Dutch civil service pension scheme ABP and Sweden’s Folksam have jointly won industry awards for transparency in reporting on responsible investment (RI).The two schemes won best RI reporting by a large fund at the RI Reporting Awards, now in its second year, at a ceremony in London.Norway’s Folketrygdfondet, the government pension fund, also won best RI reporting for a medium and small fund.In the highly commended categories, the Canadian Pension Plan Investment Board (CPPIB) and South Africa’s Government Employees Pension Fund (GEPF) secured their spots as large funds. Canadian funds Bâtirente and Fonds de solidarité were highly commended as small and medium funds.Judges in the RI Reporting Awards use publicly available information to look for reporting best practice in terms of simplicity, relevance, disclosure and process, the awards organisers said.They added: “Public disclosure, accountability and transparency enhance the credibility of responsible investment, leading to higher standards.“The RI Reporting Awards are based on proprietary research of more than 1,000 funds around the world to create a pool of RI reports to which a series of objective indicators are applied to filter the reports into two shortlists.”Last year, at the inaugural awards, Dutch pension fund Pensioensfonds Zorg en Welzijn (PFZW) and the UK’s Environment Agency (Active) Pension Fund were awarded the top accolades.Both funds were invited to the judging panel this year and thus were excluded from entering in 2014.
The Institute and Faculty of Actuaries welcomed the proposals and the opportunity to comment on them.The IFA’s general counsel, Ben Kemp, told IPE: “A principles-based approach to standard-setting is the way to go. This follows from work the IFA and the FRC have been doing with JFAR [Joint Forum on Actuarial Regulation], including our joint work on the identification of areas of public-interest risk.” He added: “We will continue to work with the FRC through JFAR, respond to the consultation and draw on our expert practice boards. We will also be highlighting the consultation to our members in view of their importance.”The IFA currently regulates 28,000 members around the world.Within the context of the UK, the FRC provides a link between that oversight and the wider public interest.Under this arrangement, the FRC sets technical actuarial standards, which the IFA applies by agreement to its members.The FRC also operates a high-level public interest disciplinary scheme.These latest proposals arise out of the FRC’s technical standard-setting role.They build on the release last year of TAS 100, a more principles-based actuarial regulation framework.The consultation is open until 5 August.The revised TASs are expected to come into force in the summer of 2017.For more information about the consultation, click here The Financial Reporting Council (FRC) has published for consultation a series of proposed changes to the Technical Actuarial Standards (TASs) framework.Introducing the consultation, FRC executive director Melanie McLaren said: “High-quality technical actuarial work is vital in promoting trust in financial markets among the millions of UK pensioners and savers and the many investors who allocate capital.“The proposals are designed to provide further confidence to users who rely on actuarial information. The standards are proportionate, and the simplified structure should make the standards easier to apply.”The consultation is focused on three areas of UK actuarial practice with a “high degree of public interest”, namely pensions, insurance and funeral plan trusts.
Even though companies contributed an estimated £75bn (€88bn) of cash to their DB schemes over the period – equivalent to almost 5% of the value of the liabilities – deficits rose to £98bn at the end of May 2016, with a funding level of 87%, from £64bn at the end of 2010, with a funding level of 88%.Hartshorn said the high deficits were a result of the increase in the value of pension scheme assets not having kept pace with the rising cost of providing pension benefits caused by persistently low – and falling – interest rates. “Contributions paid by companies are therefore simply being used to fill an ever-increasing gap between the value of the assets and the value of the liabilities,” he said. “Add to this the impact of people living longer and a range of other costs, and it is easy to see how contributions are simply swallowed up.”For the outlook to become more positive for UK pension schemes, interest rates will need to rise more quickly than markets expect, Mercer said.On top of this, equity markets and other growth asset classes will have to perform strongly over a long period, and the improvements in life expectancy seen over the last 20 years will need to slow down, it said.“If one or more of these elements fails to materialise, then pension scheme deficits – and the cash contributions required to fund them – are likely to worsen,” the firm said.Mercer noted that its research did not allow for the impact of the UK referendum outcome.Last week, the UK’s Pensions and Lifetime Savings Association (PLSA) called on the Pensions Regulator to take a proportionate and flexible approach to scheme funding, after monetary easing by the Bank of England sent defined benefit (DB) deficits to new highs.The Bank of England cited the weakening in the UK’s economic outlook following the Brexit vote in late June as one of the reasons behind its decision to cut rates and extend its quantitative easing programme. The UK’s top 350 listed companies have suffered an increase in the deficits of their defined benefit (DB) pension schemes over the last five years of around one-third in relation to their market capitalisation, with the shortfall in assets now standing at 40% of their stock-market value compared with 30% at the end of 2010.In an analysis based on information from FTSE 350 companies’ annual accounts, Mercer said pension liabilities had ballooned in the past five years, with the value of the DB scheme liabilities increasing by 44% since 2010. In contrast, the market capitalisation of the companies has only increased by 10% over the same period.Adrian Hartshorn, senior partner at Mercer and leader of the firm’s UK Financial Strategy Group, said: “Despite many billions of pounds of company contributions, DB pension deficits remain stubbornly high.”
