USS looks to scrap final salary over deficit concerns

first_imgOne of UK’s largest pensions fund, the Universities Superannuation Scheme (USS), is looking to close the doors to its final salary plan for active members following serious concerns over a substantial deficit.In March last year, the scheme revealed a deficit of £11.5bn, but its actual deficit to date will not be known until later this year when it completes its triennial valuation.Although USS was unable to give any further indication on just how much the funding black hole would be, it said the trustees expected to report a “continuing, substantial funding deficit later this year”.To help tackle this deficit, a potential closure of the final salary plan for active members could be on the table. USS said it will decide in June next year on whether the final salary scheme will close and insisted that at this stage it was just an option and not a proposal.The closure of the final salary scheme would could affect around two-thirds of the 150,000 member base, and see them shifted into a career average revalued earnings (CARE) scheme, in line with the remaining third.This would also fall in line with other public sector schemes in the UK, such as the Local Government Pension Scheme (LGPS), which became career-average from April this year.CARE schemes are still defined benefit models, but calculate payable pension based on the member’s average salary, rather than the final amount.The majority of UK companies and organisations in the UK have been forced to ditch their ‘gold-plated’ final scheme over the last few years to help tackle costs associated with people living longer and poor market performance.Career-average or defined contributions plans have been put in place instead for pension provision to remain sustainable.“The trustee is working with employer and member representatives to consider the options available to respond to the ongoing funding position.“However, at this stage of the process it is premature to discuss any specific proposals,” USS said in statement.The Employers Pensions Forum, which represents Universities UK, Guild HE, and the Universities and College Employers Association, said there could be changes to pension benefits for future service and changes to contribution rates for both employers and members.It said negotiations, discussions and consultations will take place in the coming months with a Joint Negotiating Committee (JNC), which consists of eleven members – five appointed by Universities UK representing the employers, five appointed by UCU representing individual members and an independent Chair, Andrew Cubie.Michael MacNeil, head of bargaining, at the University and College Union, said: “The deficit valuation should not come as much of a surprise to anybody involved with the scheme.“Although disappointing, it is also no surprise that closing the final salary scheme is one proposal. However, we will be speaking with the employers a lot more over the coming weeks and we hope that the USS Board and the employers recognise that any changes ensure the scheme remains sustainable and attractive.”The changes must be agreed by the JNC before being put forward to the trustee.last_img read more

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Contribution levels at Dutch pension funds to fall by 11%, CPB predicts

first_imgThe Dutch Central Planning Bureau (CPB) has estimated contribution levels in 2016 at pension funds in the Netherlands will have fallen by 11% compared with contributions in 2013.It also expects pension contributions to decline by €2.4bn this year and another €2bn next year – €4.4bn less than the contribution payments Dutch pension funds and insurers collected over the course of 2013, according to a CPB report on the effects of the changes in financial pension regulations.In its report, the CPB estimated that adjusted parameters and a new financial assessment framework for pension funds would increase the contribution level by 5%.However, it pointed out that tax allowances for pensions saving had been reined in, leading to a 16% fall in contributions. The net result, it said, would be an 11% overall decline.Under the new financial assessment framework, pension schemes in 2015 will still have the option of smoothing mandatory, cost-covering contribution levels by either applying a 10-year average interest rate or expected returns.The CPB has predicted that, if pension funds opt for the former, contributions will fall by less than 11%, as “higher interest rates from the years preceding 2008 will gradually be replaced by lower expected rates in future.”Contribution levels calculated on the basis of expected returns are presently somewhat lower than contributions based on average interest rates, and the spread widens as pension funds invest in riskier assets.In other words, pension funds can lower their contributions by investing in riskier assets.As a consequence, the CPB said, there is “a certain tension” between “the goals of most schemes that wish to take more investment and interest-rate risk on the one hand, and the required nominal guarantees on the other”.last_img read more

