The debate over whether Ireland would implement a mandatory, or quasi-mandatory auto-enrolment system, similar to that in the UK, has been ongoing since the current government came into power in 2011.However, little movement has publically been seen, since initial mentions of a mandatory second-pillar system became entangled as a pensions tax.Under a backdrop of economic turmoil in the country, which has suffered severe decline in recent years, public support for pensions coverage was not deemed high enough.At last night’s dinner, however, Burton said that, while a reformed state pension would help alleviate poverty and remain financially viable, occupational and private pensions coverage needed improvement.“This is why the programme for government includes a commitment to reforming the pension system,” she said, “to progressively achieve universal coverage, with particular focus on lower-paid workers without occupational pensions.”She said her view was a soft-mandatory approach, such as the UK auto-enrolment system, over compulsion, but with scaled savings.She described this as the best, most proactive way to increase coverage.However, she said the introduction would best be supported by more favourable economic conditions.“The government is committed to the introduction of a comprehensive occupational pension scheme – a MySaver for those without pension coverage.“It is critical the consumer benefits from the opportunities afforded by the larger economics of scale a supplementary pension system might bring. So watch this space, as we will soon clarify our intentions.”Jerry Moriarty, chief executive and head of policy at the Irish Association of Pension Funds, however, played down the significance of the annoucement.He said, amid the ongoing debate about pensions coverage, the name of the scheme was only a small piece of the puzzle.“It shows there is some talk going on,” he said, “but this doesn’t really move it on that far. We still don’t know what the structure is, when we are looking to get it done. There are much more fundemental issues to be sorted out.”In October last year, Burton admitted Ireland’s auto-enrolment was still some years away, and would only be implemented once the country’s economy showed signs of recovery.She also backed away from mandatory coverage for non-savers, going against recommendations from the OECD made earlier in the year.Ireland’s actuaries also recently lobbied the government, calling for mandatory coverage to be introduced over the favoured soft-compulsion approach.The Society of Actuaries said a system for compulsion should be developed for implementation by 2019.They said developing auto-enrolment, only to then move towards compulsion, would be a waste of resources. The government of Ireland has announced the name of the public service pension scheme to be introduced to aid an increase in pension coverage among workers.The Labour TD and welfare minister, Joan Burton, announced the name of the scheme, MySaver, at a dinner last night held for the Irish insurance industry.Burton said the MySaver scheme was specifically designed to cover those workers with no other pensions coverage than state provisions.The second-pillar system currently covers less than half the working population.
“They are the guardians of workers’ capital, a phrase that rightly highlights the nature of the assets under their stewardship,” she said.Mervyn E King, a former South African Supreme Court judge and chairman of the eponymous King Committee on Corporate Governance, said trustees needed to weigh up a number of factors before committing to investments.He said short-termist investment should be considered “yesterday’s game”.“Does the company have a supply-chain code of conduct, and is it being monitored?” he asked. “Factors other than purely financial ones have to be included in the trustee’s investment analysis.”The report provides trustee boards with a range of resources to take to their asset managers, and other suppliers, to ensure long-term value is achieved.It also recommends trustee boards be given ‘comply or explain’ requirements on the mandates they set with regard to long-term value.Speaking before the event, chief executive of Tomorrow’s Company, Tony Manwaring, told IPE the motive for the report was to address the incorrect presumption by many that trustees find long-term investing complex.In the report, he called for trustees to ensure that the concepts in Tomorrow’s Value are embedded and reflected in their mandates.The report also said trustees needed to balance both short and long-term considerations, with all investments being affordable and providing payment certainty.Trustees should also be good stewards and support companies that create long-term value, while avoiding the ‘picking winners’ mentality, it added.The report called for a new, and integrated, view of value, which is intergenerational, accounts for ESG and is both financial and non-financial.“The short-term economic view of value, sustainability, and a responsible approach to investment all too often sit in a separate universe,” it said.It also advised trustees on how to improve their investment chain and remove the systemic pressures they face from suppliers in focusing on short-termism.The guide will provide trustees with a template letter for boards to engage with their investment suppliers, regarding moving towards more long-term value investing.In addition, it gives trustees template agenda planning tools, allowing for meetings to be focused around long-term value investments.Fellow endorsees include Keith Ambachtsheer from the International Centre for Pension Management, Catherine Howarth from campaign group ShareAction and several leading academics.,WebsitesWe are not responsible for the content of external sitesLink to ‘Tomorrow’s Value’ report Tomorrow’s Company, a global think tank based in London, has published a report aimed at helping pension scheme trustees achieve long-term, and sustainable, value from their investments.The report, called ‘Tomorrow’s Value: Achieving long-term financial returns’, was launched yesterday evening and endorsed by leading figures from both the pensions and the wider financial world – including the UN-backed Principles for Responsible Investment (PRI).Fiona Reynolds, managing director of the PRI, said the report would offer trustees “practical guidance on how to best deliver long-term financial value”.She added that she hoped trustees would engage with the think tank’s work.