He expects others to follow suit, however.Bfinance said it would be involved in “key areas” of the pooling plans.Its job will include providing independent advice on the 22 proposed portfolios and review their specifications, including structure, fee levels and projected savings.Additional investment advice, according to bfinance, “will include a comprehensive cost-benefit analysis for the funds in relation to the use of internal investment resources versus the appointment of external managers, review of the potential transition costs of the selected investment strategy and other potential costs that could be incurred”.Matthew Trebilcock of the Brunel Pension Partnership said: “We welcome our partnership with bfinance and are confident their specialist expertise and experience in the competitive landscape of pooling funds will provide us with a thorough and tailored cost-benefit analysis of the proposed investment portfolios the Brunel Pension Partnership have designed for the 10 funds that are part of the project to ensure it is the most appropriate approach.”* The Environment Agency Pension Fund and the local government pension funds of Avon, Buckinghamshire, Cornwall, Devon, Dorset, Gloucestershire, Oxfordshire, Somerset and Wiltshire The Brunel Pension Partnership is said to have become the first of the eight asset-pooling collaborations among UK local government pension schemes (LGPS) to commission a formal independent review of its pooling strategy, with bfinance landing the job.The Brunel partnership is the asset-pooling project of 10* local authority pension funds in the south-west of England, with some £13bn (€15.5bn) in collective assets.In a recent submission to the UK government, it said the participating funds would initially pool assets in 22 portfolios, and that it envisaged this generating net savings of £13m per year by 2021.The group is the first of the asset-pooling collaborations to request a formal review of its pooling plans, according to Sam Gervaise-Jones, head of client consulting for the UK and Ireland at bfinance.
London CIV, the pooling project for the UK capital’s 33 borough pension schemes, has added global equity and emerging markets funds to its offering.The pool, which now manages more than £5bn (€5.7bn) through eight funds run by external managers, has appointed Janus Henderson Investors to run an emerging markets portfolio. Hugh Grover, chief executive of London CIV, said the group expected roughly £250m to be transferred to the fund when it launches in July.Longview Capital, a London-based global equity manager, will begin running roughly £500m of assets next month for what will be London CIV’s fourth global equity offering. The boutique firm’s appointment was confirmed earlier this year. Grover said interest in the mandate could push it towards £1bn.London CIV plans to launch a global equity income fund run by New York-based Epoch Investment Partners, and a sustainable equities fund run by RBC, in September. Low volatility and low carbon strategies were also being discussed, Grover said. The pool has also been researching fixed income, Grover said, aided by the recent appointment of Larissa Benbow as fixed income manager. London CIV has targeted early 2018 for its first fixed income mandates, but the chief executive indicated this could be brought forward to meet demand from the borough pension funds.Regulator secures £1bn through anti-avoidance powersThe Pensions Regulator (TPR) has agreed a £74m settlement with thread manufacturer Coats Group regarding the funding of its defined benefit (DB) schemes.TPR stepped in last year to ensure the proceeds of asset sales by Coats were used to fund a sizeable deficit across three DB schemes connected to the firm.In December it agreed to pay £255m into two schemes, with the third scheme’s settlement being announced this morning.The Staveley Industries Retirement Benefits Scheme has roughly 3,700 members and an estimated shortfall of £85m, the regulator said in a statement.Combined with its agreement with former BHS owner Sir Philip Green earlier this year, it means TPR has now secured more than £1bn to fund DB pension schemes using its anti-avoidance powers.Nicola Parish, executive director of frontline regulation, said: “The ongoing trading operations of Coats have improved and are sufficient to provide ongoing funding for the schemes. This is an excellent result for scheme members, bringing greater certainty that future benefits will be paid in full.“Today’s report shows that even though our concerns about the funding of the schemes were enough to launch anti-avoidance action and issue warning notices, we maintained a strong working relationship with Coats and the trustee, allowing us to be flexible and achieve a fair resolution.”Engineering group agrees ‘roll-in’ de-risking planThe pension scheme of engineering group Vesuvius has completed a buy-in transaction with Pension Insurance Corporation (PIC), bringing the level of the pension fund now insured to 50%, representing more than £400m of liabilities.Vesuvius and PIC initially struck a £320m buy-in arrangement in 2012, with subsequent tranches ‘rolled in’ on an annual basis, subject to meeting certain criteria. The two groups have agreed to make this arrangement “open-ended”, meaning the trustees of the scheme can continue to add future tranches of pensioners to the insurance arrangement.Tristan Walker-Buckton, senior actuary at PIC, said the trustees had been “forward thinking and proactive”, as one of the first pension schemes to employ the “automatic roll-in” option.Guy Young, chief financial officer of Vesuvius, said: “De-risking the UK plan in this way, by removing the inflation, longevity and interest rate risks for the insured liabilities, will reduce still further the level of volatility to which Vesuvius is exposed in future pension funding costs through its sponsorship of the UK plan. This latest buy-in agreement represents a further demonstration of the company’s intention to work with the trustee to de-risk the UK plan in a managed way.”
