Month: September 2020
The European pensions industry has given a cautious welcome to the revised IORP Directive but expressed concerns about the potential impact of the new risk evaluation required of pensions funds.Under the Directive, the Risk Evaluation for Pensions would be performed “regularly and without delay” in instances where a scheme’s risk profile undergoes a “significant” change – examining internal risk management, funding needs and requiring qualitative assessments of covenant, operational and climate change risks.Joanne Segars, chair of PensionsEurope, said it would “pay attention” to the delegated acts by the European Commission that would clarify the scope of the new risk framework, to then be drawn up by the European Insurance and Occupational Pensions Authority (EIOPA).UK consultancy Punter Southall echoed Segars’s reservations about the new risk framework, with its head of research Jane Beverley saying its evolution would need to be scrutinised, lest the industry see certain quantitative measures introduced “through the back door”. “It would be unfortunate, to say the least, if, having dropped the idea of solvency funding for pensions, the Commission were to bring in some of the key elements of the holistic balance sheet through its new governance requirements,” she said.The Directive specified that the Commission’s delegated act should not introduce “additional funding requirements beyond those foreseen in this Directive”, seemingly ruling out such a move.Alfred Gohdes, chief actuary at Towers Watson in Germany, said the risk framework appeared to be the only fundamentally new governance burden for the German occupational sector.However, he added: “Dependent on how it is fleshed out by EIOPA, it could lead to significantly increased requirements and costs.”The inclusion of the new risk evaluation requirements was welcomed by Insurance Europe, the industry’s lobby group, which noted that the system would allow pension funds to “assess the real risks of their business”.However, it was unhappy with the absence of quantitative requirements for the rival industry that brought regulation in line with Solvency II, noting that the Directive was “incomplete” as a result.The group’s director general Michaela Koller argued that it was an issue of consumers deserving the same level of protection, regardless of which of the two industries provided the pension benefit.“To ensure that this is the case,” she said, “we call on the European institutions to include a clear timeline in the IORP Directive for the Commission to develop appropriate quantitative requirements.”Other commentators, such as Francois Barker, head of pensions at law firm Eversheds, lamented the “far too detailed and prescriptive” nature of the proposals and noted that, despite internal market commissioner Michel Barnier’s repeated pledges to cut red tape emanating from Brussels, the Directive was “full of it”.The European Association of Paritarian Institutions’ secretary general Bruno Gabellieri said he regretted that the Directive still had a “strong internal market point of view”, which it said did not fully appreciate the important role of social partners in providing occupational retirement provision, or the characteristics of IORPs.He added: “Governance and information requirements for IORPs executing agreements between social partners cannot be the same as for pure financial institutions selling products to consumers.”The concerns that an approach applied to the remainder of financial institutions was simply being transferred was one shared by Andreas Zakostelsky, chairman of Austrian pension association FVPK.“The rules will lead to additional expenses and do not fit with the occupational pensions system,” he argued.He added that Austrian pension funds already were compliant with the vast amount of the new requirements, but that it would nonetheless increase the regulatory burden and result in increased costs.Matti Leppälä, secretary general of PensionsEurope, also raised concerns about the costs associated with the proposals, noting that the standardised Pension Benefit Statement would “drastically” increase administrative costs without resulting in added value to members.“We therefore need an adaption of the information requirements based on the pension promise given,” he said. “DB, DC and hybrid schemes bring different benefits, choices and risks to the members. This needs to be taken into account.”While Dave Roberts, senior consultant at Towers Watson, criticised the lack of changes to cross-border funding regulation, he was mostly positive about the proposals for improved governance and transparency.“Few would argue against such aims,” he said, “but it makes no sense to agree such measures without assessing whether the improvements they are expected to bring represent value for money – especially on a day when the UK government is trying to emphasise the importance of low charges.”
