The whispers in Brussels suggest another Green Paper on pensions is in the offing, says Jeremy WoolfeRevisions or developments to pensions policy from the European Commission are expected in a new, (as yet) unannounced Green Paper, which will show its face in early 2014 – perhaps as early as February. A major conference to follow is in the planning stage. So far, no specific items to be covered have emerged in Brussels whispers. But it can be assumed that solid proposals for the financial underpinning of occupational pensions’ resources will be high on any Green Paper’s priority list.Presumably, these will be in the form of ‘holistic balance sheet’ or Solvency II-type measures. Note here the relevance of the recent appointment of Michaela Koller, director general of InsuranceEurope, in the European Insurance and Occupational Pensions Authority’s new stakeholders’ group. The significance of the appointment is both her seniority and that fact InsuranceEurope has for years been calling for a “level playing field” between insurance-based and company-based supplementary pensions.Another strategic topic for the policy paper could be an attempt by the European Commission to head off further contagion from EU member state governments simply capturing the assets of future pensioners under some kind of doubtful promise for the future. The perceived risk is governments will not play fair when the time comes. Then, the hopeful pension recipients will be in no position to reclaim rights if and when they find themselves falling foul. At present, the legal status of the latest venture, by the Polish government, is said to be in doubt. No doubt, the legal ’eager beavers’ in the Commission will by now be seeking to clarify this matter in favour of the pensioners. However, in this and other issues, the Commission will be up against intransigence in the Council. Bizarrely, the representatives of elected national governments often seek to patch up today’s problems and ignore future interests.Meanwhile, this week in Brussels, three-way sessions will discuss the Directive on the portability of supplementary pension rights. Cohesion will be sought between the Council, representing national governments, the European Parliament and the Commission. Social affairs commissioner László Andor had expressed optimism for agreement in June for clearance by the Council approval. However, a recent expression from Germany could put the matter in doubt.Ria Oomen-Ruijten, a leading MEP in the field, tells IPE the current key negotiating positions include the definition of an “outgoing worker”. This means someone moving from one member state to another. Also important is the need to resolve legal definitions for the differences between so-called outgoing workers, and existing workers. “We are negotiating,” she explained.According to another murmur on the Brussels grapevine, particularly in the fray on the portability issue, is internal market commissioner Michel Barnier. His cabinet of high-ups recently were considering the matter as relevant to solving the EU’s dismal performance on economic growth.
Examining the importance of fiduciary duties to trust-based DC funds, it said: “It appears that, on their own, legal duties are insufficient to ensure pension schemes work in the interests of their members.“Legal duties need to be embedded in an industry structure that provides the expertise and resources for good governance, and duties must be enforced by efficient regulation.”The Commission also remarked that the regulatory split – whereby trust-based funds are overseen by the Pensions Regulator, while the Financial Conduct Authority monitors contract-based arrangements – could cause problems.“This dual regulatory system allows possibilities for ’regulator shopping’, enabling providers with less capital to choose a scheme with lower prudential requirements,” it said.It also expressed concerns that trustees in master trusts, potentially paid by the provider maintaining the scheme, may suffer from conflicts of interest and could “lack the power” to appoint a new investment manager if in-house funds were underperforming.Addressing the potential introduction of governance committees for contract-based arrangements, recommended by the Department for Work & Pensions earlier this year, it argued that any committee should be subject to “clear legal duties to act in the interests of members”.However, it added: ”We appreciate, however, that if members carry unlimited personal liability for breaches of those duties it may be difficult to find individuals willing to carry out the task.”Will Pomroy, corporate governance lead at the National Association of Pension Funds, welcomed any attempts to “increase the clarity and understanding” of legal responsibilities stemming from investors’ fiduciary duty.“The Law Commission recognises that the duties on contract-based pension providers are much less certain and need reviewing,” he said. “We agree much of the apprehension concerning contract-based schemes could be addressed more directly through clear standards of conduct applicable to employers and providers in those areas in which they exercise discretion.”The Commission also seemed to consider the codification of fiduciary duties, noting its interest in the approach taken by Australian legislators in regulating the domestic Superannuation market.“We note that, in Australia, fiduciary duties are set out in statutory ‘covenants’,” the consultation said.“We are interested in whether any specific issues in the UK would benefit from similar types of statutory clarification.”The consultation will close 22 January, and the report will be submitted to the Department for Business, Innovation and Skills by June 2014. A review of how fiduciary duties impact pension funds and trustees has suggested the current legal duties appear unable to guarantee that defined contribution (DC) funds act in the best interest of members.According to the Law Commission, the UK may also wish to consider the introduction of statutory covenants for those investing pension assets, mirroring a similar system in place in Australia.The Commission earlier this year announced it would launch a review examining whether the current understanding of fiduciary duties stopped pension managers from committing to long-term or environmentally themed projects.The review said it had already come to a number of tentative conclusions following debate with the industry.
