“It cannot be expected that the coverage of occupational pensions will increase as a result of this Directive.”The Aba also argued that the Directive – with its regulations regarding vesting periods and the protection of deferred pension rights – would limit the “established function” of occupational pensions to retain employees in a company.“So far, occupational pensions have been used in countries like Germany to retain mostly qualified employees and strengthen their ties to their employer,” the association added.“Very high mobility of workers, which inhibits the creation and preservation of company-specific human capital, negatively impacts the medium and long-term economic success and is therefore neither in the interest of individual companies nor the overall economy.”It called on the European Commission to consider the possibility of mutual (tax) recognition for occupational pensions within the new Directive, at least for periods when workers are posted abroad.This, it said, would enhance worker mobility between member states and increase the attractiveness of occupational pensions.Lastly, the aba called on policymakers to amend the title of the Portability Directive to distinguish between second and third pillar.“The title of the Directive should make clear it is not covering all supplementary pensions,” it said.“We therefore suggest referring to ‘occupational pensions’.”The Directive was approved in June, just one month after Brussels agreed to postpone the introduction of pillar one of the revised IORP Directive, and eight years after the Commission first released a proposal in 2005.When first introduced, the Directive aimed to increase harmonisation in vesting periods and encourage the transfer of pension rights.It also sought to establish a common requirement to ensure that dormant contributions from past employees were fully inflation-proofed.However, taxation issues arose among member states, as pension contributions can be exempt from taxation in one country, while pension benefits are taxed in another.In 2007, the Commission’s project failed to reach an agreement with all member states represented in the Council.It was forced to revise its Directive, excluding provisions on transferability to focus on vesting periods and dormant rights. The German pension fund association aba has claimed the recently adopted EU Portability Directive fails to recognise the attractiveness of occupational pensions and called on Brussels to consider “mutual” tax recognition for these schemes.In a position paper on the Directive – adopted by the EU council in June, eight years after the European Commission first published the legislative proposals – Aba argues that, rather than working to improve “worker mobility between member states”, Brussels should recognise the attractiveness and coverage of occupational pensions. The aba touted occupational pensions as “the most efficient form” of funded retirement provision.“They are particularly beneficial for employees if employers or companies or social partners organise an occupational pension as a social benefit, with no or only low costs to the beneficiaries,” it said.
Property4.704.90 Pension funds in the UK have divested corporate bonds in favour of index-linked paper, according to the latest Purple Book.The Purple Book, the most authoritative set of data on UK defined benefit (DB) schemes published by the Pensions Regulator (TPR) and Pension Protection Fund (PPF), also found an increased interest in alternative assets such as hedge funds – for the first time accounting for more than 5% of the investment universe.According to the data from the eighth publication, exposure to equities also continued to fall, and UK-listed shares declined further, accounting for 38.7% of portfolios – down from 40% in 2012.TPR also noted an increased exposure to government bonds for the first time since 2008 when it began distinguishing between the different types of fixed income. (Source: 2013 Purple Book, page 56) “Within total Gilts and fixed interest, the corporate fixed interest securities’ allocation decreased from 44.8% in 2012 to 40.6% in 2013,” the Purple Book said.“Meanwhile, the proportion of government fixed interest rose from 17.7% to 18.5%. The balance of holdings in index-linked rose to 40.9% from 37.5% in 2012.”The level of investment to property remained largely unchanged, falling 0.2 percentage points from 2012 to 4.7%.Breakdown of asset allocation across UK DB funds 2013 (%)2012 (%) Cash/Deposits6.705.10 Other investments3.503.60 Insurance policies0.100.20 Fixed interest/Gilts44.8043.20 Equities35.1038.50 Hedge funds5.204.50 However, DB funds increased the amount of assets held in cash and deposits to an all-time high of 6.7%, an almost threefold increase since the first Purple Book was published in 2006 and up by 1.6 percentage points year on year.Hedge funds also attracted a growing amount of capital, breaking the 5% threshold for the first time the asset class was separately measured in 2009.The number of company guarantees employed as contingent assets also fell over 2012’s total level of 900 after stricter standards were introduced.However, contingent assets employing real estate or granting a security over company cash holdings rose slightly.Consultancy Towers Watson also noted that the report estimated a £700bn shortfall between assets under management by DB funds and their achieving a full insurance buyout, resulting in a buyout funding level of 61% compared with 84% otherwise.But John Ball, head of UK pensions at the consultancy, said the £700bn figure was only an indicative number.“There is not the capacity for insurers to swallow £1.8trn of liabilities in one go rather than just nibbling away a few billion each year,” he said.“It does underline that, for most employers, getting all pension liabilities completely off the balance sheet would still require a significant cash injection.“Buyout prices have come down over the past few months, but this will only have made a small dent in these deficits.”,WebsitesWe are not responsible for the content of external sitesLink to the 2013 Purple Book
