“The best solution would still be a second-pillar pension scheme for self-employed,” she said.“It would be fairly easy to accomplish, but since the government, up to now, has not addressed that, I understand that initiatives are taking place to get it organised.”She said the third-pillar solutions would only serve to dilute the pool of potential savers should a second-pillar solution occur.“And then we are losing scale, which is my biggest concern,” she said.“If you nibble away from the groups through these initiatives and through second-pillar funds that keep their former employees in the scheme, then you lose out on scale, and a second-pillar initiative will be unable to fly anyway.”The academic, who was previously head of the financial sector division at the Dutch Competition Agency (NMa), told IPE recent soft compulsion reforms in the UK pointed towards how the second-pillar scheme could be established, and cited the opt-out figures seen by the National Employment Savings Trust (NEST) as proof the approach could work.“Scale economies are everything in this sector, so you need to have a particular size, and, therefore, I favour automatic enrolment, but with an opt-out for those really against joining a scheme,” she said.Unlike’s Van der Lecq’s emphasis on auto-enrolment, a recent survey by IPE sister publication IP Nederland found that 70% of respondents were in favour of mandatory pension saving for self-employed workers.The academic added that the collective approach of the second-pillar schemes also offered benefits when it came to retirement, as the Dutch schemes pay benefits out of their own investment pool, rather than relying on an income drawdown system, as would be the case in a DC arrangement.Details of APG’s third-pillar fund are still being decided, but it is believed that the DC administration arm of APG, Inadmin, will administer the scheme. Encouraging Dutch self-employed workers to save into third-pillar pensions is only second-best to the launch of an industry-wide scheme using auto-enrolment, a Dutch academic has said.Fieke van der Lecq also warned that the launch of a third-pillar pension option by APG risked cutting the number of workers who could eventually be enrolled into any new second-pillar option, reducing the opportunity to achieve the necessary scale.Van der Lecq, APG professor of pension markets at the Erasmus School of Economics in Rotterdam, has repeatedly spoken out in favour of improved pension provision for self-employed workers – colloquially known as zzp’ers – but said she still favoured a second-pillar solution.She said APG’s agreement with several groups representing the interests of self-employed to launch a third-pillar fund with what has been called “collective elements” was only second-best.
“This type of mechanism,” LCP’s report said, “potentially enables schemes to de-risk without any additional contributions being required from the sponsoring employer.“Given the relatively wide-spread use of such triggers, we can expect to see further moves out of equities in future years as and when equity markets rise and funding levels improve.”Schemes in the index had marginally increased their exposure to equities in 2012.However, strong returns and improved funding since will have seen movement back towards liability-matching assets.The FTSE 100 funds currently have 33% of assets invested in equities, a slight fall from 34.5% with a shift into bonds and other assets.“This is in the context of a period when equities significantly outperformed bonds,” LCP said. “If no rebalancing had been undertaken, the equity allocation would have increased by around 4%.”Contributing to the fall in exposure were the BG Group schemes, which moved 23% of their £1.1bn out of equities and into bonds.However, not all schemes followed suit, with security firm G4S shifting allocation during 2013 to have 4% in bonds (down from 22%) and 26% in equities (up from 15%).LCP’s research also showed contributions into DB schemes from sponsoring employers decreased over the course of 2013 by £2bn to £14.8bn.Estimates from the consultancy suggest £7.6bn of this was used to cut deficits rather than employee-based benefits.The consultancy said the drop was partly due to fewer significant contributions taking place in 2013, and an increased use of non-cash funding and asset-backed contributions.Thirty-eight of the 100 firms now use such methods.Use of these arrangements, which usually see a property or assets used to underpin the scheme income on a contingent funding basis, has come under scrutiny from the Pensions Regulator.While not outlawing the use of such methods, the body has suggested increased guidance on the matter, while the Pension Protection Fund has said it would only take into account property-backed arrangements in levy calculations.The research also said a wholesale switch from indexing pensions against the retail prices index towards the government’s latest calculation, RPIJ, would immediately shave £20bn off scheme deficits. The growing use of triggers in UK pension funds will hasten the shift from equities to bonds as funding levels improve through 2014, research suggests.According to LCP’s ‘Accounting for Pensions’ report, pension funds from the country’s largest 100 companies marginally decreased equity exposure in 2013, but several had set up automatic de-risking triggers.The triggers automatically switch equities into bonds as the funding in pension schemes increase, leaving companies moving out of equity holdings just as the asset class’s value rises.Two of the FTSE 100 firms using triggers – distribution firm Bunzl and packaging firm Rexam – both disclosed the use in their annual reports, contributing to the general move away from the asset class.
