The ITV Pension Scheme has agreed an asset-backed partnership with its sponsor, the UK broadcaster ITV, which will see the scheme backed by the renowned London Television Studios building in London.The deal will see the scheme’s deficit immediately reduce by £50m (€60.4m) on a funding basis, with a further 25 annual payments of £2.05m should the scheme remain in deficit.These payments will be updated by 5% on an annual basis.The deal will take the sponsor’s 2014 cash contribution to the scheme to £91m. Ownership of the Television Centre will remain with ITV in the meantime.The company’s finance director, Ian Griffiths, said the deal represented another step in the management of the company’s pension risk, and was a good deal for members and shareholders.In other news, the UK Pensions Regulator (TPR) has concluded its thematic review into the administration of pension schemes, and confirmed seven investigations into mass irregularities. The regulator set common data-accuracy targets for all private sector pension schemes, which were to be met at the end of 2012.This was set at 100% accuracy for all data collected after June 2010, and 95% for any data collected beforehand.TPR included 237 schemes in its investigation, of which 197 responded.Of this, three-quarters had met the 95% accuracy target.However, the regulator noted a third of the schemes did not measure accuracy before being included in its investigation.The regulator confirmed its seven investigations could lead to enforcement action.Finally, consultancy JLT has updated its IAS 19 deficit figures for pension schemes in the private sector.Research by the firm into the funding of firms found deficit levels were at £164bn at the end of March 2014.However, this is an £18bn improvement on the situation in 2013.Over the year, UK private sector defined benefit schemes saw assets increase by £20bn to £1.13trn, while liabilities fell by £2bn to £1.3trn.This left funding levels at 87%, a 1 percentage point increase.
One of the pioneers of equity smart beta, Paris-based TOBAM, has joined the handful of competitors, including Pimco, Research Affiliates, Quoniam and Ossiam, in launching a strategy in fixed income.TOBAM’s US credit strategy has been seeded with €30m from an existing investor and will be the first sub-fund in the firm’s new Luxembourg SICAV, Most Diversified Portfolio.It is the first to transfer the maximum diversification methodology from equities to bonds, applying the Merrill Lynch US Corporate Bond index as reference. Maximum diversification aims to construct portfolios that maximise the ratio of their constituents’ weighted average volatility to the portfolios’ overall volatility.TOBAM’s president and CIO Yves Choueifaty said: “We have exported the concept to most equity markets now, and the market closest to equity is credit.” “We will look at other markets after starting in the US as the most liquid and efficient,” he added. “Expansion into other markets will be driven by client appetite, as always, and for now we are dedicated to making this strategy successful, but we have proven the portability of the concept.”Choueifaty claims that on average maximum diversification will add 120 basis points of annual return over the benchmark, with 15-20% less volatility.While Choueifaty acknowledges the potential for credit markets to exhibit high correlations, he argues that much of this comes from duration. The TOBAM strategy will maintain the same duration as the Merrill Lynch universe.For similar reasons, he told IPE that the only market to which he would be reluctant to apply maximum diversification is government bonds – despite this being the focus of the first fixed income smart beta products.“The concept depends on an understanding that market participants are rational actors, and in government bonds we have a completely irrational actor in the form of central banks,” he said.Nonetheless, implementation in corporate bonds is not as straightforward as in equity markets. Liquidity is tighter, documentation and covenants vary from one security to another, and individual issuers often have many more than one bond, at different maturities, outstanding at any one time. Security selection is important, and TOBAM hired a fixed income expert from Société Générale in January to help in this area, once the basic applicability of the concept had been assessed.“While selection will not diverge very much from the theoretical portfolio, this strategy cannot simply rely on the mathematics,” said Choueifaty. “Maximum diversification in equities is like flying an Airbus, whereas in fixed income it is more like flying a Cessna.”TOBAM, which is owned by its employees, Amundi and US pensions giant CalPERS, enjoyed a successful 2013, doubling it’s assets under management. It now manages $6bn (€4.3bn). Pension funds represent more than 80% of those assets, with most coming from Switzerland, North America, the Netherlands and the UK. The firm aims to raise its North American assets from 21% to 50%, and as part of that effort it recently announced an agreement with The Dreyfus Corporation, a BNY Mellon company, to launch the Dreyfus TOBAM Emerging Markets fund.