A ruling by the US Supreme Court will impact the time frame for investors to assert individual claims for compensation of damages through courts, lawyers have warned.The court ruled that the California Public Employees’ Retirement System (CalPERS) could not sue a number of banks over losses resulting from the Lehman Brothers bankruptcy in September 2008.The case, CalPERS v ANZ Securities, was about the Lehmans bankruptcy but centred on the time frame available for investors to pursue lawsuits when seeking recovery of damages under US securities laws.The ruling said the filing of a class action did not satisfy the three-year time period for parties pursuing individual claims for recovery of damages. Generally, US securities laws provide a three-year time limit for strict liability claims on securities purchased in public offerings, and a five-year time limit for securities fraud claims based on open market purchases.“The decision serves as a major wake-up call to identify and follow securities class actions of interest across the country, to ensure that valuable individual securities fraud claims are protected and preserved.”Blair Nicholas, lawyerLegal precedent dating back to the 1970s established that filing a class action satisfied all time periods governing class members’ individual claims for recovery, including both the statute of limitations and the statute of repose for securities claims. It meant individuals could pursue separate claims outside of a class action suit at a later date.However, this was overturned in 2014 in a case related to IndyMac, an American mortgage provider that collapsed a few months before Lehman Brothers in 2008. The IndyMac ruling meant that, if a US class action was formally certified by the court after the statute of repose expired, class members would not be able to pursue their own lawsuit later. It is nearly nine years since Lehman Brothers collapsed.CalPERS had opted out of a class action against ANZ Securities and other banks, preferring to pursue an individual action. But the Court of Appeals – relying on the IndyMac ruling – dismissed this action on the grounds that it had commenced after the statute of repose had expired. CalPERS applied to the Supreme Court to review and overturn the IndyMac ruling.CalPERS was supported by 75 investors with over $4trn in assets under management, including European pension funds APG, AP1, Industriens Pension, and the Universities Superannuation Scheme, as well as Aegon Asset Management, Blue Sky Group, MP Investment Management, PGGM Investments, SEB Investment Management, and Storebrand.However, in a 5-4 decision, the Supreme Court judges upheld the IndyMac ruling.The judges’ verdictsJudge Anthony Kennedy, delivering the ruling, said: “The three-year time bar in… the Securities Act is a statute of repose. Its purpose and design are to protect defendants against future liability. The statute displaces the traditional power of courts to modify statutory time limits in the name of equity.”But Judge Ruth Ginsburg, dissenting, said: “The decision disserves the investing public that [the Securities Act of 1933] was designed to protect. The harshest consequences will fall on those class members, often least sophisticated, who fail to file a protective claim within the repose period.”She added: “[It] will also gum up the works of class litigation. Defendants will have an incentive to ‘slow-walk’ discovery and other precertification proceedings so the clock will run on potential opt-outs. Any class member with a material stake in a… case, including every fiduciary who must safeguard investor assets, will have strong cause to file a protective claim before the three-year period expires.”Blair Nicholas, a senior partner at Bernstein Litowitz Berger & Grossmann (BLBG), who prepared the institutional investors’ filing, said: “The case has important practical consequences for investors and their fiduciaries, but also provides much-needed clarity.“As Judge Ginsberg correctly observed, the decision serves as a major wake-up call to both fiduciaries and investors to identify and follow securities class actions of interest across the country, to ensure that valuable individual securities fraud claims are protected and preserved.”Otherwise, Nicholas said, “the claim may lapse with investors left holding the bag, as they are now legally precluded from relying on the class action case to protect their individual claims for recovery of what are, in many cases, substantial securities fraud damages”.He said that pursuing certain opt-outs can result in a major upside recovery for investors, but they must be extremely selective in the opt-outs they pursue because it could prove costly both in terms of time and money.Total funds recovered for investors in securities class actions in the US during 2016 amounted to $9.3bn (€8.1bn), according to corporate governance advisers Institutional Shareholder Services.