The communications instrument must also show the financial effects of “important choices” – such as early or later retirement, part-time retirement and value transfer – as well as significant changes in participants’ personal situations, such as divorce.In Klijnsma’s opinion, the registry should also provide insight into future purchasing power and risks, reflecting “optimistic, expected and pessimistic” scenarios.In her consultation document, the state secretary further said basic information about the pensions plan in the initial letter issued to new participants should become permanently available on the pension provider’s website.In addition, the uniform pension statement (UPO) and the Pensions Registry must offer differing information, with the first focusing on accrued rights and the latter indicating the combined pension income at the official retirement age.The current legislation for pensions communication dates from 2007.A survey by TNO Nipo conducted in 2012 suggested that 43% of the interviewed participants had trouble understanding the information in the UPO and the initial letter.Alfred Kool, communications strategist at Towers Watson, underlined the importance of Klijnsma’s focus on participants and a tailor-made approach, while the Pensions Federation said it was too early to comment. Pension providers in the Netherlands should offer tailor-made communications to meet the unique needs and characteristics of their participants, as well as narrow the gap between expectations and actual final benefits, according to Jetta Klijnsma, state secretary at the Dutch Ministry of Social Affairs.Outlining her views in a consultation document for a legislative update, she said participants must be offered a personal and interactive overall view on their pension prospects.Klijnsma said she wanted to give providers more leeway for shaping communications, offering information in layers, as well as digitally, and providing information on risks and purchasing power.To achieve her goal, the state secretary wants to extend and change the national Pensions Registry gradually into a ‘pensions dashboard’, which would show the expected pensions income directly.
Pensioenfonds Orsima, the €60m pension fund for the Dutch industrial cleaning sector, is negotiating a merger with the €2.9bn scheme for the cleaning and window cleaning industry, BPF Schoonmaak. In its newsletter, the board of Orsima said that negotiations to merge on 1 January 2015 were already at an advanced stage.It explained that the most important reasons of the intended merger were the scheme’s comparatively high costs per participant and its vulnerability due to its size. Administration costs per member amounted to €937 last year, according to its annual report. Orsima said that during the selection process, it had considered joining the €45bn pension fund for the building sector, BpfBOUW, the €16bn scheme for private road transport, Vervoer, and PGB, the €16bn pension fund for the graphics industry.Orsima added that it had also considered transferring assets to life insurer Aegon, but decided against the move. Recent figures showed that the majority of funds considering their future were opting to merge with others, rather than opt for the transfer to insurance companies. Its ultimate decision to opt for the Pensioenfonds voor het Schoonmaak- en Glazenwassersbedrijf, was based on the combination of its contribution level, Schoonmaak’s financial policy, the quality of its provider as well as its indexation potential, it pointed out.Orsima concluded that its pension plan very much resembled the scheme of Schoonmaak, albeit with the latter offering slightly lower annual pensions accrual and franchise, the amount of the salary that is exempt from pensions accrual.However, in contrast with Orsima, Schoonmaak had capped its pensionable salary at €51,416. The Orsima board said that both schemes were assessing whether additional arrangements could be made to solve this difference.That said, Harm Roeten, Orsima’s employees’ chairman, stressed to IPE that recent developments did not yet guarantee a positive outcome of the final negotiations between the pension funds, and that the intented merger could even fall through. However, Roeten declined to elaborate on remaining obstacles.At September-end, the coverage ratio of Orsima was approximately 110%, whereas Schoonmaak had a funding of 107.6%. At the end of 2013, Orsima had 1,054 active participants, 1,303 deferred members and 303 pensioners, affiliated with 38 employers.The merger talks are the latest in a long line of attempts to consolidate to offset management costs and the increasing regulatory burden.PGB was recently in talks to merge with PNO Media. However, PNO Media’s chair announced in April that there was neither the “need nor support” for a merger.New board qualification requirements recently saw the scheme for retailer Peek & Cloppenburg join retail industry scheme.The industry-wide fund, Detailhandel, is also in talks to merge with furnishing sector scheme Wonen, although negotiations stalled when regulator De Nederlandsche Bank rejected Wonen’s proposal.