Firms tendering will have to provide a number of documents the authority will use to assess their economic, financial and technical capability.These include financial statements, information on academic and professional qualifications of the provider and its staff and a list of the main services for providing actuarial studies the firm has carried out over the past three years.Firms should have a team of actuarial experts numbering at least three with two or more years’ proven experience in the actuarial evaluation of pension systems, the tender stated.The deadline for receipt of tenders or requests to participate is 14 August.Meanwhile, the trustee of the pension scheme for non-academic staff at the University of London has appointed consultancy Aon Hewitt to give covenant advice.The SAUL Trustee Company, trustee of the Superannuation Arrangements of the University of London (SAUL), has hired Aon Hewitt for a six-year period, covering two valuation cycles, the consultancy said.Penny Green, chief executive of SAUL Trustee Company, said: “As part of our ongoing commitment to the highest standards of governance, the SAUL Trustee sought specialist advice to further develop our comprehensive covenant review programme.”She said Aon Hewitt’s team had impressed the trustee company with their breadth of experience, appreciation of the specific issues facing the scheme as well as their knowledge of pension schemes in its sector.Aidan O’Mahony, partner at Aon Hewitt, said the consultancy was increasingly active with clients in higher education.SAUL covers non-academic employees of more than 50 colleges and institutions with links with higher education, including most of the University of London, Imperial College and the University of Kent.It has more than 38,000 members and assets worth £2bn (€2.5bn). The European Parliament is looking for a firm to produce an actuarial study on various pension schemes for members of the European Parliament (MEPs), according to the official EU contract tenders service TED.The parliament’s directorate-general for finance in Luxembourg said the study would cover the provisional French and Italian retirement pension schemes, the supplementary pension scheme, and the invalidity and survivor’s pension scheme — all for MEPs, the TED entry showed.The contract is divided into lots – one for each of the pension schemes – but respondents can submit tenders for one or more of these, according to the contract tender.The contracts are set to last for 48 months.
Dalriada’s Chris Roberts wonders whether now is the best time for tinkeringWhen considering the monumental changes to UK defined contribution pensions due to take effect in April 2015, I find myself wondering whether we’re heading towards one change too many. However ground-breaking the proposals set out by pensions minister Steve Webb are, is this going to engage the masses? Or is this simply a case of more tinkering with pensions at a time when a period of continuity is what is really needed?The numerous legislative changes introduced in the relatively short time frame of my own career within this industry put things into perspective. I began working in pensions in 2000, and, while other financial industries have continued with relative continuity in overriding rules and regulations in that time, pensions have been subjected to constant changes and reforms. The timeline produced by the Pensions Advisory Service (tPAS), highlighting the ongoing alterations and amendments to legislation between 2006 and 2014, really underlines this point – change has become the status quo.Successive governments have tinkered frequently with normal pension age and the state pension to the point that I would question whether anyone under the age of 50 has any confidence in the level of state pension provision they will receive. Anyone my age or younger would be forgiven for thinking they won’t qualify for a state pension until they are 90, if at all. The state pension was historically your base before deciding your own pension portfolio. However, if this continues to be eroded, many people may re-consider whether they want to build a retirement plan based predominately in pensions.While changes to the state pension impact on lower to medium earners, maximising benefits and tax relief are of greater importance to higher earners. In the space of six years, we have watched the lifetime allowance system change dramatically to restrict the ability of this group to accrue pension entitlement. The relief on the contributions being paid has also reduced. These tandem developments could also diminish the faith of higher earners when it comes to placing significant funds into pensions.While a lot of the legislation changes have been developed to discourage pension saving among higher earners, many rule changes have also been implemented to encourage lower earners to join workplace pension schemes. As an industry, we have watched two attempts at workplace reform with the introduction of stakeholder pensions and auto-enrolment. The former has clearly failed the test of time, while the jury is still out on the latter. But the key question is whether this is the end for workplace pension reform, at least for the time being. Will the contribution requirement increase? Will the auto-enrolment vehicles develop? Will lifetime contributors at the minimum level find themselves sorely disappointed at normal pension age?These reforms are not aided by the current public perception of pensions, where incidents such as the Maxwell scandal, wind-up losses and pension liberation fraud have all found traction in the mainstream media. Meanwhile, the Pension Protection Fund, auto-enrolment and other positive developments within the industry tend to receive less publicity, compared with the negative issues that often make a better news story. When planning for retirement, people want a degree of certainty and stability. But there are so many questions hanging over the future of pensions. This