For its €500m European small-cap allocation, the fund has turned to Fidelity, Montanaro Asset Management, Standard Life Investments and Threadneedle Asset Management.Going more locally, CM-CIC Asset Management, CPR Asset Management, Generali Investments Europe, ODDO Asset Management and Sycomore Asset Management will split the €400m in French small to medium-cap investments.Both strategies will run for four years, with the option for a fifth.Laurent Deltour, chairman and founder of Sycomore AM, said: “We are delighted with this new success, especially as Sycomore AM is the only specialised, independent investment boutique in the five firms selected.” The Fonds de réserve pour les retraites (FRR), the €33bn French public sector pension fund, has concluded its manager search for a range of active equity mandates, making nine appointments.The fund began the search for two active equity investments, European small cap and French small to medium cap, in May last year.Combined, the mandate awards will see FRR push €800m of assets into the equity classes, following on from its €1bn into US equity.In a similar strategy, the fund equally split the mandate into a value strategy and a growth strategy, both looking at US mid to large-cap equity funds.
Norges Bank Investment Management should be granted greater freedom to invest the assets of Norway’s oil fund, starting with real estate, according to an extensive review of its active management.The review, conducted by Andrew Ang of Columbia Business School, Michael Brandt of Duke University and the former president and chief executive of the Canada Pension Plan Investment Board (CPPIB), David Denison, was commissioned by the Norwegian government late last year and proposed that the NOK5.1trn (€630bn) Government Pension Fund Global shift to an opportunity cost model of active management.The approach, employed by CPPIB and Singaporean sovereign fund GIC, requires the asset owner to set a reference portfolio while granting the asset manager greater flexibility to invest in a way to “provide superior risk-adjusted returns”.The paper urged the adoption of the opportunity cost model “and corresponding delegation framework” that would see Norway’s Finance Ministry, as ultimate asset owner, set out specific terms and reference portfolios. “This can be done in a staged process over several years, and should initially be implemented in the fund’s real estate programme,” it said.Ang noted that, where CPPIB had long been active in the illiquid investment market, GPFG had only in the last few years launched its real estate programme.“Where CPPIB excels, it has an integrated, comprehensive framework for thinking about the investment process for complex illiquid assets,” he said.“Eventually, the Norwegian fund should also have these in scale in their portfolio, and CPPIB has very good structure for thinking about alternatives. That structure is very simple. It is really ‘What are these alternatives giving us we can’t access in passive, low-cost equity and bond markets?’”He also stressed that NBIM was very successful in keeping management costs low, at around 10 basis points.Explaining their thinking in the paper, the authors said: “For example, any dollar that could be invested in private real estate is benchmarked against the opportunity costs of investing that dollar in a mix of public equities and bonds.“Thus, any active investment that deviates from the reference portfolio is benchmarked net of fees against public market securities in the reference portfolio used to fund that investment.”Asked if NBIM should consider setting up a dedicated manager devoted to its illiquid investments, as Canadian pension funds such as the CAD65bn (€44bn) Ontario Municipal Employees Retirement System has done with the launch of Borealis Infrastructure, Ang said the matter was secondary.He said: “There is a bigger question behind there, which is ‘What are the sources of the premiums we should be harvesting?’ and ‘Are they appropriate for us?’ Then you can decide how best to implement that.”Ang said NBIM was currently limited to investing only 5% of the GPFG’s assets in real estate – although the fund’s property exposure only stood at 1.2% at the end of March – and that it was therefore important to question why a 5% limit was imposed, and why it was not allowed to increase further.He said it was important to consider the benefits of property compared with equities and bonds.“That’s where I think the Canada framework really helps,” he said. “It says ‘We are doing the funky, sexy illiquid investment X because we can’t get it in equities and bonds’.”,WebsitesWe are not responsible for the content of external sitesLink to review of GPFG’s active management