The large Dutch pensions funds ING, PGB and SPW generated modest returns over 2015, although most alternative asset classes performed relatively well.PGB, the €21.5bn scheme for the printing industry, which has also taken in schemes from other sectors, delivered the best performance over the period, with a 1.4% return.Alternatives were the standout performers, with real estate returning 9.8%, private equity 18% and mortgages 8.8%.Equity returned 8.1%. In contrast, the pension fund lost 1.1% on its government bond holdings, with losses on its combined currency and interest hedges coming at the expense of 2.5 percentage points of its annual result.Over 2015, PGB’s policy funding – the criterion for indexation and rights cuts – dropped by 4 percentage points to 101.4%.In other news, the Pensioenfonds ING, now closed, reported an annual return of 1.1%.It lost 1.7% on its 70.3% matching portfolio, while its return portfolio, consisting primarily of equities, generated 10%.According to the €25.2bn ING scheme, real estate and alternatives returned 17.2% and 18.3%, respectively.Equity, credit and emerging market debt produced positive results of 9.6%, 0.2% and 5.3%, respectively.The pension fund lost 0.8 percentage points on its currency hedge.Last year, its funding ratio in real terms rose by 4.1 percentage points to 93.5%.Elsewhere, SPW, the €10.6bn scheme for housing corporations, returned 1.1%, in part following positive results on government bonds (1.2%), low-volatility developed-market equities (15.1%) and credit (6.1%).The sector scheme said it made a 30.8% return on infrastructure and that hedge funds, private equity and property performed well, delivering 12.2%, 17% and 15.9%, respectively.Harald de Valck, SPW’s director, attributed the results on hedge funds and private equity in particular to the appreciation of the dollar relative to the euro, as the holdings were predominantly in the US.“However,” he added, “the effect was largely undone following the scheme’s 75% currency hedge.”According to the director, the performance of infrastructure was in part due to a revaluation of the investments.SPW said losses on its currency and interest cover amounted to 4% and 0.5%, respectively.The pension fund for the housing corporations lost 23.4% on commodities – largely due to plummeting oil prices – as well as 5% on emerging market equities.At year-end, its policy funding stood at 109%.PGB, the ING scheme and SPW reported returns of 1.8%, 0.4% and 0.8%, respectively, over the fourth quarter.