creates a real danger that consumers will switch off from pensions and look at alternatives such as investing in the stock market or buying property, both of which are far from risk-free options.Pensions have become a political pawn in the UK, an easy target for amendment and sensationalist spin, but this needs to stop. We need a time-out from further regulation changes. Both the current and future governments need to let existing reforms bed in, so we can restore a level of public confidence in pensions. While it is important for the pensions industry to remain dynamic in terms of its product offering, it is equally important for consumers to know where they stand so they can make decisions about planning for their retirement with clarity. Further tinkering will be counterproductive and could result in fewer people making long-term provision for what should be their golden years. Chris Roberts is a trustee representative at Dalriada Trustees
GBP, the €50m industry-wide pension fund for the wholesale flowers and plants sector in the Netherlands, has said it wants to liquidate itself and is urgently seeking an alternative solution for the pensions provision for its 6,500 participants.Gerard Roest, employees chairman, told IPE: “We are too small to continue independently. Our administration costs of €285 are too high and still rising.”An additional problem is that the €424bn asset manager APG unilaterally cancelled its contract at the end of 2014, as it considered GBP too small, according to Roest.As a consequence, GBP has temporarily placed its assets with a money market fund at NN Investment Partners, “where it is risk-free, indeed, but hardly generates a return either,” the chairman said. He said the pension fund and social partners were looking at the options, including joining an insurer or the new pensions vehicle PPI.But he said the pension fund preferred joining a larger industry-wide scheme.So far, negotiations with other schemes have failed to produce a result, mainly because they assessed the risk of taking in GBP as too high, according to the chairman.“As we are a non-mandatory scheme,” he said, “we can’t guarantee that all our affiliated employers will join a new pension fund.”GBP, established in 2007, has an individual defined contribution plan and a contribution of approximately 14% of the pensionable salary.“As we don’t have much financial margin to increase our premium, joining another industry-wide scheme with a more expensive pension plan is difficult,” Roest said.However, GBP is financially in good shape.According to the chairman, the official policy funding stood at 123%, and the pension fund had been able to grant indexation every year so far.
It said: “The government welcomes the fact that the funds have to a greater extent than before justified their weighting to the Swedish stock market, and hopes that the funds will continue to report its considerations on the issue with the same clarity.”Funds AP1-AP4 said that Swedish companies were generally very well run, and cited the approach as a potential reason for their high historical returns.One argument used by the funds for overweighting the domestic stock market was that Swedish companies took responsibility for sustainability issues, the report said.AP1 said that despite this, the valuations of Swedish companies were no different than valuations of stocks elsewhere, and that this justified the continued dominance of domestic stocks in its allocation.AP4, meanwhile, said the overweight to Swedish shares meant a lower carbon footprint by international standards, since sectors with high levels of emissions made up a relatively small amount of overall stock market value.AP2 said that as a result of its strategy to add greater diversification to its portfolio, it had slimmed its weighting to Swedish equities to 10% at the end of 2014 from 20% in 2010.AP1 to AP4 and AP6 collectively produced grew assets by SEK147bn (€15.5bn) after costs in 2014, corresponding to a return of 14.1%.In the report, the government said: “This was the best result in absolute terms and the fourth best result in percentage terms since the beginning of 2001.”It said most of the result could be explained by the high proportion of equities contained in the AP funds’ portfolios as well as strong development on the equity and bond markets in combination with asset value increases as a result of currency exposure.Assets under management rose to SEK1.185bn by the end of the year, according to the report.It said there had been big variations in AP fund performance over the years in line with financial market developments.Since the start of 2001, the funds’ average annual returns had now risen to 5.3%, the report said, adding that this had outpaced the rise in the income index over the same period, which was 3.1%.AP7, which has the role of running the default fund within the premium pension system, had produce a 29.3% return in 2014, the report noted, which was around double the 15.1% average return generated for private funds within the system.The AP funds 1-4 had continued spreading their risk over the last few years, allocating capital to asset classes other than equities and bonds, for example, alternative assets, the report said.At the end of 2014, their collective alternatives allocation was 18% of total assets, up from 5% in 2007, it said. Sweden’s AP buffer funds have reduced their domestic equity bias over the last year, after previous calls for the five funds to justify their home bias.The Swedish government’s annual report into the AP fund system, covering AP1 to AP4 along with AP6, revealed that the allocation to domestic equities dropped to 13% of total assets by the end of 2014, from 14% a year before.In last year’s report, the government had said the funds should reconsider their heavy home investment bias because this approach in theory presented a higher risk.In the latest report, it detailed the justifications the pension funds had since given for this stance.