Deficits at defined benefit (DB) pension funds in the UK have shrunk this year by around one-quarter, with schemes profiting from higher Gilt yields and the strong performance of growth assets, according to consultancy Aon Hewitt.The collective pension scheme deficit of companies in the FTSE 350 index fell to well under £300bn (€355bn) by early December from more than £400bn at the beginning of January, Aon Hewitt said, citing data from its Pension Risk Tracker.Paul McGlone, partner at the firm, said: “2012 and early 2013 saw many pension scheme funding levels decline significantly as quantitative easing saw real Gilt yields settling just under zero.”But over the last year, and in the second and third quarters of 2013 in particular, rising Gilt yields and the strong performance of growth assets have benefited DB schemes, he said. “For many pension schemes, this has allowed them to recover their funding positions – and to start to consider opportunities for de-risking their investment strategy,” McGlone said.The consultancy also said its research found that 20% of UK pension schemes now had a formal trigger strategy in place, either to monitor funding levels or bond yields.The research covered more than 120 UK pension schemes with between £10m and more than £10bn in assets.The aim of these triggers is to prompt trustees to review funding strategies when certain agreed limits are breached, the consultancy said.However, McGlone said not all schemes had a formal system of triggers in place, and some reviewed their funding levels in other ways.Aon Hewitt said the improvement in pension scheme funding positions seen in the second and third quarters was still happening, and foresaw “further de-risking opportunities” in 2014.
Rabobank Pension Fund said it invested in real estate because the asset class was expected to produce stable returns and had “good diversification potential in relation to other investments”.Property was also interesting as an inflation hedge, the fund said.Bouwinvest said its residential fund held around 15,000 high-quality rental homes, mainly in the liberalised sector, and that it aims to generate a sustainable annual return of 6%.Tenancy agreements in the Dutch private sector have been liberalised, allowing landlords more freedom in setting rents.Bouwinvest said the fund’s long-term strategy and active asset management had produced a well-spread, well-maintained portfolio with a high occupancy level.Bouwinvest’s chief executive Dick van Hal said: “The demand for medium-priced, liberalised rental housing in the Netherlands is considerably higher than the supply.”The liberalised rental sector is a particularly interesting investment for pension funds because it provides stable quarterly income, he said.The fund has no leverage and aims for a low-to-average risk profile. The €16.1bn Rabobank Pension Fund in the Netherlands is investing €50m in the Bouwinvest Dutch Institutional (BDI) Residential Fund, with the aim of stable and sustainable returns.The corporate pension fund said it opted for the Bouwinvest fund, which had assets under management of €2.6bn at the end of 2013, because the two funds shared an aim.Jos Dirks, Rabobank Pension Fund’s managing director, said: “We have the same objective, namely achieving a stable, sustainable return for pension fund participants.”Bouwinvest manages property investments for the Dutch construction industry’s pension fund (bpfBOUW) and opened its three largest real-estate funds to other institutional investors four years ago.
The UK opposition has condemned the approach by the pensions minister to delay the implementation of a cap on defined contribution (DC) charges after he avoided addressing MPs on the matter.Steve Webb, current pensions minister, this morning confirmed rumours about a delay in its DC reform regulation, addressing an industry conference.A written ministerial statement given to MPs in the House of Commons met this address.However, Gregg McClymont, spokesman for Labour on pensions matters, said it was inappropriate for the minister not to face questions from MPs. McClymont also highlighted that the statement made no commitment to implementing the reforms – rather, it states that no cap will be enforced before April 2015.“I know that’s not the same thing as saying a cap will be introduced by April 2015,” McClymont said.He also said, even if the government had been clearer, significant questions would remain on how it would retain focus to execute the policy in the run-up to an election.The next general election will take place a month after the government’s new proposed date of implementation.“This is a wider characterisation of the government’s pension policy,” he said.“When it comes to 2015, and we look back at the government’s achievement, they will be much less than we were led to believe.”McClymont said that, while the government had successfully implemented a new flat-rate state pension, it failed to ensure auto-enrolment worked effectively as a policy for replacement income.However, reaction from the National Association of Pension Funds (NAPF) was more positive than the opposition government.Helen Forrest, head of policy at the lobby group, said it was delighted by the postponement until 2015.“Our members continue to work extremely hard to implement automatic enrolment effectively and successfully,” she said. ”Providing these employers with at least 12 months’ notice of any changes in the rules relating to charges is a sensible step.”Provider of master trust The People’s Pension was less receptive, however.Head of policy Darren Philp said: “The hope is that reaching an industry standard is not delayed indefinitely and the government, regulators and the wider pensions industry get to grips with the issue sooner rather than later.”The chief executive at Now Pensions, Morten Nilsson, said the minister’s spoken commitment to the charge cap would be good news for those being auto enrolled in later years.“While savers will be disappointed these changes won’t be introduced sooner, examining charges hand in hand with scheme quality makes good sense,” he said.Will Aitken, senior consultant at Towers Watson, said the original implementation date would only have affected companies with 50-249 employees.“This might make no difference to when larger employers and small firms have to comply,” he said. “It always seemed unfair to make medium-sized firms hit a moving target.”