“And so I think it is quite natural that Niels-Ole now wishes to look for new challenges,” Jakobsen said.As one of the smaller Danish labour-market pension funds, observers have speculated in the past that it could end up merging with other pension funds, in line with the general trend in the sector.In August, however, Jakobsen told Danish newspaper Jyllands Posten that Bankpension had no plans to merge.Niels-Ole Ravn commented on his departure, saying: “For a long time, I have discussed with my family whether I should try doing something else apart from Bankpension, before I reach retirement.“Bankpension is doing well – and I am at an age where it is possible to be able to get to grips with different challenges.”The pension fund said Ravn would be available for the supervisory board and the management board for a short period. Niels-Ole Ravn, chief executive at Danish banking sector pension fund Bankpension, is leaving his job with immediate effect and will be replaced by the current head of investments Soli Preuthun.In a statement issued today, the pension fund said Ravn and the pension fund’s supervisory board had agreed unanimously that he should leave his role as chief executive after 24 years at the pension fund, with effect from yesterday.Niels Erik Jakobsen, chairman of the supervisory board and director at Danish Bank Jyske Bank, said: “Niels-Ole Ravn has created a solid and competitive alternative to the commercial companies over his many years at the pension fund.”He said Bankpension was in a solid position regarding the future, adding that this was a future “in which the challenges will have a different character”.
UK investors have continued to lobby the Debt Management Office (DMO) over the issuance of index-linked Gilts based on the consumer prices index (CPI).The DMO – an executive body of the UK Treasury that manages all Gilt issuance – recently held annual meetings with its Gilt investor base, with the group acknowledging a “growing case” for CPI issuance as the number of pension funds using the measure increases.In the past, it has been reluctant to increase index-linked issuance – or issue CPI-linked paper – due to weak demand and the risk of alienating other customers. However, in 2011, the government changed the official inflation measure for the civil service pension scheme to the CPI. Subsequently, many of the private sector pension funds that followed suit found it increasingly difficult to hedge inflation risk and called on the DMO to help.Government index-linked debt has traditionally been linked to the retail prices index (RPI), but the UK statistics office abandoned it as an official measure after its calculation formula came in for harsh criticism.In the minutes from the DMO’s latest meeting in Edinburgh and London, the body said: “It was noted by some that the growth of CPI linkage within the pension industry was increasing the case for the launch of CPI-linked Gilts in the future. It was suggested the case for their introduction was not necessarily pressing now, but that it was likely that the case for their introduction would increase with the passage of time.”The Edinburgh meeting also concluded the level of index-linked issuance was acceptable.In London, the DMO reported “mixed views” on the need for CPI-linked debt despite acknowledging calls to increase the level of issuance.The UK issued around 23.6% of its £1.44trn (€1.92trn) of debt index-linked, with pension fund and insurance companies owning 26% of total DMO issuance, third behind overseas investors (including pension funds) and the Bank of England after quantitative easing.In an 2014 interview with IPE, DMO chief executive Robert Stheeman said there would be no concrete plans for CPI-linked debt until the demand base became stronger.He added that the office saw index-linked issuance as cost effective, but that it could not issue this exclusively.The National Association of Pension Funds has long called for CPI issuance to help ease the burden of inflation hedging for members forced to increase payments by CPI.Earlier this month, a review by the UK Statistics Authority called on the Office for National Statistics to scrap use of the RPI altogether, including for the issuance of debt.AXA Investment Managers argued that such a move might alienate pension fund investors continuing to uprate pensions by RPI, but added that a duel approach could appease the DMO client base.For more from IPE on inflation hedging and investments, click here.