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Investible green bond indices ‘not quite there yet’ – Climate Bond Initiative

first_imgInvestible climate bond indices will not come about for several more years, despite the universe now exceeding $0.5trn (€369bn), according to a report by the Climate Bond Initiative.The report, ‘Bonds and climate change: The state of the market in 2014’, found that the majority of existing issuances stemmed from the transport sector, accounting for close to $359bn globally.Climate and green bonds linked to energy issuances accounted for a further $74bn, while financing deals exceeded $50bn.The report also found that issuances would double over the course of 2014, exceeding $20bn compared with $11bn in paper in 2013. Sean Kidney, one of the report’s authors and chief executive of the Initiative, said the paper showed how investors could invest in climate bonds without risk.“The investment opportunities we find are safe and secure investment-grade bonds,” he said. “This is a Dull Green Market – just how pension funds and insurance funds like it.”Bridget Boulle, report co-author, highlighted there would be significant growth in the market in the coming years as municipalities, cities and corporates become more interested in the market.However, she told IPE there were still issues surrounding the discoverability of the climate and green bond market for institutional investors.“There is still certainly work to do on discoverability and identification of product, and then packaging it in a way that is exciting for investors – especially institutions,” she said.“Indexes will be a part of that, although, at the moment, they are mostly used for discovering rather than as a benchmark for investing in the index.”Boulle added that investable indices were “not quite there yet”.“I’m not sure there is enough large and liquid products around to be a really viable investment, but when we are there it will be even easer for institutions,” she said. “That’s the next step in a few years’ time.”According to the report, China remains the largest market for carbon bonds, with $140bn of its $164bn in issuances coming from the state-backed railway company.The UK is distant second, with a market of $58bn, $7bn larger than the US market, and France close behind the US with $49bn.Standards for property-backed climate bonds were recently put out to consultation.The standards suggested that any unit used for a climate bond should be in the top 15% of its regional market in cutting carbon emissions.There has been some activity in the green bond market in recent weeks, with the German development bank (KfW) announcing its first dedicated issuance to fund renewable energy projects.While initially targeting a €1bn raise, KfW confirmed earlier this week that it had enjoyed a “huge success” and issued €1.5bn in paper with a five-year maturity, paying an annual coupon of 0.375%.Insurer Zurich has confirmed its interest in the nascent market, doubling its commitment to $2bn, of which it has invested $400m so far.,WebsitesWe are not responsible for the content of external sitesLink to ‘Bonds and climate change’ reportlast_img read more

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PFZW and Landbouw lead Dutch sustainable investment ranking

first_imgThe €156bn healthcare scheme PFZW and the pension fund for the agricultural sector, Landbouw, performed best on sustainability last year, according to the Association of Investors for Sustainable Development (VBDO). The funds came joint first after being checked against VBDO’s sustainability benchmark, which focuses on governance, policy, implementation and accountability, the organisation said.VBDO, which assessed the investments of the 49 largest pension funds in the Netherlands, said that ABP, Unilever’s Dutch scheme Progress and PNO Media ranked third, fourth and fifth respectively, with the pension funds of ABN AMRO and KLM coming last in the ranking.According to Jacqueline Duiker, interim project maanger at VBDO, governance is gradually increasing in prominence as all pension funds are now discussing the issue of sustainably investing at least once a year. She noted that all the pension funds have a sustainable investment policy in place, aimed at meeting international standards and guidelines, such as the UN’s Global Compact.However, she added that pension funds still fell short with the most important criterion, namely implementation of the policy.“Although pension funds are often able to explain what they don’t want, resulting in exclusion, ESG integration and engagement, they still fall short of positive selection and impact investing.”According to VBDO, pension funds increasingly offer transparancy about their sustainability credentials, “albeit not always monitored by an external auditor”.During the presentation of the survey, Joanne Kellermann, out-going director of pension supervision at regulator De Nederlandsche Bank, underlined the importance of the sustainability benchmark.“Nobody likes to be last on the list,” she said, adding that pension funds’ participants could also benefit from the VBDO’s findings, “as they enabled them to check their scheme’s performance”.last_img read more

