peer has demanded answers from the watchdog on the potential conflict between the IFRS and UK company law and also on the issue of prudence in accounting.Lord Hollick has invited the FRC to clarify whether the opinion obtained by the Local Authority Pension Fund Forum (LAPFF) alters the FRC’s finding that the LAPFF position is “misconceived”.The LAPFF has argued that accounts prepared under IFRS enable companies to pay out fantasy dividends from illusory distributable reserves to the detriment of long-term investors.The FRC has publicly stated in comments reported in The Times newspaper that the LAPFF position and that of its legal adviser George Bompas QC is “wrong”.Documents obtained under UK freedom of information legislation and seen by IPE reveal, however, that civil servants not only restrained the FRC from claiming that the LAPFF was wrong but also expressed dismay at The Times report.Also on the 29 November letter to the FRC, Lord Hollick asks the audit watchdog whether it is happy with the steps the IASB has taken to reintroduce the concept of prudence into the IFRS Conceptual Framework or whether a more conservative definition is needed.IASB staff told the board at a 15 November meeting they expect the new Conceptual Framework to have little impact on IFRS preparers.They said this was because “few preparers develop accounting policies by reference to the framework”.Meanwhile, the US is unlikely to adopt IFRS for use by domestic companies in the “foreseeable future”, the SEC’s top accountant has revealed.The watchdog’s chief accountant said in a 5 December speech to the American Institute of CPAs conference: “I believe that, for at least the foreseeable future, the FASB’s independent standard-setting process and US GAAP will continue to best serve the needs of investors and other users who rely on financial reporting by US issuers.”Addressing the same conference, FASB chairman Russell Golden pledged further co-operation with the IASB.He said the US board would “continue to collaborate and cooperate with the IASB and national standards setters with an eye toward agreeing on and adopting standards that promote common outcomes”.The IASB and FASB have recently reached non-converged outcomes, however, on high-profile convergence projects covering lease accounting and financial instruments.In other news, the UK FRC has warned preparers it has so-called alternative performance measures in its sights.The use of APMs or non-GAAP measures has emerged as a hot-button topic in recent months.On 7 June, the International Organisation of Securities Commissioners (IOSCO) issued a statement detailing 12 indicators for preparers to follow when publicising non-GAAP measures.The IASB is mulling whether it will add a project on possible standardisation of non-GAAP measures to its work plan. A decision is expected from the board later this month.Lastly, the Trustees of the IFRS Foundation have announced a number of tweaks to the Foundation’s constitution.The move follows a review of the Trustees’ structure and effectiveness in 2015.Under the new arrangements, the number of IASB members will fall from 16 to 14.The Foundation has also changed the criteria governing both board member and trustee professional backgrounds and their geographic distribution.In addition, nine IASB members must approve the publication of a proposed or final IFRS. This requirement falls to eight if there are 13 or fewer board members.last_img read more