René Van De KieftLast year, problems with a new system for income insurance also negatively affected its regular service provision, according to a spokesman commenting on the company’s annual report.He said MN would need this year to get its administration straight.Ella Vogelaar, chair of MN’s supervisory board, said MN faced important innovation challenges for pensions administration, cost saving and quality improvement.Additional goals for the incoming CEO included improving service for asset management, board support and communication, Vogelaar added.Hoogers is to start as soon as his appointment has been approved by communication watchdog AFM.In the meantime, the other three members of MN’s executive committee – Liesbeth Sinke, Henri den Boer and Gerard Cartigny – will make up the company’s boardVan de Kieft announced his departure in March, stating that he wanted to have more time to fulfill his personal ambitions, including more sustainability work.He started at MN three years ago – succeeding Ruud Hagendijk – following MN’s main stakeholders lamenting the quality of pensions provision. Norbert Hoogers MN, the €129bn Dutch asset manager, has appointed Norbert Hoogers as its new chief executive.He is to succeed René van de Kieft, who will leave on 15 July. Until a year ago, Hoogers was CEO of healthcare insurer Zilveren Kruis, a subsidiary of Achmea. He held several operational roles at Achmea during the past 15 years.MN – the provider for the Netherlands’ large metal industry schemes PME and PMT – said Hoogers had ample governing experience, a background in corporate finance as well as a proven track record in leading complex market and client-led improvement projects. It said that it expected him to translate the company’s strategic agenda into improved operational implementation, including more IT innovation.Over the course of 2015 and 2016, MN made combined losses of €15.6m due to write-offs on a failed IT project that caused significant implementation problems.
Full indexation is possible with coverage of at least 125%, and paying inflation compensation that members missed out on in previous years can start as of 130%.Trade unions had demanded an extra contribution of €400m, taken from the €7.5bn proceeds of the sale of AkzoNobel’s Specialty Chemicals branch to private equity investor Carlyle.The unions argued that they wanted the assets to improve the pension fund’s financial position, and last week began strike action over the dispute.The company has rejected the demands, citing conflict with the accounting rules of IFRS as well as its promise to pay the proceeds to its shareholders.The COR’s survey confirmed the company’s argument that the additional contribution would seriously damage AkzoNobel’s financial position. It suggested that the €400m should be used to improve other labour conditions as an alternative.Recently, Aarnout Loudon and Kees van Lede, two former chief executives of AkzoNobel, called on the company to come up with an extra contribution for its pension fund.They argued that the employer should compensate its pension fund, as the sale of several parts of the company had reduced the number of active participants and weakened the scheme’s financial position as a consequence. The Dutch pension fund of AkzoNobel expects to be able to grant indexation without an additional €400m contribution from the employer demanded by the trade unions, according to a report commissioned by the company’s central works council (COR).Referring to the scheme’s recovery plan, submitted to supervisor De Nederlandsche Bank (DNB), the report said that inflation compensation already promised to members would be possible within five years.The COR – an employee representative body – said that the recovery plan expected that funding would improve from 112% at the end of June 2018 to 138% in 2027.Pension funds are allowed to start granting inflation-linked increases in part once their funding ratio hits 110%.