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VER sees equity returns boosted to nearly 10% by US, emerging markets

first_imgThe Finnish State Pension Fund (VER) has seen its equity returns boosted by US stocks and emerging markets, despite continued market uncertainty.While solid returns from the two regions leading to VER’s equity portfolio returning nearly 10% over the first nine months of the year, managing director Timo Löyttyniemi nonetheless warned that there was still “no relief” for investors concerned about the low growth prospect in Europe.“VER’s return on investments, however, was good in all asset classes,” he added. “In the future, the general low interest rates will present challenges for the returns on fixed-income investments”The €17.4bn scheme, which helps pre-fund Finland’s state pension obligations, saw its equity portfolio outperform both other asset categories. Its fixed income holdings returned 4.4%, a noticeable improvement from the -1.7% return seen over the first three quarters of 2013.Its portfolio of other investments – consisting private credit, infrastructure, real estate and private equity – returned 5% over the first nine months, also an improvement over the portfolio’s performance during the same period last year, but behind the overall 2013 return.While VER’s equity portfolio performed strongest of all three asset categories, returning 9.8%, it also lagged behind 2013’s comparative returns of 12.8%, with a significant rally in the equity market late last year even boosting returns above 18%.Overall, the fund returned 6.5% for the first nine months of the year, ahead of its 10-year average of 5.8%.last_img read more

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Friday people roundup

first_imgSPF, UWV, Russell Investments, Castle Harbour, AmundiSPF – The Netherlands’ €13bn railways pension fund has appointed Roelie van Wijk and Bart Oldenkamp to its board as independent experts for asset management and risk management, respectively. Van Wijk serves as director at asset manager and Aegon subsidiary TKP Investments, and has been asset manager at PGGM and the Philips Pensioenfonds. Oldenkamp has been director at Cardano Risk Management for seven years.UWV – The €5bn pension fund of Dutch insurance provider UWV has appointed Johan de Kruijf as temporary chairman, following the departure of employers’ chair Peter Ploegsma. Because De Kruijf also chaired the scheme’s investment committee (BAC), the board has appointed its secretary Frans Lemkes as the BAC’s temporary chairman. Last month, Ploegsma left the UWV Pensioenfonds for a board position at Aafje, an institution that runs care hotels and home care.Russell Investments ­– Yves Josseaume and Sital Cheema have been appointed to the EMEA client strategy and research team. Josseaume previously worked at Aon Hewitt as a partner and LDI and investment strategy specialist. Before then, he was a director in pension and insurance solutions at HSBC Markets. He has also previously worked at Aviva and PricewaterhouseCoopers. Cheema joins from Standard Life Investments, where he was an investment director. Before then, she worked at Mercer Investment Consulting as a researcher. Castle Harbour – Eric Daniel, former head of equity derivatives and convertible bond sales at Citigroup in Paris, has been appointed to co-manage Castle Harbour’s global convertible bond fund. Prior to Citigroup, Daniel was a senior convertible bond sales-trader at Bank of America Merrill Lynch after holding a similar role at Deutsche Bank.Amundi – Benedicte Rabier has been appointed as a senior product specialist at Amundi Alternative Investments in London. She joins from Allenbridge Epic, where she was a sector specialist focused on alternatives.last_img read more

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UK roundup: NAPF, LGPS, LPFA, Apollo Global Management

first_imgThe National Association of Pension Funds (NAPF) has called on the new UK government to focus on tackling the deficits within the Local Government Pensions Scheme (LGPS) over continuing its policy of cost cutting.Speaking at the NAPF Local Authority Conference in southwest England, chief executive Joanne Segars said the LGPS community needed to ensure that focus remained on sustainability of the 101 schemes across the UK.The 89 in England & Wales face potential changes to investment management, as the previous Conservative-led coalition government recommended forcing all listed assets to be invested passively in a collective investment vehicle.A survey of LGPS NAPF members found that more than one-third (35%) said the new Conservative majority government should focus on tackling deficits – none supported mandatory passive investing. Segars said the £47bn (€65bn) deficit in the schemes, which have around £200bn in assets, would be the defining issue over the short term.“We need to cut a good and sensible path through the noise,” she said.“And it is why we need a clear and consistent way to measure deficits – and why we need to be innovative in developing solutions for managing them.”In other news, the London Pension Fund Authority (LPFA) has selected Apollo Global Management to invest £150m in alternative credit, including distressed debt, real estate debt, leveraged loans and private lending.In March, the £4.8bn LGPS scheme created a framework for alternative credit managers for all LGPS schemes to use, appointing Apollo alongside Ares Management, Babson Capital and GSO Capital.It has now selected Apollo from the framework to manage its push into alternative credit markets after running a second tender process among the four managers.last_img read more