Sweden’s first state pensions buffer fund, AP1, reported a return of 3.5% in the first half of the year, below the 5% achieved for the same period the year before, with losses on equities dragging the result down, although alternative and systematic strategies generated returns of around 10% or more.In its interim report, the fund said profit for the first half of the year was SEK10.6bn (€1.1bn), down from SEK14.3bn in the same period last year.AP1 chief executive Johan Magnusson said: “The fund’s well-diversified portfolio has developed well thanks to a high proportion of capital in alternative investments.”Within the fund’s alternative investments category, the risk parity portfolio performed particularly well, as did the low volatility portfolio and real estate, he said. “Even hedge funds, high-yield bonds, infrastructure and private equity funds have had better returns than our investments in equity and bond markets,” Magnusson said.AP1 has been increasing the proportion of unlisted or alternative investments in its portfolio, he said, to create a more robust portfolio that over time has lower correlation to stock markets.Equities overall made a 1.7% loss in the first half, with Swedish equities losing 5.5%, and developed country shares losing 2.4%.Equities in developing countries, however, generated a profit of 5.7% in the period, measured in local currencies, according to the report.Fixed income securities, meanwhile, produced a 2.6% return, property 7.9% and infrastructure 4%.High-yield bonds returned 4.2%, and hedge funds – which made up 4.9% of the portfolio at the end of June – produced 4.7%.Alternative strategies, which made up 5% of the fund’s portfolio at the end of June, returned 12.8% in the six-month period, and systematic strategies generated 9.6%, AP1 said.The portfolio of alternative strategies includes a risk parity portfolio and a portfolio of alternative beta strategies, the pension fund said.The portfolio of systematic strategies makes up 6.3% of the overall portfolio and invests solely in low volatility stocks in developed countries.AP1 said in its report that the UK’s vote to leave the EU had affected asset values, but it did not give figures on this.It said only that the valuation of its real estate holdings in the UK, stated in the report, were made before the referendum. It’s 25% stake in Cityhold – a property investment company investing mainly in core office properties in big European cities – is valued at SEK3.5bn in the report, it said, but added that more than half of the value of Cityhold’s properties related to assets located in the UK.
A minimum investment of €250,000 is required for the fund, with RP Crest stating that the BVK mandate took assets under management in the RP Vega fund to €500m.As at the end of December 2016, the fund was invested in equities, fixed income and currencies across Europe, North America and Asia.BVK is expanding its involvement in volatility risk premia as a result of the investment in the Vega fund, according to the statement.It said the asset class was attractive because it offered returns that uncorrelated with the equity and bond markets in the medium term.Anselm Wagner, head of equity and alternative investments at BVK, said the pension fund made the investment in RP Crest’s fund in the expectation of achieving a yield of at least 4% per annum.In other news, the funding position of German corporate pension plans improved in the final quarter of 2016 due to an increase in the average discount rate and scheme assets, according to Willis Towers Watson’s German Pension Finance Watch calculations.The consultancy said the pension funds of companies listed on Germany’s DAX and MDAX stock exchanges were 58.2% and 43.8% funded, respectively, at the end of the year.The discount rate (Rechnungszins) was 1.8% at the end of 2016, up by 28 basis points from the end of the third quarter but still significantly lower than the level at the end of 2015 (2.5%).As of the end of 2016, liabilities in the occupational pension schemes were down by 5% and 5.2% for DAX and MDAX companies, respectively, as a result of the higher discount rate, according to the consultancy.Pension assets across the companies grew by 0.7% and 0.6%, respectively, to reach €242.8bn and €28.6bn as a result of a year-end equity rally.Thomas Jasper, head of retirement for Western Europe at Willis Towers Watson, said it would be interesting to see how the European Central Bank reacts to higher inflation rates, as this could affect the discount rate. Germany’s €65.6bn Bayerische Versorgungskammer (BVK), the country’s largest public pension fund, is growing its investments in alternative risk premia, having awarded a mandate to RP Crest for its volatility risk premium fund.The pension fund will invest in the German investment manager’s sole product, the RP Vega fund, designed to give investors access to the so-called volatility risk premium.In a statement, RP Crest said the mandate was awarded as part of a tendering out of absolute return mandates.The size of the mandate has not been disclosed and is confidential, IPE was told.