The European Commission, as part of its drive to allow European Union workers to move freely within the union, has asked the European Insurance and Occupational Pensions Authority (EIOPA) for advice and information on the transferability of supplementary pension rights. Michel Servoz, director-general of the Commission’s employment, social affairs and inclusion directorate, wrote to EIOPA chair Gabriel Bernardino to find out about the current state of affairs for transfers of acquired supplementary pension rights between occupational pension schemes in different member states.The information was to cover transfers within the country, as well as cross-border transfers, he said, suggesting EIOPA could flag good practices related to transfers. EIOPA was also asked for quantitative data on transfers of pension assets within the countries and across borders, if available. In addition to this, Servoz asked the authority to pinpoint the main obstacles that were affecting – or preventing – transfers, both within countries and across borders. In his letter, Servoz said the Commission, the European Parliament and the Council had been actively trying to ease worker mobility in the EU.A key step in this is the “Directive on minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights”, he said. The directive was adopted by the European Parliament and the Council two months ago, he said, adding that it did not involve minimum requirements on the transferability of these pension rights. “Nevertheless, pension transferability remains an important aspect of worker mobility, and member states are encouraged to improve the transferability of vested pension rights,” he said. Servoz welcomed EIOPA’s planned report on good practices on portability of occupational pension rights, and his request for advice on the topic was within the scope of that work, he said. “The objective is to inform possible future debates on the transferability of supplementary pension rights,” he said.Servoz said the Commission wanted EIOPA’s findings by the middle of 2015.
The European Insurance and Occupational Pensions Authority (EIOPA) has questioned why the European Union’s first-pillar pension systems are exempt from disclosure requirements that could be imposed on personal pensions.Justin Wray, the supervisor’s head of policy, noted that funded first-pillar systems (first pillar BIS), especially those established by Central and Eastern European (CEE) member states, essentially shared the same characteristics as third-pillar pensions.He told the European Association of Paritarian Institutions of Social Protection’s (AEIP) annual transatlantic conference in Frankfurt that it was “desirable” for more consistent consumer protection and action on personal pensions across Europe, but he fell short of calling for changes that would allow EIOPA to impose standards on the first pillar.Instead, Wray stressed that it was a political matter, as social and labour law governing the first-pillar system is currently solely a matter for individual member states. Asked by IPE to clarify, Wray added: “The question of a European approach to first-pillar BIS is essentially for the Commission. It is a question for the Commission to consider with the member states, a political decision.“What we do is note that there are similarities. We carefully define what we see as the characteristics of personal pensions, and we see that there are similarities with first-pillar BIS arrangements in many member states. We leave up to the political parties what should be done about that.“It is a ‘noting’, rather than saying ‘therefore, EIOPA will take action’ because it is not for us in the first instance.”Many of the funded CEE first-pillar systems were set up by diverting part of the pay-as-you-go contribution, resulting in budget pressures that saw significant changes to Poland’s open pension funds (OFEs).As part of the changes, the Polish state reclaimed all Polish government debt from the OFEs, transferring responsibility for payments of the associated benefits to the Polish Social Insurance Institution (ZUS) and nearly cutting the system’s size in half.EIOPA first asked the industry if first-pillar BIS schemes should be subject to universal regulations when it last year launched a consultation on the creation of a Europe-wide personal pension product (PPP).In its subsequent report on the PPP market, published in February, it noted that, as the first-pillar systems were based around DC, its members could still be exposed to the same risks as members of PPPs.“First-pillar BIS members should be (made) aware of the effect of costs and could benefit from EU-wide disclosure rules, in the same way holders of regular PPPs do,” it said at the time.“Therefore, for the sake of consistency with PPPs, it seems to be feasible to have a similar standard for transparency and disclosure of information to members of first-pillar BIS schemes.”