The Universities Superannuation Scheme’s (USS) aim to remove the role of strategic and detailed asset allocation from trustees’ responsibilities is nearing completion, as its internal manager looks to more delegated responsibilities.USS Investment Management (USSIM) was formed in 2011 and currently manages a range of in-house investments for the UK’s largest pension fund.USS, with £41.6bn (€51.2bn) in assets, has been looking to amend its investment governance structure to shift more execution to experts and away from its trustee board.Speaking at a National Association of Pension Funds (NAPF) conference on governance, USS chief executive Bill Galvin said the fund had taken some investment governance ideas from Canadian and New Zealand pension funds. In conjunction with its 374 sponsoring employers, the trustees designed a reference investment portfolio, which Galvin said was a very simple construct delivering risk/return characteristics to meet benefit payments.“The reference portfolio is what is owned by the trustee board, and the implemented portfolio [will be] delegated to our investment management subsidiary, which, within the risk budget, tries to beat the anticipated returns at lower risk,” he told delegates.“What we have been working really hard on is delegation to the right level of the organisation, where experts are making decisions within clearly defined parameters.”He said the trustees’ investment sub-committee still owned the detailed strategic allocation but added that this would be passed on to USSIM, with the committee taking charge of the reference portfolio,“The critical thing is complete transparency about decision-making in the in-house asset manager, and that is overseen by the investment committee,” he said. “But the decisions are delegated.”Galvin became chief executive of USS in August 2013 after heading up the UK’s Pensions Regulator (TPR) from May 2010.He criticised the current legal requirements for UK pension trustees as “inadequate” and said the Trustee Toolkit – TPR’s qualification to sit on a trustee board – was fairly minimal in the context of EU legislation for fit and proper persons.The USS chief also questioned whether UK’s trustee boards had the range of capabilities required to run pension schemes in today’s environment.He said schemes’ focus for member and employer representation on trustee boards was a strange concept, and needed to be reinforced to focus more on capability, similar to some non-UK models.Without insight into member needs, Galvin said he found ”the issue of representation really challenging”.“It must be very difficult for someone put on a trustee board [to assume] they will represent members. How do you do that? How do you know? Do you assume what you want is what they want?”Galvin praised the Ontario Teachers’ fund, where trustee members all fit a jointly agreed job description between trade unions and sponsors.He said, with the growth of master trusts such as the National Employment Savings Trust (NEST), where the trustee board is similar to Ontario, the idea could become more common.Galvin also praised the secondary Ontario body that manages negotiations over benefit structure and decisions that impact stakeholders.USS members, trade unions and employers have reached a stalemate in reforms to the benefit structure of the scheme.An employer move to change USS from final salary to career average has been met with opposition.Last week, unions agreed to negotiate and call off industrial action.