Industry experts call for consolidation in UK pension system

first_imgTom McPhail, head of pensions research at Hargreaves Lansdown, said arguments in favour of consolidation were “incontrovertible”, such as improved governance, improved investment returns and greater efficiency.The concept also has support from regulators – albeit tentative.Last month, in its scathing review of the asset management sector, the Financial Conduct Authority said the consolidation of pension funds would help bring about greater professionalism, allowing trustees to hold providers to account.Appearing in front of parliament’s Work and Pensions Select Committee last month, Lesley Titcomb, chief executive of the Pensions Regulator (TPR), said consolidation “could be valuable both in the DB and the DC market because it could bring benefits of scale and cost savings, and drive up standards of trusteeship”.Andrew Warwick-Thompson, an executive director at TPR, added: “We see huge potential, particularly for those small sub-scale schemes, for bringing them together to support better funding outcomes by reducing their administrative investment and governance costs through some form of consolidation.”Pooling of assets is no new thing – several of the country’s largest employers have multiple pensions that are managed by one team.Railpen runs more than £25bn (€29.8bn) on behalf of six different DB and DC schemes, for example, while Lloyds Bank also has a number of separate pension funds under the watch of a single trustee board and investment team.The Netherlands shrank its total number of pension schemes from more than 1,000 in 1997 to roughly 300 this year. The Dutch regulator believes this could fall further to 200 next year.However, the PLSA’s Segars said she hoped for a “less aggressive” approach from the UK’s regulators.A major stumbling block identified by several commentators was combining different liability models. The local government pension schemes’ 89 pension funds all use the same valuation metrics and liability calculations, so pooling assets and other services is relatively straightforward.In the private sector, this is not necessarily the case.Also speaking on the PPF’s panel of experts was Steve Webb, who served as pensions minister for five years until 2015 and is now director of policy at Royal London.Webb said: “There could be an officially sanctioned way of turning [a DB scheme’s] structure into something standardised, which could then be pooled with others with that uniform benefit structure. Then you can get scale and pool them.“If you can do this in a cost-effective way – that’s always the big question – then you can add them together in some sense. Not necessarily fully merge them, but have a common structure – then they can do stuff together.”Warwick-Thompson pointed out to MPs that consolidating liabilities “implies that you are somehow severing the link with the sponsoring employer that provides the covenant”. Such a move has serious implications for DB pension security and the PPF.Titcomb and Warwick-Thompson both suggested “regulatory or legislative intervention” might be needed to get a consolidation movement off the ground.Richard Harrington, the current pensions minister, told MPs last month the government “has to nudge consolidation”.“We cannot just keep endlessly talking about consolidation without doing something,” he said.The PLSA’s DB taskforce is working on ideas to put to the minister, and Harrington said he would be putting together his own proposal to put to the market.“I look forward to receiving many people’s ideas, but they have to be not just identifying the problem,” Harrington added.Webb believes there may be legislation on this subject as soon as the next parliamentary session, which begins on 9 January 2017.One thing is clear: Momentum is building for consolidation. ‘Collaboration’ is fast becoming the UK pension sector’s new buzzword – but it could take legislative action before meaningful change is delivered for private sector schemes, according to experts.Speaking at the launch of the Pension Protection Fund’s (PPF) Purple Book last week, a panel of industry experts including a former UK pensions minister and the chief executive of the pension fund trade association discussed the potential for collaboration and what barriers funds face.Joanne Segars, chief executive of the Pensions and Lifetime Savings Association (PLSA), told the assembled journalists that there was “quite a lot of appetite for consolidation” among both defined benefit (DB) and defined contribution (DC) pension schemes, particularly in light of the radical changes taking place with the Local Government Pension Scheme (LGPS).She added: “With smaller schemes, the trustees are less able to get a good deal from their advisers and hold them to account. They are much less able to access to some of the bigger, more interesting and more helpful asset classes.”last_img read more