Irish employers were never going to foot the cost of the country’s 0.6% pensions levy, despite the government’s “hope and expectation” this would occur, according to the Pensions Ombudsman.Paul Kenny said the imposition of the stamp duty, which was eventually extended beyond its initial four-year run, would be likely to lead to a permanent reduction in the pensions of “a great many” savers.In a letter to the joint parliamentary committee on finance, public expenditure and reform seen by IPE, the ombudsman said many trustees felt they had no other option but to reduce payments after the government imposed the 0.6% charge in 2011 but praised them for doing the best possible to deal with the situation.“At the time of the imposition of the levy, government spokesmen expressed the hope, or even expectation, that employers could be requested or required by trustees to make good the levy,” he said. “That was never going to happen.”Kenny noted that a large majority – around 80% – of defined benefit (DB) funds were unable to meet the minimum funding standard after its reinstatement, and that the majority of employers were also suffering financial difficulties, “even disregarding the deficits already accumulated in the occupational pension schemes”.The government has since repeatedly argued that the pensions industry would be able to absorb the cost of the levy by lowering management fees, despite the Department of Social Protection’s 2012 report on fees highlighting the “worst charges possible”, according to the Irish Association of Pension Funds.Kenny also noted the unequal distribution of cuts – as many defined contribution (DC) funds affected were unable to spread the cost across the entire member base, as pensioners who had annuitised could not see payments cut.The ombudsman said it was “at least conceivable” that some funded DB schemes would survive into the future, offering a lower level of benefits than initially promised.“In principle, it is possible some schemes will become fully solvent and regain the ability to pay their benefits,” he said.However, he added that trustees were likely to be required, in the interest of equality, to reduce the benefits of those members who had been part of the scheme during the imposition of the levy.“They would have to do this, even if the schemes could afford to pay the full benefits, simply because they would be treating current pensioners unfairly vis-à-vis the rest of the members if they did not in the future impose the effects of this levy on future pensioners,” he said.For more on the Irish pensions market, see the February issue of IPE
Sally Bridgeland has been appointed to the trustee board of the UK’s National Employment Savings Trust (NEST).Bridgeland, who spent seven years as chief executive of BP Pension Trustee before stepping down in April, was named as one of three new trustees by pensions minister Steve Webb.Caroline Rookes, a former director of private pensions at the Department for Work & Pensions (DWP), and Jill Youds, the current chair of the Judicial Pensions Board, were also named as trustees of the £330m (€446m) fund set up by the UK government to accept any company complying with auto-enrolment. Webb praised the new trustees. “They bring a wealth of experience, expertise and skills from both the public and private sector, which will prove valuable to NEST in the years ahead.”All three will join the board, sitting alongside newly appointed chairman Otto Thorensen, in April.NEST Corporation’s chief executive Tim Jones recently announced that he would be stepping down at the end of 2015.Bridgeland was recently named non-executive director at Royal London Group and also joined Avida International as a senior adviser last July.David Rix was appointed as interim chief executive of BP Pension Trustee following her departure last year.He was confirmed as chief executive of the £19.1bn fund at the end of December, a spokesman for BP told IPE.Prior to joining the fund’s trustee body as chief risk officer in 2010, he was treasurer of the Baku-Tbilisi-Ceyhan pipeline company, in which the oil firm had a major had a stake.Before joining BP’s finance department in 1988, he spent a decade at Bank of America and has since then overseen a number of projects for the firm in Indonesia, China, Korea and Japan. After taking over as interim chief executive, Rix expanded BP’s in-house asset management team, hiring from Aon Hewitt and the Pension Protection Fund.