MacDonald, also a trustee at the £42.6bn (€60bn) BT Pension Scheme, was speaking at a private equity conference supported by the Principles for Responsible Investment (PRI).He lamented the progress on policymakers’ attempts to limit global temperatures to within a 2⁰C increase, and said every increase took the world closer to the “tipping point for runaway climate change”.“As investors, whether pension funds, fund managers, general partners or limited partners, we need to think about the consequences of our investment policies and decisions,” he said.However, MacDonald praised private equity investors’ involvement in climate change and said it had become a mainstream discussion.Research from consultancy PwC showed institutional investors wanted private equity firms to quantify responsible investment within their holdings.The survey showed that 74% stated environmental stances, alongside social and governance concerns.However, only 19% of investors approached managers pushing for further evidence.“Limited partners and general partners are well placed to help make that transformational step-change the world needs, but we need to have real leadership from policymakers, and I sincerely believe investor engagement with them is not only highly desirable but absolutely necessary,” MacDonald added.Additional research from Mercer and LGT Capital Partners showed the overwhelming majority of asset owners considered environmental issues when selecting private equity, property and infrastructure managers, but less so with hedge funds. The Institutional Investor Group on Climate Change (IIGCC) has criticised the lack of coherent regulatory output on tackling the issue and said all investors needed to begin thinking about the consequences.Chair of the group, Donald MacDonald, said institutional investors had the capital but lacked the support of an appropriate regulatory framework or policies.“In many cases, energy regulation, pensions regulation and insurance regulation are simply not integrated,” he said.“The IIGCC has been engaging with the European Commission about the perverse impact well-intentioned regulation might have, for example, on issues around energy unbundling and pension and insurance fund solvency.”
Ilmarinen, Finland’s second-largest private sector earnings-related pension provider, is to merge with its smaller rival Etera in a move that could reshape competition in the country’s pensions market.Post-merger, Ilmarinen and Varma will be neck-and-neck in the national ranking.Varma is currently the largest private sector pension fund in the country, and the second-largest overall after public sector pension fund Keva, according to IPE’s Top 1000 pension funds ranking within Finland.The boards of Ilmarinen, which had €38.3bn at the end of the first quarter, and Etera, which had €6.2bn, have approved the merger agreement, which complete in January. Mikko Helander, chairman of Ilmarinen’s board of directors, said: “The synergies achieved through the merger will benefit the clients of both companies.”On top of this, he said the deal would improve the cost-effectiveness of the entire earnings-related pension insurance system significantly, and the sector’s solvency would strengthen overall.“The transaction will thus benefit both policyholders and the insured alike,” Helander said.Implementing the merger would require approval from both companies’ general meetings and that of the relevant authorities, Ilmarinen said.The company cited solvency, cost efficiency, and competitiveness as reasons for making the deal. Ilmarinen said the merger would help cut annual administration costs by at least €20m starting from 2020. Within investment operations, another €20m could be saved from direct and indirect annual costs.In terms of customer numbers and premiums written, the merged company would become Finland’s largest private sector earnings-related pension insurer, Ilmarinen said. The new firm would manage the pension cover of more than 1.1m Finns, with 675,000 insured and 460,000 pensioners.The merged company would have a 37% market share of premiums written, Ilmarinen said.However, in terms of assets under management, it appears that the merger will bring Ilmarinen just short of its rival Varma. Ilmarinen said the pension assets of the new company would be more than €44bn, but at the end of March, Varma’s investments totalled €44.4bn.Tero Kiviniemi, chairman of Etera’s board of directors, said services would be tailored to meet the needs of different client segments within the merged company.Ilmarinen said the new company would maintain “a strong and diverse role” in the investment markets in Finland and globally, and would also be a major real estate investor and financing partner for growth companies in Finland.The companies’ boards have agreed that Ilmarinen’s president and chief executive Timo Ritakallio will continue in his position after the merger, with Etera’s current managing director Stefan Björkman becoming Ritakallio’s deputy.Sini Kivihuhta will continue in her current role of deputy chief executive at Ilmarinen, the company said.