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Friday people roundup [updated]

first_imgPictet Asset Management – Christoph Lanter, global head of institutional business, is to retire next year, IPE understands. A spokeswoman confirmed to IPE Lanter would be retiring in “early” 2016 but could not provide any details of plans to replace him. She also declined to comment on whether Lanter’s replacement would be based in the UK or Switzerland.CERA Global Association – Dutch actuary Ron Hersmis has been appointed chairman of the board of the Chartered Enterprise Risk Actuary (CERA) Global Association. He succeeds Frank Sabatini, who had been at the helm for the past three years. Hersmis has been a board member of the organisation since it was established in 2009. He is senior financial risk manager at Deloitte Netherlands and also chairs the international committee of the Dutch Actuarial Society.Dutch Pensioenregister – Josine Westerbeek-Huiting has been appointed chair of the Dutch Pensioenregister, the tracking system for pension rights. From 1 November, Westerbeek is to succeed Francine Giskes, who has been appointed a member of the Dutch national audit office (Algemene Rekenkamer). Over the last seven years, Westerbeek has been chair at charity Stichting Wilde Ganzen. Before then, she was vice-chair and trustee at the union federation CNV. Groupama Asset Management, UK National Infrastructure Commission, Allianz Global Investors, Pictet Asset Management, CERA Global Association, PensioenregisterGroupama Asset Management – Jean-Marie Catala has been appointed managing director as part of an organisational restructuring. In the role, he will have new responsibilities including taking charge of the legal, audit and risk functions, as well as development activities. Catala joined as head of business development in 2001. Gaëlle Malléjac has been appointed to lead active investment management, one of two separate departments created out of the asset management department. Her remit will include fixed income, equities, convertible bonds, dynamic asset allocation, directional multi-manager investment and financial engineering. Malléjac has been at Groupama AM since 1994, and a director since 2012. Meanwhile, Claire Bourgeois has been appointed to head up the other new asset management department, ALM investments. Thierry Goudin, who came to Groupama AM in 2008 as a director to head up marketing, is now taking charge of the business development department. Antoine de Salins, who was deputy chief executive and CIO at Groupama AM, left the role in September.UK National Infrastructure Commission – The UK government has named its commissioners for the new body. Michael Heseltine, a former deputy prime minister, and John Armitt, the former chair of the Olympic Delivery Authority, have been appointed as commissioners, along with Tim Besley, a former member of the Bank of England’s Monetary Policy Committee. Demis Hassabis and Sadie Morgan, as well as Bridget Rosewell and Paul Ruddock, have also joined.Allianz Global Investors – Elizabeth Corley is to step down as chief executive after four years in the role. Corley, who led AGI’s European business prior to taking over as head, will become a non-executive vice-chair – a new role for the company – in April 2016. AGI co-chief executive and global CIO Andreas Utermann will succeed her. George McKay, the current global COO, who joined in 2006 from Mellon Bank, has been promoted to co-chief executive alongside Utermann.last_img read more

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Accounting roundup: PIRC attack on FRC, watchdog funding changes, review work