Joseph Mariathasan: May you live in interesting times

first_imgMao Zedong must be chuckling in his grave to see one of his successors as Chinese leader espousing the cause of global free trade and capitalism while the new president of the US argues for protectionism, insularity, and what appears to be state direction to create jobs.The changing nature of the world can be summarised by comparing key sections of Donald Trump’s inauguration speech with phrases from Chinese president Xi Jinping’s speech at the World Economic Forum in Davos.Xi Jingping declared: “Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries, and people between economies, and channel the waters in the ocean back into isolated lakes and creeks, is simply not possible. Indeed, it runs counter to the historical trend.”Donald Trump’s view is the exact opposite: “We will follow two simple rules – buy American and hire American.”  To that end, Trump pulled the US out of negotiations for the proposed Trans-Pacific Partnership (TPP) on his first working day in office. That may well be the start of the burning of many trade agreements.Renegotiating the North American Free Trade Agreement has already been declared a priority with Trump scheduled to begin talks soon with Canadian prime minister Justin Trudeau and Mexican president Enrique Pena Nieto.That philosophy makes the UK’s ability to craft an attractive post-Brexit trade agreement with the US a struggle at best and wishful thinking at worst – as the UK may discover despite the promises made by Trump during UK prime minister Theresa May’s visit last week.There has been much criticism of China’s trade policies and concern that China is not playing fair by “dumping” products such as steel on the world’s markets. Whether countries such as the US are better off by accessing cheap steel from China to rebuild its infrastructure, or producing more expensive steel locally is clearly debateable.What is more striking is the stark contrast in attitudes to the idea of global trade.Xi Jinping declared: “We must remain committed to developing global free trade and investment, promote trade and investment liberalisation and facilitation through opening up, and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war.”For the leader of a supposedly communist party, accepting global trade in goods with prices set by markets would have been inconceivable 40 years ago.Yet what Donald Trump had to say would have been inconceivable just a year ago – no other candidate had such extreme ideas: “From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”Trump ended his speech by declaring: “Protection will lead to great prosperity and strength.”Yet such ideas run counter to both mainstream academic theory and the historical experience of the 1930s’ Great Depression.Where this will all end, no one knows. But as the apocryphal Chinese curse goes: “May you live in interesting times.”last_img read more

Pension fund seeks Swiss small/mid cap managers via IPE Quest

first_imgA Swiss pension fund is searching for active and passive Swiss equity managers to run up to CHF650m (€591m), via IPE Quest.Two searches – QN-2340 and QN-2341 – are for managers focused on Swiss small and mid-cap equity mandates.QN-2340 is for an active manager, and is the smaller of the two mandates at CHF100m-CHF200m.QN-2341 is for a passive manager, with the pension fund looking to allocate between CHF250m and CHF450m. Both mandates will be benchmarked against the SPI Extra index. The active mandate should have a maximum tracking error of 8%.Managers bidding for the mandates should state performance gross of fees to 30 June 2017, and have at least a three-year track record.The pension fund wants segregated accounts in both cases.Bids should be submitted by 5pm UK time on 31 July.The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email jayna.vishram@ipe-quest.com.last_img read more

Switzerland’s BVK opens to employers outside of Zurich

first_imgBVK, the CHF31.8bn (€27.8bn) pension fund for the canton of Zurich, has opened itself up to manage pension plans for employers across the rest of Switzerland.Taking on new schemes would benefit BVK’s risk profile and member structure, it said.It would only accept new joiners if this were in the collective interest of BVK’s existing members and affiliated employers.Until it was recently changed, BVK’s legal foundation meant the pension fund could only take on new companies if they had a close financial or economic connection to the canton of Zurich. BVK said it was particularly well set up for large groups in the health, education and administration sectors, but is open to other employers.BVK is the biggest Pensionskasse in Switzerland based on member numbers. It currently operates pension plans for more than 450 employers, covering 115,000 employees.It lost some employers after making changes in 2015 that exposed members to pension reductions, and had to warn others from being lured away by rival providers.According to BVK’s annual report for 2016, 17 sponsors cancelled their contract with BVK during the year and had left the pension provider as at January 2017. No employers joined in 2016.Bruno Zanella, president of the BVK board of trustees, said BVK was attractive because it had an advantageous member structure, above-average performance and state-of-the-art technical infrastructure.BVK’s investments gained 5.7% in 2016, according to its annual report. It has outperformed its benchmark for the past five years. Separately, BVK has added two pension solutions to its existing product range, meaning affiliated employers can now supplement existing pension plans with additional benefits.Under the “comprehensive provision” solution, employers can insure the part of an employee’s salary that is deducted to coordinate payments between the first and second pillar.The add-on plan, meanwhile, is geared towards employees aged 43 or older and earning on wages of at least CHF126,900 (€109,700).Thomas Schönbächler, chairman of the BVK executive board, said: “With the two new pension plans, we are offering our already affiliated employers the opportunity to make their employment conditions even more attractive and to tailor the provision to their needs.“Generous supplementary pension plans are becoming increasingly important in the competition for talent.”last_img read more