Several stakeholders have welcomed the revised draft, presented at the end of last week, but they have also called for further amendments. The new independent think tank Pensions-Akademie, launched by the German branch of KAS Bank, told IPE the amended draft was “a significant improvement”, but it argued that the proposed changes to the tax regime would prove a challenge for pension providers.The BVI said the segment on Spezialfonds refunds for “privileged investors” were “too complex” and would increase costs for the KVG asset management platforms and their members.“Overall,” the Pensions-Akademie added, “the changes to the draft … are in no way enough to give occupational pensions the important status they should have, given the demographic challenges.”Georg Geberth, head of the tax and pensions working group at Germany’s pension association (aba), told IPE it was “fortunate” the BMF had amended several parts of the draft.But he said further amendments had to be “looked into in more detail”, as fund investments were of “major importance” to the occupational pension industry.Other associations – for public and church pension funds (AKA) and Versorgungswerke (ABV), for example – also gave the amendments a cautious welcome while noting that they would need more time to assess the impact the new draft might have on their members.According to the BVI, the amended draft will render Spezialfonds “attractive again”, as the BMF has forgone its initial plan to introduce a flat-rate taxation up front for re-invested profits from these vehicles. Germany’s Finance Ministry (BMF) has deemed Pensionskassen and so-called Unterstützungskassen, or support funds, as “privileged investors” in a new draft of an amendment to the country’s investment law.The change means they will be refunded certain taxes introduced on domestic fund structures.Under the BMF’s initial proposal this summer, Pensionskassen and Unterstützungskassen would have fallen under new regulations introducing a 15% tax on dividends, rental income and sales profits from domestic retail funds.The German pensions industry raised a number of concerns about the government’s initial proposal, with the investment fund association (BVI) warning that it would have been a “heavy burden” for occupational pensions.
Swedish national pension fund AP7 has awarded two “green impact investment” mandates totalling SEK3bn (€294m).The SEK427bn pension fund, which manages the default option within Sweden’s premium pension system, said it had picked Ireland’s KBI Global Investors and UK-based fund manager Impax Asset Management to invest in companies that contribute to solutions for climate and environmental problems.KBI Global Investors is to run a clean-water mandate linked to one of the UN’s Sustainable Development Goals, while Impax Asset Management has been given a wider climate and environmental mandate that relates to several global sustainability targets.“AP7 aims, together with its managers, to develop measures and methods for gauging the sustainability benefits of investments,” the pension fund said. The fund received 23 tenders in the procurement process, according to the award notice on the EU’s official tenders site.Separately, AP7 has appointed London-based consultancy firm MJ Hudson Allenbridge to provide advice on “active alpha procurement”.AP7 put out the tender in February as part of a move to add risk-factor investments to its portfolio.Board reshuffleThe pension fund also announced a leadership change at the top of its supervisory board, with the government appointing Rose Marie Westman as AP7’s new supervisory board chair.Westman has been a member of the supervisory board since 2012, and replaces Bo Källstrand who is stepping down from the board after eight years.Westman is chief economist at Swedish advisory firm Burenstam & Partners, and was previously deputy chief executive at ABB Treasury Center in New York. She has also been a financial analyst and portfolio manager at Alecta.The government also appointed two new members to the AP7 supervisory board: Per Frennberg, CIO of Alecta, and Emma Ihre, head of sustainability at law firm Mannheimer Swartling.Frennberg and Ihre replace Westman and Hellen Wohlin Lidgard.Meanwhile, a new chair has also been appointed at national buffer fund AP2, with deputy chair Jan Roxendal moving up to the top position.Jeanette Hauff has been chosen as the new deputy chair, while Martina Björkman Nyqvist and Hanse Ringström have been appointed by the government as board members, AP2 announced.