In July, the CHF28bn (€23bn) pension fund covering 470 employers and 114,000 employees and pensioners in total, had decided on various measures to come into effect from 2017.It pointed out those were necessary to “stop the current transfer of assets from active members to pensioners” which amounted to CHF450m last year.The discount rate applied to active members’ assets (“technischer Zins”) will be cut from 3.25% to 2%, which automatically leads to a cut in conversion rates.From 2017, a man retiring at 65 would be subject to a conversion rate of 4.82% – applied to calculate a life-long pension from his assets – whereas currently a rate of 6.20% is applied.In order to maintain their current pension payments in retirement, employers and employees would have to make additional contributions with the BVK considering compensation measures for the transition phase.Further, the fund would switch from periodic tables to generation tables to calculate longevity as the latter provided ”a more meaningful comparison”, the fund noted in a press release.The fund explained the timing was necessary as “from 2017 the baby boomers will retire”, which will put further pressure on the financing of the BVK.But the union argued the additional financing, at least some of it, should have come from the canton rather than an increase in contributions and a cut in pension promises.According to the VPOD the announced changes are the BVK “cowtowing to the canton”.In the July meeting, the board of trustees also decided not to directly file any lawsuits against the canton of Zurich regarding the corruption scandal around the year 2008.At the time, the BVK was still run by the cantonal authorities but the pension fund noted various expert assessments did not yield any definite damage sum for wrongful investment decisions made during those years.Therefore, the BVK has now come to an out-of-court agreement with various financial service providers.In a statement, the pension fund stressed these decisions were aimed at “closing the chapter” on the corruption scandal. Switzerland’s BVK, the pension fund for employees of the canton of Zurich, may see recent changes to technical parameters scrutinised by the local regulator after civil servants’ union VPOD said it was considering a complaint.In an open letter, the union has criticised the BVK for the “radical” changes to come into effect from 2017 which “endanger the level of pension [payments] put down in the pension funds’ founding document”.However, in a response sent to IPE, the BVK stressed the cuts has been approved by the trustee board which was “equally comprised of representatives of employers and employees”.A BVK spokesman noted the changes have been explained to the members and that they were “understanding the decision with hardly any criticism being voiced”.
The UK’s inaction on clarifying the fiduciary duties of pension trustees has come in for veiled criticism by the UN, in a report examining the country’s role as a global leader for green finance.The report, by the UN Environment Programme (UNEP) and forming part of its work on the design of sustainable financial systems, also called for the development of larger-scale pension funds in the UK, as it believes only sufficiently large organisations can improve their sustainability performance.Despite praising the UK’s “clear” leadership on green finance issues, the report seemingly criticises UK policymaking.It recommends that the Pensions Regulator (TPR) expand on the current requirement for pension funds to report merely on the integration of environmental, social and governance (ESG) concerns into schemes’ investment principles. It went on to suggest that TPR clarify that fiduciary duties require attention to sustainability factors “through amendment of the occupational pensions regulation”.The recommendation comes months after the Department for Work & Pensions (DWP) decided against amending investment regulations to better reflect the fiduciary duties of trustees, a decision acknowledged by UNEP in its report.The DWP’s inaction was criticised as “extremely disappointing” at the time.It came after a review of fiduciary duties by the Law Commission suggesting trustees weigh up “financial” and “non-financial” factors – terminology preferred by the Commission in place of ESG – when reaching investment decisions.Other recommendations by UNEP included greater disclosure of sustainability information in pension fund annual reports, giving beneficiaries better access to information.It also said the Prudential Regulation Authority (PRA) should begin stress tests of the wider financial industry. The Bank of England, of which the PRA is part, previously said it saw “merit” in expanding stress tests to the pensions sector. UNEP also suggested the UK pension industry needed to increase the size of its schemes if it wished to have an impact on sustainability issues.The report said improving sustainability was “not just a question of rules” but also required the development of pension funds “with the scale and capacity to deliver”.The largest UK pension fund is the £49.5bn (€67.5bn) Universities Superannuation Scheme.,WebsitesWe are not responsible for the content of external sitesLink to UNEP report ‘Global Hub, Local Dynamics’