But he added that the UK was still lacking “a unified body that looks after the competing interests of the various actors”.He cited Adair Turner’s call for a pensions commission about a decade ago but said this was not an idea that “had found favour with the government”.He recalled advice the PPF was given from the US Pension Benefit Guaranty Corporation (PBGC) when the former was set up in the UK, which was that “whatever you do in the UK, keep the politicians out of it”.“The PBGC has three Cabinet ministers on its board, and they found that that wasn’t always the best approach to deliver their mandate,” said Churchill.The PBGC is a US government agency that operates two pension insurance programmes.The board of directors is headed by a director appointed by the US president and confirmed by the Senate, and consists of the labour, commerce and treasury secretaries.Whatever the design of a pensions commission in the UK, “we do need to acknowledge the incentives that are around and playing differently on the different actors in a scheme”, Churchill said.Turner was the chair of the Pensions Commission, a temporary advisory body set up in 2002 to look into UK pension reform and that first suggested auto-enrolment.It also recommended that a permanent pensions body be set up. The idea of an independent pension commission has been supported several times since then by various stakeholders. The national UK pension association, the Pensions and Lifetime Savings Association (PLSA), renewed its call for such a body at its March investment conference in Edinburgh.Moving on to more technical design issues, Churchill flagged the need for more debate “in the public space” about default investment strategies, saying that the efficiency of these was “something that will come very much to the fore here in the UK with the rise of the recognition of defaults as being something absolutely necessary to make auto-enrolment work”.As to the question of post-retirement drawdown – the provision of income in later life – “the old products in the UK are post their sell-by date”.“We need something new, and I don’t think it’s arrived yet,” Churchill said, acknowledging that there may be new products in the UK he is not yet aware of.An interesting idea comes from Australia, he said, where in 2014 the panel leading a review of the country’s financial system recommended a “comprehensive income retirement product, which gives the individual more income, longevity protection and flexibility, so you don’t get the lock-in for life”.As for NEST, although the fund is “a power for good” and “is getting large”, Churchill said he was “slightly more modest in terms of where NEST is at the moment”.Although it has “solved participation” through auto-enrolment, he said, it has not made that much of an impact on pension design per se.“It’s still an old-fashioned DC [defined contribution] scheme,” he said, adding that those running NEST were “pushing the politicians to say ‘look, there are useful things we can do in the post-retirement space, so why not widen the mandate?”Some 6m workers have been enrolled into a workplace pension scheme, including NEST, since the launch of auto-enrolment, according to March government figures cited by NEST. NEST, the £690m (€936m) UK government-backed trust created to roll out the country’s auto-enrolment policy, has not had much of a meaningful impact on pension design and is calling for its mandate to be widened to allow it to make contributions to improvements in that regard, according to Lawrence Churchill, former chair at NEST Corporation and the Pension Protection Fund (PPF). Churchill was one of three UK pension professionals speaking at the launch of a book by Keith Ambachtsheer on Thursday, each tackling a different theme of the book, The Future of Pension Management.Churchill is the chairman-elect of the Pensions Policy Institute and has various other financial services roles.In comments on the governance aspect of pension design, Churchill said the concept of ‘shared risk’ requires some form of governance structure “to balance the competing interests” of the various actors in pension provision, such as members and shareholders.