Mercer’s chief actuary in Germany, Thomas Hagemann, told IPE that discount rates were 15-20bps higher than at the same time last year on the Mercer yield curve.In terms of hard numbers, this added up to 2.05% at 15 years’ duration, and 2.26% at 20 years out, as at 31 October.In the US, Beth Ashmore, a senior director with Willis Towers Watson, said that, in contrast to drops over the past few years, discount rates would “probably be around 85-90bps up between year-end 2017 and year-end 2018.”DB, DC plan definitions under IAS 19The European Securities and Markets Authority (ESMA) has contacted the IFRS’ interpretations committee asking it to consider the distinction between DB and defined contribution (DC) pension promises.ESMA has asked the committee to examine whether a future right to a discount in plan contributions is sufficient to tip a scheme from DC to DB.Under IAS 19, any plan liability that is not extinguished by a payment of contributions is a DB plan.The difference between the two for accounting outcomes is that a sponsor simply expenses DC contributions, whereas for DB plans the sponsor must apply the “projected unit credit” method. This involves projecting the plan liability forward in line with the plan assumptions and discounting back using a high-quality corporate bond rate before netting off any plan assets.In its submission, ESMA noted that there were two views on the interpretation of IAS 19’s DC criteria, one of which required preparers to take upside into account and one that did not.Aon’s Robinson said: “The query is the distinction between DB and DC plans. Many users of IAS 19 think the distinction between DC and DB is clear, but the ESMA letter shows that this isn’t true.“Most plans are clearly either DB or DC, but some could meet either or both definitions depending on how you read the relevant paragraphs of IAS 19.”IASB staff still working on DC discount rate anomalyOn 13 December, IASB staff presented their plan for dealing with pension promises based on an asset return, such as DC or collective DC schemes.The purpose of the research is to address an inconsistency that arises out of the use of a corporate bond rate to discount benefits that are based on a higher-than-risk-free asset rate of return.Staff are exploring a solution to this problem that is based on using an asset rate of return that does not exceed the discount rate.The staff team told the board that it planned to conduct outreach on this potential solution and present their findings during the second half of next year.Staff noted, however, that if the outreach confirmed that their approach was unworkable, they would propose that the board halt its work on pensions. Details are emerging about key assumptions that defined benefit (DB) scheme sponsors around Europe will be using in their end-of-year accounts.UK discount rates are running around 25 basis points higher than last year, according to Aon consultant Simon Robinson, with the average rate across FTSE 100 companies coming in at 2.9 percent.This compares with a rise of 40-50bps at the end of October among Willis Tower Watson’s FTSE 100 clients, with rates in the region of 2.6-3%.German sponsors are also set to see an easing of pension-related stress in their accounts.
The UK’s Pensions Regulator (TPR) is seeking to accelerate pension scheme consolidation to raise governance standards. In a consultation paper launched today, TPR said it wanted to ensure all pension savers were in schemes with “excellent standards of governance that deliver good value” – which would mean “fewer but better governed schemes”.The regulator’s consultation, titled The Future of Trusteeship and Governance , set out a number of questions and proposals aimed at improving trustees’ knowledge and understanding. Among the areas being explored by TPR were diversity on trustee boards, a potential requirement for every scheme to have at least one professional trustee, and higher training and qualification requirements for all trustees. David Fairs, executive director of regulatory policy, analysis and advice at TPR, said there was “a subset of disengaged trustees that are either unable or unwilling to take action to improve scheme governance”.Some trustees, particularly those responsible for the smallest schemes, “believe the standards don’t apply to them”, he added, while others treated their role as a pension fund trustee as “peripheral” or “symbolic”.“Things need to change,” Fairs said. “We want all savers to have access to well-run schemes. The trustee model isn’t broken but it does need to work better. This will require attention from TPR, employers, advisers, trustee representative bodies and trustees themselves.”Some consolidation has already taken place in the UK’s defined contribution (DC) market, mainly through multi-employer master trusts such as The People’s Pension and Smart Pension acquiring smaller schemes. However, TPR said there were still 32,000 “small or micro schemes”, including DC, defined benefit (DB) and other forms of pension fund.TPR is working with the UK’s Department for Work and Pensions to set out a regulatory regime for commercial DB consolidators.Fairs added: “There is stark evidence that the current system doesn’t work for all and there is a clear disparity between the experience of savers in well-run and badly-run schemes. If trustees cannot meet the standards we expect, we believe they should wind up and consolidate savers into a better run scheme.”The consultation will be open for 12 weeks, closing on 24 September.Industry reactionLaura Andrikopoulos, head of governance consulting, Hymans Robertson“We welcome this consultation as it opens up further industry debate on the standards of trustee knowledge and understanding (TKU), whether accredited professional trustees should sit on every board and whether the pace of DC consolidation for schemes unable to meet current standards is sufficient.“While the merits of the new accreditation regime for professional trustees are as yet untested, in our experience many boards do benefit from having a professional trustee. They are able to bring wider market knowledge and a greater level of in-depth expertise to pension scheme trusteeship.“The diversity that comes from the additional lay members on the board, however, is also valuable. Currently, for lay trustees not subject to the new professional standards and accreditation regime, there is little formal guidance for TKU requirements beyond the existing code of practice and the expectation of completion of [TPR’s] Trustee Toolkit within six months.”Lesley Carline, president, Pensions Management Institute“Given the number of pension scheme members suffering from poor scheme governance, this consultation is very welcome. It has pulled no punches in asking the hard-hitting and provocative questions that schemes and their trustees need to answer, positing pragmatic solutions to take the industry forward.“As we strive for ever-improving standards of governance… we hope that many people proactively engage with this consultation to deliver better outcomes for members across the country.”Vassos Vassou, professional trustee, Dalriada Trustees“Raising scheme standards and governance for all pension schemes can seem like a never-ending challenge. The regulator’s consultation focuses on important areas such as trustee knowledge and understanding, diversity, sole trusteeship and consolidation of DC schemes.“The consultation also raises the possibility of having a professional trustee on every board. This in particular would be something of a game changer for the industry improving governance standards and driving more robust discussions between boards, sponsors and the regulator.”