Other participants in the Riverlinx consortium are Macquarie Capital, Citra and SK Engineering & Construction.TfL said that attracting external funding not only shifted financial risks onto the private sector, but also incentivised the private sector to deliver the project as efficiently as possible.It added that the actual contract would be awarded after the consortium had confirmed the financial arrangements with lenders and had set up the supply chain.After completion, the consortium will be responsible for management and maintenance of the Silvertown Tunnel for a 25-year period.PGGM declined to provide details about the scale of its investment or expected returns.It said the investment was made on behalf of its €8.5bn infrastructure fund, in which the €217bn healthcare scheme PFZW as well as some of its other clients participated. Dutch asset manager PGGM and UK-based Aberdeen Standard Investments are part of a consortium named as the preferred bidder for a new tunnel in East London, Transport for London (TfL) announced last week.The Riverlinx consortium is to design, build, finance, operate and maintain the Silvertown Tunnel, designed to ease severe traffic congestion around the neighbouring 112-year old Blackwall Tunnel.The project – worth approximately €1.1bn – involves a 1.4km twin-bore road tunnel plus access roads in the extended Ultra Low Emission Zone under the river Thames, according to TfL. The tunnel will link the Greenwich Peninsula and the Royal Docks and is scheduled to open in 2025.PGGM – the second-biggest asset manager in the Netherlands with €225bn under management – is to participate in the project as part of its joint venture with construction firm BAM, which targets public-private partnership projects in north-western Europe.
Source: VNO-NCWHans de Boer, chairman, VNO-NCWHans de Boer, chair of the VNO-NCW, the Netherlands’ largest confederation of employers, claimed that the social partners could still prevent cuts in 2020 in an interview last week in Dutch newspaper De Telegraaf.The condition would be, however, that clear agreements were made on the introduction of the new pension system. He added: “I could well imagine that if it is completely cast in stone, you’d want to look again at the way cuts are applied.”Without new arrangements, cuts were inevitable, De Boer said. The Department of Social Affairs considered De Boer’s words to be a call to get started swiftly and energetically with developing the specifications of the new pension agreement, according to a spokesperson.“Schemes for which pension cuts are imminent have a coverage ratio of far below the required 100%,” the department’s spokesperson said. “They really have too little capital to pay for future pensions.”Paul Smeulders, an MP for green party GroenLinks, said his party would decide its position on the impending cuts of 2020 this week or early next week, ahead of a debate on pension cuts planned for 5 September.Smeulders submitted a bill earlier this year to extend the recovery period for pension funds, joining forces with Marin van Rooijen of 50Plus, a political party in the Netherlands that advocates pensioners’ interests. Van Rooijen has since switched his position from the House of Commons to the Senate. While the answer could involve an increase to the state pension, the CNV spokesperson said, “as far as we are concerned, we will first be exploring whether adjustments can be made in the pension system itself, so there would be no or less cuts in pensions required”.The CNV and other parties involved the the discussions declined to comment further.Volatile investment markets, falling interest rates and adjustments to liability calculations have all combined to threaten the funding positions of many pension schemes across the Netherlands, with a number of the country’s largest funds facing looming cuts to pension payouts from the end of this year. The steering group of social partners in the Netherlands is working on various solutions for the consequences of pension cuts on retirees’ purchasing power, according to local trade union CNV.Both an increase to the state pension (AOW) and the avoidance of cuts to second-pillar payouts are options to be reviewed, the trade union stated in response to questions posed by Dutch pensions industry publication Pensioen Pro.Last month trade union VCP reminded the government of its responsibility for maintaining purchasing power for retirees. Fellow union FNV called for cuts to be suspended until after the implementation of the new pension agreement. If that was not feasible, FNV trustee Tuur Elzinga argued that a higher AOW should be used to maintain purchasing power. The CNV shared the concerns of the other two trade bodies. According to a spokesperson, the steering group planned to calculate several solutions to address this.