The longevity risk in ASPS has been transferred to three reinsurers: Swiss Re, Munich Re and SCOR Global Life.The effective date of the transaction is 1 January 2014.Daniel Harrison, global head of longevity solutions at Swiss Re, said: “There is a compelling rationale for pension plans and insurers to transfer their longevity risk to reinsurers.“We have a natural offset with our mortality business, the capacity to write the business onto our balance sheet, and the expertise to tailor the transaction to meet our client’s needs.”Denis Kessler, chairman and chief executive at SCOR, said: “This transaction is notable not only for its size but also as a demonstration of the partnership approach we adopt with our clients.“With such a complex transaction, it is vital to find a solution that works for the employer, the trustees and the reinsurer.”SCOR aims to double its longevity business over the course of a three-year business plan. The pension fund of UK-based insurer Aviva has completed the biggest-ever pension scheme longevity swap on a global basis, transferring liabilities of around £5bn (€6.1bn).The deal covers the longevity risk for 19,000 members of the Aviva Staff Pension Scheme (ASPS), their widows or widowers and civil partners.Previously, the largest longevity deal for any UK pension fund had been the £3.2bn deal for BAE Systems-2000 Plan, which was completed in February 2013, according to Aon Hewitt’s register of UK pension fund longevity swap deals.The next biggest deals were transacted for the UK pension funds of BMW and Rolls-Royce in February 2010 and November 2011, respectively, at £3bn each.
Incoming legislation forcing Finnish earnings-related pension providers in the private sector to hold an updated register of insiders, and report their relevant private business deals, will not spark a talent flight from boards, a government ministry has insisted.In a commentary, Heli Backman, director of the pensions unit at the Ministry of Social Affairs and Health, said: “Many people who work in the investment industry already have experience of reporting their holdings to an insider register.”She was responding to criticism of the new bill on pension governance and transparency put forward to parliament by the ministry this month.The business sector in Finland in particular had said the new obligation to publish share transactions made in a private capacity would hamper participation on the boards of occupational pension providers, she said. It had been feared the requirement would drive skilled people off boards, she said.“The regulations have been in force in the banking sector as well, and no one has heard any claims yet that it has been difficult to get members on these boards,” Backman said. She also said that Keva — which manages public sector pensions and is therefore not affected by the bill — now seemed likely to come under a similar set of regulations on governance and transparency.She pointed out that laws affecting Keva originated from the Finance Ministry, and not the Ministry of Social Affairs and Health.“According to the information I have received, the Finance Ministry is to start drafting legislation on Keva in the autumn,” she said.Public attention has focused on Keva in particular as being a pensions institution in need of tighter governance regulations following a management scandal late last year.
Caisse de prévoyance de l’Etat de Genève, BT, BlueBay Asset Management, JLT Employee Benefits, Sacker & PartnersCaisse de prévoyance de l’Etat de Genève (CPEG) – Michèle Devaud, current deputy director general at the pension fund for Geneva cantonal employees, has been named acting head of the fund following the departure of director general Damien Blanchin. Blanchin joined Caisse de Prévoyance du Canton de Genève (CIA) in 2012 and his departure comes after the fund merged with a second providing retirement benefits to hospital workers (CEH), forming CPEG at the beginning of the year.BT – Isabel Hudson is set to join the telecom provider’s pensions committee from November, as well as being appointed a non-executive director on the company board. As a result of the appointment, Hudson, who co-founded buyout firm Synesis Life and is non-executive on a number of other boards, has agreed to step down as non-executive director on the board of the UK Pensions Regulator.BlueBay Asset Management – Kerry Hugh-Jones has joined as institutional portfolio manager within the firm’s global leveraged finance team. Hugh-Jones has previously worked as head of business development at Eclectrica Asset Management, at Mediobanca and JP Morgan. JLT Employee Benefits – Jonathan Mindell has joined the firm as executive director, departing Mercer after seven years at the consultancy in a number of senior positions – most recently as regional operations leader for Europe and the Pacific region. Mindell has also worked at Citibank, Prudential and within the financial services division of retailer Marks & Spencer. Sacker & Partners – Carly Rees has joined the law firm’s pensions practice from Slaughter and May. Rees, who qualified in 2012, will be an associate at Sackers, advising both employers and trustees on pension matters.