The approved budget for last year was €19.95m, a 7.6% reduction from the final 2014 budget of €21.6m, although it was bumped up by some €265,200 in September to take the final 2015 budget to €20.2m.Some 60% of its budget was allocated to staff expenditure in 2015, 15% to operational expenditure and the remainder to administration.A new funding model for EIOPA is due to be unveiled this year.Parente said staff turnover was high last year, at 14%, but that EIOPA managed to increase the number of experts and managers, from 134 in December 2014 to 137 in December last year.The supervisory authority identified expensive housing in Frankfurt, where it is based, and a “lack of financial attractiveness” compared with other European bodies as making it difficult for it to hire and retain qualified staff.It said the high turnover rate, unsuccessful recruitment campaigns and “non-acceptance of contract offers by selected candidates” were the main reason why EIOPA failed to achieve the target it had set itself for the number of certain types of staff positions it wanted filled by the end of the year (EIOPA’s ‘Establishment Plan’).It was close, however, with 95.6% of positions filled (four short of the target).It met its target for the level of job satisfaction (66%), which is higher than the EU agency average (60%). EIOPA’s budget and workload has become a contentious issue in recent years, and the authority’s annual report is peppered with references to the amount of work it has and the struggle to deliver on this with the resources made available to it.Chairman Gabriel Bernardino said the board of supervisors “acknowledges the challenges EIOPA faces in terms of its constrained resources in the face of a demanding workload and welcomes EIOPA efforts to manage this challenging situation”.In a section on risk management, the annual report says it is “unsustainable” for EIOPA to take on new tasks during the year in addition to those already planned.An increasing workload without “a commensurate increase in resources” puts at risk being able to meet deadlines and quality criteria, as well as staff motivation and well-being, according to the report.EIOPA has been taking steps to address these challenges – by strengthening its approach to planning and management of work and revising human resources processes, for example.Executive director Parente said a 360-degree feedback exercise conducted with all line managers had yielded “insightful results and development at individual, peer and corporate level”. The European Insurance and Occupational Pensions Authority (EIOPA) continued to struggle with a demanding workload last year given limited resources, and experienced another year of high staff turnover, according to the supervisory authority. In the authority’s annual report for last year, Fausto Parente, executive director at EIOPA, said: “The year 2015 became a real quality check for EIOPA’s management and governance system.”He noted that EIOPA’s budget was cut by 7.6% last year and said this caused the supervisory authority to carry out a “severe” re-arrangement of priorities, including the “reallocation of human resources and funds”.This enabled EIOPA to meet the objectives of its work programme for 2015, he said.
Chris SierSier said: “We have been delighted with the enthusiasm that many pensions schemes, consultancies and asset managers have shown in engaging with ClearGlass already.“So far very few asset managers have shown reluctance to co-operate with the new regime, while the majority have been keen and very positive about the new landscape of full cost transparency, which is finally on its way. This is great news for all concerned, including pension scheme members.” Sier is chairman of ClearGlass while Ritesh Singhania is CEO. Singhania worked with Sier at another venture, AgeWage, a pension dashboard tool for individual savers, and has also worked at technology firm Simplitium.Consultancy giant Aon provided start-up funding for the company through its subsidiary McLagan, and said it would use the data collated by ClearGlass to provide “benchmarking analysis” for fees and performance to then offer to pension funds and asset managers.Further readingChris Sier: Data brings freedom The UK fintech envoy and ClearGlass founder speaks to Carlo Svaluto Moreolo about transparency, technology, and consumer empowermentUK formally launches cost disclosure templates The Cost Transparency Initiative was launched by UK trade bodies for asset managers and pension funds, along with the Local Government Pension Scheme Advisory BoardUS bank strikes £400m pension buy-inThe Bank of America Merrill Lynch (BoAML) UK pension fund has secured a £400m (€461.6m) insurance buy-in with Scottish Widows.The de-risking exercise insured the benefits of 915 pensioners, and followed two smaller buy-ins for other UK schemes sponsored by BoAML.Peter