The pension fund for Italy’s Banco di Napoli is tendering two €45m equity mandates, targeting managers of Asia-Pacific and US stocks.The €693m fund said it was looking to award four contracts in total – two covering the defined benefit section of fund, and two covering its defined contribution scheme.All four contracts will run for three years, according to Banco di Napoli, which added that managers would be allowed to invest only in listed equities in the two selected markets.For the sake of liquidity management, however, the pension fund will allow temporary exposure to money market funds denominated in euros. Interested managers have until 4 April to respond to the request for proposal published on the Banco di Napoli fund’s website.In other news, the UK National Local Government Pension Scheme (LGPS) Framework has tendered a framework agreement covering advice for asset pooling, as well as actuarial advice.The initiative, supported by seven funds including the administering authority behind Norfolk Pension Fund, is split into four distinct lots covering actuarial services, benefits consultancy, provision of governance consultancy and distinct pieces of pensions-related project work.The last lot allows for the tendering of advice regarding the creation of asset pools, being launched by the LGPS in the wake of the UK government’s attempts to increase scale within the sector in England and Wales.The lot would also allow funds across the UK to appoint specialists able to help them comply with the new regulatory requirements imposed by the Pensions Regulator.The four-year mandate, which could run for up to seven years, could be worth up to £350m (€448m) in payments to third parties.Interested parties have until 11 April to apply (the deadline was later extended to 15 April in connection with an amendment of the short description in the contract notice – a formal matter).
A Swiss pension fund is seeking ideas for a private debt co-investment opportunity via IPE Quest Discovery.According to search DS-2328, the pension fund is interested in a global segregated mandate for private debt worth up to $50m (€42.4m).Managers pitching ideas should have at least a three-year track record in the asset class.The pension fund plans to make the investment in the second half of next year. The allocation will initially be for $5m, with this expected to rise to $50m within two years.Interested parties should apply via IPE Quest by 5pm UK time on 17 August.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]
According to IPE’s Top 1000 Pension Funds, Aegon’s pension fund management company in Slovakia, Aegon dss, had €672m assets under management as at the end of December. Acquiring the business would see NN’s Slovakian second pillar company ranked third in the country on the basis of end-2017 data, leapfrogging VÚB Generali dss.The purchase of Aegon’s Czech life insurance business, meanwhile, would increase NN’s share of the that market from 9% to 12%, Maurick Schellekens, CEO of NN for the Czech Republic and Slovakia, said in a statement.NN Group described the transaction as a “bolt-on acquisition” and said it was “in line with NN Group’s strategy to achieve profitable growth and value creation”.It was not expected to have a material impact on the operating result and Solvency II ratio of NN Group.IPE’s Top 1000 Pension Funds report for 2008 will be published next week. Netherlands-based NN Group is to acquire the Slovakian life insurance and pensions businesses of fellow Dutch financial services group Aegon.It has also agreed to acquire Aegon’s life insurance business in the Czech Republic.NN will pay €155m in total for the acquisitions, which will be funded from its existing cash resources. The deal is expected to close by the end of the first quarter of 2019, subject to regulatory approvals.In Slovakia, NN said, it is the fourth largest provider of mandatory second-pillar pensions and the leading provider of voluntary personal pensions.