Assets held by German Spezialfonds are likely to break through the “€2trn threshold” within the next 10 years, amounting to an annual increase of more than €80bn, according to a study by Kommalpha. As of July 2014, Spezialfonds assets stood at just over €1trn.New regulations set out in the Kapitalanlagegesetzbuch (KAGB) – through which the AIFM Directive was implemented in Germany – has driven much of the growth in demand for Spezialfonds. Among other things, it has established the Spezial-AIF – as Spezialfonds covering real estate and alternative assets are now called – for asset classes formerly covered by closed-end fund providers almost exclusively. They now must obtain a license to issue Spezial-AIF, or they must find a service provider – i.e. a Master KVG, or Service KVG, as they are sometimes known.Kommalpha said Spezialfonds would, in future, cover more asset classes but added that they would have to be made compatible with the investment vehicle – “risks have to be reassessed to fit the package”.This process is still “in its infancy”, and the need to obtain a new license, as well as commission a custodian, is creating a “pile-up of investments”, the researchers said.“The asset class ‘real estate’ – and with it, Immobilienspezialfonds – have led the way, and themes like infrastructure, agriculture and private equity, as well as further alternative investments, will establish themselves in the Spezialfonds field over the long term – after having faced several challenges,” Kommalpha said.In light of the new complexity in regulation and investments, as well as new asset classes being made more available for investors, the researchers predicted the use of Master KVGs would increase.While in 2008 Spezialfonds accounted for just over half of assets managed in structures previously known as Master KAG, this share has increased to 76% in 2014, among an almost unchanged sample when compared with six years ago.One of the challenges Kommalpha sees for Master KVGs is the “redundancy in services offered alongside custodians”, which will only serve to increase competition. Another trend noted in the survey is the specialisation of Master KVGs that cover only the real estate market, such as IntReal. Overall, one-third of the surveyed investors feels burdened by new regulatory requirements, which, they argue, ties up resources normally used for asset management, which, in turn, negatively impacts returns.Larger investors have called for greater freedom in investments and welcomed the prudent person principle introduced in Solvency II and IORP II.Smaller investors, however, have expressed concerns over by the complexity involved in creating their own structures.
Germany’s investment association (BVI) said the tax-law amendments were going “in the right direction”.BVI chief executive Thomas Richter said the fact taxation laws for Spezialfonds would, in principle, remain the same now meant they would “remain attractive from a tax viewpoint”.He added, however, that “the administrative burden has to be lowered, and it needs some corrections to some details”.Another potential burden for institutional investors is the narrowing of the definition of “securities” under the tax legislation.If the draft goes through in its current form, alternative investments such as infrastructure might become less attractive for institutional investors.Investment associations and industry groups, however, are still negotiating further changes.The BVI also welcomed that the government appeared to have followed its advice to include German retirement funds for certain professions such as lawyers or doctors – known as Versorgungswerke – among ‘preferential’ investors.‘Preferential investors’ – which also include Pensionskassen and so-called Unterstützungskassen, another retirement provision vehicle – can get a refund on the 15% tax now being introduced on certain domestic profits made in fund investments such as dividends, rental income or the sale of real estate. For more on Germany’s amended tax reform law, look out for the April issue of IPE magazine The latest draft of Germany’s new investment tax law, approved by the government earlier this week, sees improvements for Spezialfonds but also further limitations for institutional investors.The new law (InvStRefG) is to replace the old investment tax legislation, which had to be amended following the implementation of the AIFM Directive in Germany via the so-called Kapitalanlagegesetzbuch (KAGB).Last year, two different drafts of the law called for the introduction of taxation on certain derivatives gains in Spezialfonds.The government has now removed that proposal from the draft it will present to Parliament in the coming weeks.