Border to Coast is headquartered in Leeds“It has very much been a team effort and we are looking forward to building on this in the future to achieve our aim of making a difference to long-term investment outcomes for our LGPS partners.”Council documents seen by IPE indicated plans for Border to Coast to launch fixed income, diversified growth and alternatives funds from next year.The pool said it expected to be running more than £10bn of its members’ assets by the end of 2018. The 13 member funds have roughly £47bn of assets between them.Border to Coast’s founding LGPS funds are Bedfordshire, Cumbria, Durham, East Riding, Lincolnshire, North Yorkshire, Northumberland, South Yorkshire, Surrey, Teesside, Tyne & Wear, and Warwickshire. Border to Coast Pensions Partnership, one of eight asset pools created by the UK Local Government Pension Schemes (LGPS), has opened its doors with £7bn (€7.9bn) worth of investments in its first two funds.The pension schemes for Teesside, East Riding and South Yorkshire have transferred internally managed equities into funds run by the pool, focusing on UK listed equities and overseas developed market equities.In a statement, Border to Coast said it would launch a second UK equity fund and an emerging markets equity fund in the fourth quarter of this year, followed by a global equity portfolio in the first quarter of 2019.Earlier this month, the pool launched a tender for up to three external UK equity managers to run a portfolio expected to be worth up to £1.25bn. The deadline for submissions is today. Rachel Elwell, CEO of Border to Coast, said: “We are all delighted to have achieved this significant milestone, which is testament to the strong partnership that has been built between our partner funds, with the newly formed Border to Coast and with our advisers and service providers.
Summer market volatility has pushed up USS’ deficit and could affect negotiations over contribution ratesThe CEO said there had been a “downwards drift” in real yields for much of the past year, which had “become pronounced in recent weeks”.“At the end of July the real yield on 20-year UK index-linked Gilts was -2.20%, and in August they have fallen even lower,” Galvin said. “At the time of the last trustee meeting [on] 21 August they stood at -2.44%.”Using the technical provisions basis of valuing scheme assets and liabilities, this meant USS’ funding deficit was £6.6bn as of the end of July, he said. This compared to the £3.6bn shortfall reported on 31 March 2018.USS reported a £5.7bn shortfall in its annual accounts as of the end of March 2019, although this used data from the March 2017 valuation, which has since been replaced by the 2018 valuation. In addition, actuaries have warned that the scheme’s next valuation, due to use data as of 31 March 2020, might not produce contributions rates lower than currently scheduled.If UUK and UCU agree to the 30.7% contribution rate, it will be in place until October 2021, after which the combined rate will increase to 34.7% of salary, with members paying 11%.However, in an analysis of the contribution schedule – which will be out for consultation in September – Aon actuaries John Coulthard, Andrew Claringbold and Joanna Davies said the deterioration of market conditions was “concerning”.“There is no guarantee that the 2020 actuarial valuation will result in contributions that are lower than 34.7% from 1 October 2021,” they wrote.Regulator voices concernsEarlier this month the Pensions Regulator (TPR) wrote to USS trustee board chairman Sir David Eastwood to outline concerns over the route being taken by the scheme.The planned contribution schedule – referred to as ‘option 3’ based on choices presented to stakeholders in May – “misses the opportunity to secure a material amount of cash funding for the scheme in the short term”, wrote TPR director of supervision Mike Birch.Birch also highlighted scenario analysis work conducted by the USS trustee board, which showed that there was a 5% chance of the scheme requiring total contributions of as much as 55% of salary. There was a 22% chance of an increase to “above 40%”, he said.“Of course, many assumptions underlie such projections but the overall message is clear – the risk of some very serious downside scenarios arising over relatively short periods of time is not insignificant,” he said.The trustees and other stakeholders “must actively monitor and manage this risk”, Birch said, and decide what actions should be taken in such circumstances, including asset sales, delays to capital expenditure, and changes to benefits. The funding shortfall for the UK’s largest pension scheme has increased to £6.6bn (€7.3bn), according to its chief executive.Bill Galvin, CEO of the Universities Superannuation Scheme (USS), detailed the effects on the scheme of negative real yields on government bonds in a 23 August email to Alistair Jarvis, chief executive of employer organisation Universities UK (UUK).The news comes as UUK and the University and College Union (UCU) are attempting to negotiate a new schedule of contributions. Employers have backed a combined contribution of 30.7% of salary, with members paying 9.6%. However, the UCU has demanded that member contributions remain at 8%, and has threatened strike action.Galvin said USS’ trustee board would have to make a judgement on how to interpret recent market movements and factor them in to the 2018 valuation decision. UK regulations require all schemes to carry out a formal valuation at least every three years, including assessing contribution rates. Galvin said: “Given recent volatility in financial markets and the regulatory requirement that the trustee conclude [that] the long-term assumptions underpinning the funding proposals remain safe, there is a real risk that the trustee will, at the end of the consultation and before concluding the valuation, need to reconsider the contribution rates and/or evaluate other mitigating actions that may be required.”