Owners should also focus on paying lower fees for hedge funds and encourage more transparency, according to the consultancy.Sara Rejal, global head of liquid diversifying strategies at Willis Towers Watson, said: “We firmly believe that hedge funds continue to have a distinct competitive advantage and a clear role to play in institutional portfolios, largely due to their unconstrained investment mandate.”However, in the last few years funds have become too focused on issues tangential to investment performance.“Simply assuming that the macroeconomic situation will improve and boost returns is a strategy of hope, and we’re urging investors to adopt a new approach to ensure they’re selecting the right manager, mandate and fee structure for their hedge fund portfolios,” Rejal said.Structural headwinds for the hedge fund sector included a tendency for funds to manage enterprise risk rather than investment risk, the report said.“As the industry has matured, we believe managers have become more concerned about jittery investors redeeming due to poor short-term performance,” Willis Towers Watson stated.This has led providers focus on the stability of base management fee revenues rather than delivering against performance objectives for clients.The consultancy also cited the rise of alternative beta strategies, which have allowed asset owners to replicate some hedge fund strategies at a much lower cost. Hedge funds as a whole were not giving enough value for money, it added.In addition, the macro environment has not favoured hedge funds, according to the report, as loose monetary policy and other central bank activity has dampened dispersion and volatility. Investors should put pressure on hedge fund managers to innovate and reduce fees, consultancy giant Willis Towers Watson has argued. Asset owners should change their approach to hedge fund investment by isolating and taking advantage of the unique skills a manager may have, the consultancy said a in a recent report.In the report – titled ‘Hedge funds: A new way’ – Willis Towers Watson also suggested avoiding generalist, multi-strategy hedge funds.In addition, investors should refuse simply to accept products that are available, instead influencing managers to make innovative new mandates, designed in the context of a total portfolio.
Credit: Zhang KaiyvShanghai, ChinaSeparately, ASI’s parent company Standard Life Aberdeen has opened a pensions business in China.Heng An Standard Life (HASL), a joint venture between Standard Life Aberdeen and Tianjin TEDA International established in 2003, this month became the first joint venture business to be granted permission to set up a pensions insurance company in China.HASL said it had been targeting pension product distribution in China “for a number of years” as the country represented “a significant opportunity for both insurers and investment managers”.More than 250m people were expected to be aged over 60 by 2020, HASL said, with fewer working-age people to support them. “As a result, the Chinese long-term savings system is expected to shift from predominantly state pension provision to a focus on occupational and individual savings,” the company said.Keith Skeoch, chief executive of Standard Life Aberdeen, said: “As the pensions market in China looks set to go through fundamental reform to meet the challenges of an ageing population, Heng An Standard Life is exceptionally well positioned to support pension savers in this important market.”Skeoch became sole CEO earlier this month after Martin Gilbert, co-founder of Aberdeen Asset Management, moved to become vice-chairman of Standard Life Aberdeen and chairman of ASI. Aberdeen Standard’s headquarters in EdinburghIf approved, ASI would join other major shareholders including the Royal County of Berkshire Pension Fund, Majedie Asset Management and private equity firm Livingbridge, all of which had equity stakes of more than 5% as of 31 December 2018.The Berkshire fund – part of the UK’s Local Government Pension Scheme – bought a 20% stake in Gresham House in 2017 and provided the cornerstone investment for the firm’s British Strategic Investment Fund, targeting illiquid alternative investments.At the end of 2018, Berkshire’s stake amounted to 17.8% of Gresham House shares.Further readingGresham House: Network effects Gresham House CEO Tony Dalwood is fundraising for a UK housing and infrastructure fund, and has the LGPS in his sightsStandard Life Aberdeen enters China’s pension market Aberdeen Standard Investments (ASI) has agreed to launch a joint venture with UK-based specialist manager Gresham House, including backing a new fund targeting UK smaller companies.The strategy is designed to exploit what the two groups said was a “substantial investment opportunity” created by regulation such as MiFID II. A number of investors and research bodies have said the separation of investment research costs from trading fees has led to a decline in coverage of smaller listed companies.Peter McKellar, global head of private markets at ASI, said: “The structural changes, liquidity issues and declining research coverage among smaller companies provides a long-term opportunity to generate significant investment returns for our clients.“The establishment of this joint venture is in reaction to client demand for exposure to the increasing opportunities in strategic public equity. We identified Gresham House as a compelling joint venture partner based on a belief that working with a team with their experience, depth of resource and strong track record can deliver a compelling investment opportunity for clients.” ASI has also agreed to pay roughly £6.5m (€7.6m) for a 5% equity stake in Gresham House on top of the creation of the joint venture, subject to shareholder approval.