Magnus Billing, chief executive of Alecta, said the company was “far ahead” in terms of responsible investment, but added that sustainability could involve more than that.“For us it’s about how, as a company, we behave towards our stakeholders – customers, employees, partners, and suppliers, but also how we as an important stakeholder in society act and contribute to a good society in the future,” he said.PTK is a joint organisation of 26 affiliated unions representing salaried employees in the private sector.Silberg, who will start the job on 13 March, will be responsible for setting the overall strategy, aims, and processes for monitoring Alecta’s overall sustainability efforts, the company said.Her tasks will include determining how Alecta will work with the UN’s Agenda 2030 for Sustainable Development and the 17 sustainability objectives it involves.She will also lead the cross-departmental sustainability group at Alecta, with participants from different parts of the business, including asset management, where Peter Loöw will continue to lead work on responsible investments.Last year, Billing was appointed to lead a working group within the European Commission’s High Level Group on sustainable investments.Silberg is joining Alecta from corporate communications firm Hallvarsson & Halvarsson, where she was responsible for the agency’s corporate social responsibility business. She has also worked as an analyst on sustainability at GES Investment Services. Sweden’s biggest pension provider Alecta has created a new role – head of sustainability – reflecting the expansion of its work on sustainability issues beyond investment. Carina Silberg has been appointed to the new role and will work within the communication and sustainability department.Alecta created the new role in order to improve the organisation of the company’s work on sustainability issues, but it also reflected the fact that Alecta’s work on sustainability has been increasing, a spokesman for the company said.In the second half of last year, the Confederation of Swedish Enterprise and PTK – the parties in charge of procurement for the white collar collective agreement pension plan Alecta manages – announced that they planned to focus more sharply on sustainability.
Investors should stay focussed on their long-term goals as political events and ensuing market effects are very difficult to predict, asset manager Vanguard has argued.Speaking during a conference hosted by IPE Dutch sister publication Pensioen Pro, Peter Westaway, chief economist and head of investment strategy in Europe, emphasised that investors should ignore the temptation of making radical course changes.He pointed out that the UK’s economy has been increasing 2% since the Brexit referendum, without indication that growth is slowing.A number of leading economists and thinktanks had predicted that short-term growth could be between 1% and minus 6%, according to Westaway. Westaway said that he expected a hard Brexit with subsequently the “most negative” economic impact.“Such a departure from the EU could become messy, if the UK has to pay the €60bn compensation demanded by the EU ahead of an agreement about trade relations,” he said.He added that, despite gloomy forecasts, Trump’s election had lead to equity markets improving almost 11%.Vanguard’s chief economist also put the impact of a possible presidency of French Euro-sceptic Marine le Pen into perspective.“Before she can translate her anti-European rhetoric into action, she will have to take on several hurdles, including gaining the support of the French parliament,” he contended.Westaway also noted a “strong political determination among EU members to keep the union and the euro together”.The economist also saw risks in the valuation of many asset classes which, in his opinion, were too high as a result of central banks’ accommodating monetary policy.“There is much uncertainty about what will happen when the quantitative easing is to be reversed,” he explained.Westaway said he had also observed market worries about the long-term impact on worldwide trade from both Donald Trump’s “America first” policy and the future trade relationship between the UK and the EU.The investment strategist reiterated that low returns were to be the “new normal” and that increasing investment risk for better returns won’t be a “free lunch”. However, Westaway acknowledged that active asset managers could help “at the margin” in this environment, but maintained Vanguard’s corporate message that a low-cost approach was more important than ever.Also during the conference, fixed income asset manager Pimco suggested that increasing interest rate hedging on liabilities in the wake of rising interest rates was not always the best way to reduce risk.“Adjusting the hedge will incur costs,” argued Patrick Dunnewolt, Pimco’s head of the Benelux region. He underlined the importance of remaining flexible during times of “radical uncertainty”.In his opinion, a pension fund’s risk budget could better be spent on an underweight duration than on a re-allocation to risk-bearing assets.He also suggested investing outside Europe because of an increased likelihood of higher returns, switching to an active manager, or following an absolute return strategy.
An Asian institutional investor is seeking a manager for a $20m (€16.5m) Islamic bond mandate via IPE Quest.According to search QN-2431, the investor wants to allocate to a global active manager of Islamic, or “sukuk”, bonds.Providers pitching for the mandate must have at least $1bn under management across the company, but minimum sukuk assets are just $35m “as we understand the assets for sukuk managers are still small”, the investor said.Managers should state three-year performance net of fees to 31 March 2018. The benchmark for the mandate is the Dow Jones Sukuk index.The investor said it would accept systematic strategies or discretionary approaches.Managers should provide other details of their process including:whether it is a top-down or bottom-up investment approach;the location of portfolio managers;the firm’s research capabilities;how key man risk is mitigated;details of the turnover and track record of portfolio managers.The deadline for bids is 10 May at 5pm UK time.The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email [email protected]