first_imgThe Pensions & Investment Research Consultants (PIRC) has launched an unprecedented attack on the United Kingdom’s audit watchdog the Financial Reporting Council (FRC).In written evidence to the UK Parliament, PIRC’s head of governance and financial analysis, Tim Bush, called for the FRC to be broken up.“We believe the FRC in its current form is unsupportable,” he wrote.The submission urges legislators to split the FRC’s rule-making functions from its enforcement role. In support of its call, PIRC argues that the FRC has misunderstood or ignored the duty under s172 of the Companies Act 2006 for companies to publish a Strategic Report.“There is clear evidence with Section 172 and Section 414, and Section 393 and Part 23 of the Companies Act 2006 that the FRC is not adhering to the law.”The corporate governance advisors then go on to quote evidence given to the UK Parliament’s Business Energy and Industrial Strategy Committee by FRC chief Stephen Haddrill.“Frankly, we have not given sufficient thought or appreciation to the company’s wider responsibilities beyond the shareholder,” Mr Haddrill said during an oral evidence sesssion. He continued: “We do need to focus on that stakeholder issue. Section 172 has been there, but it has not borne on thinking in companies and it needs to.”The FRC told IPE that it strongly rejects the PIRC claims.In a rebuttal letter addressed to PIRC’s managing director Alan MacDougall, the FRC’s executive director, Paul George, wrote:“There are no specific legal requirements to report separately on the issues to which directors must have regard under s172 and how they have done so, which has led the FRC to recommend that a change in the law is required.“[W]e will be considering possible improvements to the Corporate Governance Code and the FRC’s Guidance on the Strategic Report but there may be some areas where legislative changes are required.”This latest spat is not the first time that the FRC has found itself under fire from long-term investor interests.Meanwhile, the under-fire watchdog has revealed a four-percent increase in its overall funding requirement to fund a major ramping-up of its activities.The FRC said it wants to spread the cost through an increase of 2.5-percent in levies on professional bodies and a 5-percent increase in its preparer levy.According to a draft plan and budget posted on its website, the FRC said it will “undertake thematic reviews of certain aspects of companies’ corporate reports and audits, where it believes there is scope for improvement and particular shareholder interest” during the coming year.The focus of the FRC’s review work will fall on significant accounting judgments and sources of estimation uncertainty, pensions disclosures and Alternative Performance Measures.“The FRC will write to a number of companies prior to their year-end, informing them that it will review disclosures in their next published reports, specifying the topic under review,” the FRC said.Interested parties have until 17 February 2017 to comment on the proposals.last_img read more

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80% of German institutions ‘have no exposure to alternatives’

first_imgRegulations, costs, and illiquidity are proving to be barriers for German institutions’ allocations to alternative asset classes, a survey has shown.There was “no clear upwards trend” to more alternative asset classes among mandates issued by German institutions last year, according to a Spezialfonds survey by German rating company Telos.For 17 years the group has been studying the demand for Spezialfonds, which are optimised for the reporting and investment needs of German institutional investors.While diversification is “a clear trend” and institutions are seeking “more specialised mandates”, the researchers did not see a significant increase in demand for alternatives. “There was only a limited number of investors with several funds, while around 80% of the surveyed institutions are not invested in alternatives at all,” the researchers said.Overall, roughly a quarter of investors had an exposure to private equity, but less than 10% held hedge funds – similar to the numbers from previous years.A third of portfolios contained infrastructure, compared to a quarter a year earlier. However, the average exposure to this asset class stood at 1.1%.Those that did have exposure to alternatives increased their investments in these assets via Spezialfonds to 10% in 2016, compared to 4% the year before.Over the next two years, more of the surveyed investors than in previous years said they wanted to increase their exposures to commodities and currencies – but only if they are allowed to do so.German institutional investors fall under different legal frameworks, some of which are more restrictive than others when it comes to investing in alternatives, especially illiquid investments.With this finding, the survey echoed a criticism on regulation by Andreas Hilka from the Hoechst Pensionskasse during a summit in Vienna last week.The Telos researchers also looked at costs and fees for Spezialfonds. Their calculations showed that the fees for mandates differed greatly.“Regrettably the question of costs is pushed very much into the focus in tenders nowadays,” they said.Only 17% of respondents to the survey were “content” or “very content” with the cost levels of their managers. The vast majority (74%) said they were “neutral”, while only 8% said outright that they were “dissatisfied”.The report stated that transparency on costs in Germany had increased as investors used tender platforms and consultants more frequently.In total, around €1.48trn was managed for institutional investors in German Spezialfonds and a few institutional segments within mutual funds at the end of 2016, Telos noted.This marked an increase of almost 10% in 12 months.Given their size, insurers still account for the largest part of the assets in Spezialfonds, followed by pension funds and Versorgungswerke.Looking back over the last decade, Telos calculated a 114% increase in institutional money managed by the German fund industry.last_img read more

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