Gibbs, chairman of trustees of the BoAML UK Pension Plan, said: “This transaction allowed us to continue our programme of de-risking by securing a bulk annuity for pensioner members on favourable terms, which has led to an improvement in the funding position on the plan’s long-term funding basis.”John Baines, head of bulk annuities at Aon, which advised the trustees on the transaction, said: “As a financially sophisticated trustee board, understanding the additional security that could be provided to members through an insurance solution was a particularly important aspect of this transaction. Their understanding of market dynamics allowed the trustees to navigate a busy market and quickly lock into great pricing.”Scottish Widows has had a busy start to 2019, having secured two bulk annuities worth a combined £830m with pension funds connected to defence company QinetiQ and car manufacturer Peugeot. Investment cost transparency campaigner Chris Sier has formally launched his fee disclosure and analysis firm, ClearGlass Analytics, with 30 pension schemes as clients.ClearGlass implements the cost disclosure templates Sier helped develop while chair of the Institutional Disclosure Working Group (IDWG), set up by the UK’s financial regulator to improve transparency of charges.Sier, a professor at Newcastle University Business School, founded ClearGlass last year after the IDWG published its disclosure templates. These are now overseen by an independent industry group – the Cost Transparency Initiative (CTI) – led by Mel Duffield, pensions strategy executive at the Universities Superannuation Scheme.In a statement, ClearGlass said its engagement with its 30 pension fund clients had included working with 104 different asset managers on 470 mandates. It charges £100 per mandate for its analysis and reporting service. It added that the CTI was expected to launch a “machine-readable version” of the cost disclosure templates in May.
Assets under management of Italian institutional Investors rose by 6.47% year-on-year in 2019 to €917.36bn, according to a report published by think tank Itinerari Previdenziali.Institutional investors – including Industry pension funds (fondi negoziali), pre-reform funds (fondi pre-esistenti), banking foundations and casse privatizzate – saw total assets increase by 7.14% to €260.68bn in 2019 compared to €243.30bn the prior year.This segment of institutional investors, however, recorded a contraction in assets managed by external asset managers through mandates. According to the report, €95bn was managed through mandates in 2019 compared to €112bn in 2018.AUM for institutional investors including open pension funds, holders of individual pension plans (PIPs) and insurance companies grew by €38.27bn to a total of €656.57bn last year. In particular, PIPs recorded a €4.78bn (15.57%) growth and open pension funds’ assets rose by 16.4% to €22.84bn. These assets make up 14.6% of the Italian GDP.Assets of industry pension funds, pre-reform funds, supplementary health funds and banking foundations hiked by 82.5% in the last 13 years, from €142.85bn in 2007 to €260.68bn in 2019.The share goes up to 51.3% considering assets of insurance companies, open pension funds or holders of individual pension plans (PIPs).The number of institutional investors decreased by 2.2% year-on-year in 2019 to 807, including 86 banking foundations, 20 casse professionali privatizzate, 33 industry pension funds and 235 pre-reform funds, the report disclosed.The share of individual pension plans also dropped to 111 from 113 in 2018 and 128 in 2015.Additionally, the number of people enrolled in Italian pension funds stood at 8.2 million, even though the pensions regulator COVIP noted that “open contracts” with pension funds amount to over 9 million, up from 7.9 million in 2018.ReturnsReturns across all institutional investors have been positive last year, with industry pension funds recording 7.2%, pre-reform funds 5.6%, open pension funds 8.3% and PIPs 12.2%.Institutional investors face the challenge of beating “target returns” this year, amid the consequences of the pandemic, volatile equity markers and geopolitical tensions, according to Itinerari.Investors have started to change asset allocation strategies, with increasingly specialized and high value-added management, often not linked to benchmarks but to performance objectives.The increase in investments in alternative investment funds and real assets is part of this strategy, it added.Investment in the domestic real economy by institutional investors is still “modest”, with the exception of banking foundations which deploy 44.36% of total assets in Italy.Casse privatizzate invested 21.36% in the domestic real economy, followed by pre-reform funds with 4.8% and industry pension funds with 3.42%.To read the digital edition of IPE’s latest magazine click here.