PME, the industry-wide pension fund for metal and electro-technical engineering with assets worth €50bn, said that it would not invest in the Saudi oil company, “as this would be incompatible with our policy on climate and human rights”.Michael Vos, spokesman for APG, said the asset manager did not exclude investments in Saudi Arabia beforehand, and that it would assess any investment for return, risk, costs as well as a company’s reputation for responsible investment.In a policy document on ESG, pension fund ABP said that, as part of its “inclusion policy”, it only targeted investment in companies that were “sustainable, operated responsibly and also delivered proper returns”.Vos confirmed that APG had invested in Saudi government bonds in 2016 through external managers, but said it had sold its holdings in the meantime.He declined to provide details about the reason of the divestment.Vos added that APG had decided not to invest in corporate bonds issued by Aramco earlier this year “as, based on our four main criteria, investment was not attractive at the time”.Carbon footprint mattersIn its annual ESG report for 2018, pension fund ABP said the carbon footprint of its investments had dropped by 28% relative to 2014. It had targeted a 25% reduction in 2020.“As a passive equity investor, we monitor which companies are being included into the FTSE. If Aramco were to be included, it could be possible that we invest in the firm,” said Maurice Wilbrink, spokesman for PGGM.The asset manager also has a €15bn dedicated portfolio of active equity investments aimed at solutions against climate change and to provide clear water, food and care.Despite its drive to reduce the carbon footprint of its investments, PFZW – PGGM’s main client – has not excluded investments in fossil fuel, contrary to, for example, tobacco.Until last year, it tended to replace bad performers among the energy companies in its investment universe by frontrunners, Wilbrink explained.However, this programme has now been completed and internal discussions were ongoing about a new policy for carbon reduction, he said.According to Wilbrink, PFZW had reduced the carbon footprint of its equity portfolio by 40% relative to 2015. The reduction had been achieved in the sectors materials, energy and utilities, he added.He noted that this was short of the target of 50%, and was largely due to emissions increasing faster than assumed in the models the pension fund had used at the time.Ria van der Steen, spokeswoman for PMT, said it would not invest in Saudi government bonds for “fundamental reasons”, citing human rights and labour conditions.She added that the sector scheme was currently formulating its strategy on investments in equity issued by government-owned companies in emerging countries.BpfBouw, the €67bn industry-wide pension fund for the construction industry, declined to clarify its position on the issue. The largest Dutch pension funds are not necessarily keen to particpate in the IPO announced by the giant Saudi oil company Aramco, IPE has learned.The state-owned company launched the IPO on 3 November but a prospectus has not yet been published. It said a price range will be announced in the next few weeks.Both APG and PGGM, the asset managers of the €459bn civil service scheme ABP and the €238bn healthcare scheme PFZW, respectively, only said that investment in Saudi Arabia was possible in principle.PMT, the €86bn sector scheme for metal-working and mechanical engineering, indicated that it may not invest in Aramco.