The decision to use two insurers was made after a lengthy competitive tender process and led the scheme, with advisers LCP, to negotiate preferable agreements with both parties.Despite the addition work involved in the use of two insurers, the arrangement still offered the best overall value, and puts it in good standing to insure further tranches of liabilities in future.Heath Mottram, chief executive at the fund, said the insurance contracts further build on the fund’s strong de-risking foundations.“The transactions are the result of significant work by the Trustee over the last six months, including a thorough selection process and negotiation of competitive pricing and terms,” he said.The ICI fund’s move to insure £3.6bn of liabilities overhauls the previous UK record of £1.5bn in a single scheme transaction, which was between the EMI Pension Fund and Pension Insurance Corporation (PIC).Clive Wellsteed, partner at LCP and lead adviser to the trustee on both deals, said the fund used its scale to negotiate the very competitive terms agreed by the insurers.“It demonstrates the appetite of mature final salary schemes to de-risk their pensioner liabilities and shows how transactions can be successfully structured at a scale not previously seen,” he said.Wellsteed also highlighted the significant interest of insurers operating in the market, with both Legal & General and Prudential outstripping their entire volume of bulk annuity business from the previous two years in this single deal.Legal & General wrote just over £2.3bn of buy-in and buyout business since the start of 2012, according to LCP, although it did conclude the purchase of Lucida, adding a further £1.4bn of written policies. Prudential wrote £566m over the two years, as the total bulk annuity market reached £11.8bn.“This is certainly a statement of intent by the insurers as well, who will have had their appetite wet by last week’s Budget, and will now consider diverting their focus from individual annuities towards the bulk annuity space,” Wellsteed said.Last week, the UK government announced plans to overhaul the at-retirement DC market, removing compulsory annuitisation for defined contribution savers, potentially hitting the sale of individual annuities by insurance companies.This led to several calls from industry experts that the bulk annuity market would see additional competitive pricing, particularly from those insurers with a heavy reliance on individual annuity sales, such as Prudential and Legal & General. ICI Pension Fund has moved to insure £3.6bn (€4.3bn) of its liabilities, securing contracts with Legal & General and Prudential as pricing and appetite in the market continues to benefit larger schemes.In a novel deal, it sees ICI insure a significant chunk of its £10bn in relatively mature liabilities, with its membership split between 50,000 pensioners and 10,000 active and deferred members.Two insurers will take on the buy-in tranches, with Legal & General taking on £3bn and Prudential the remaining £600m.The scheme, and its sponsor AkzoNobel, which merged with ICI in 2007 to form the current company, said the deal was struck to improve the security of member benefits and reduce risk in the fund.
The planned transfer of 158,000 academic hospital workers’ pensions from Dutch civil service scheme ABP to healthcare pension fund PFZW has been postponed again.In a statement, both pension funds said the parties involved failed to meet all necessary conditions in time and therefore could not make a sound decision about the move, scheduled to take effect on 1 January 2015.Negotiations on the transfer – meant to make it easier for academic hospital workers to work at non-academic hospitals – have been ongoing for nearly 10 years.Last summer, ABP announced that the employers and workers had agreed that pensions accrual would be transferred to PFZW as of 1 January, while the accrued pension rights would be taken over by PFZW one year later. Both ABP and PFZW declined to provide additional information about the cause of the new delay.PFZW, however, indicated that it was disappointed.“We have worked hard to resolve the issue,” a spokeswoman said.A spokeswoman for the NFU, the industry body for the employers of the eight academic hospitals, attributed the latest delay to the ongoing legal changes on pensions.“Subjects that seemed to be simple became complicated as a result,” she said.She underlined that both employers and unions still support a transfer, “if it can be concluded in a sound way”.Elise Merlijn, negotiator for civil service union AbvaKabo, said the biggest stumbling block was the threat of a salary reduction for the workers, as the NFU was supposed to pay ABP a €500m compensation for the participants leaving ABP.She added that supervisor De Nederlandsche Bank (DNB) was reluctant to approve the transfer because of the costs that would be incurred by the NFU, as well as by the participants of PFZW, which has a higher funding than ABP.All parties involved have said they are committed to investigating whether the transfer would be possible at a later stage.
Two of the UK’s Environment Agency Pension Fund’s top executives will take on leadership roles at the newly created combined investment company for 10 local government pension schemes (LGPS).Dawn Turner has been appointed chief executive officer of BPP Ltd, which will oversee the investment of £27.5bn (€31bn) pension assets of the funds, and Mark Mansley has been appointed its chief investment officer (CIO).Turner has been chief pensions officer at the Environment Agency Pension Fund (EAPF), a recognised leader in responsible investment, for four years, and has been the interim managing director for the Brunel Pension Partnership (BPP).Mansley has worked alongside Turner as CIO at the EAPF, which he joined in 2011. Laura Chappell has been appointed chief compliance officer and risk officer of BPP Ltd, and Joe Webster joins as chief operations officer.Chappell was most recently head of risk for a large wealth manager in London, and has also worked in risk and compliance at Barclays Global Investors (now BlackRock) and Schroders.Webster joins from Deutsche Bank, where he was global finance director for equity trading.Denise Le Gal, independent chair of BPP, hailed the appointments as a “milestone” in the long term development of the partnership.“The formation of the company and the recruitment of the key personnel marks the start of the final stage in the BPP funds’ journey to pooling assets,” Le Gal said. “We look forward to working together as one team to build a better future for our clients.”The three non-executive directors are Steve Tyson, Frédérique Pierre-Pierre, and Mike Clark. Their appointments were announced last month.The EAPF is one of the 10 founding members of BPP, which is one of the eight national ‘pools’ that have been created following a government push for increased investment scale and improved efficiency within the LGPS.It said it is reviewing its future business and staff requirements as part of the fund’s transition to BPP Ltd. In the interim, Faith Ward, the EAPF’s chief responsible investment and risk officer, will lead on investment matters and Craig Martin will continue as acting chief pensions officer.The other funds in the BPP collaboration are the pension funds for Avon, Buckinghamshire, Cornwall, Devon, Dorset, Gloucestershire, Oxfordshire, Somerset, and Wiltshire.BPP Ltd was formally created yesterday in Bristol when each of the founding funds signed the shareholder agreement to establish the company.The partnership will soon announce the appointment of its selected administrator and custodian.
Dutch pension funds lack clear policies for their investments in residential mortgages, according to regulator De Nederlandsche Bank (DNB).A survey of mortgage portfolios and risk management by the regulator suggested schemes usually adopted the policies of their providers. Instead, schemes should develop their own policies, including targets and limitations, DNB said.Currently there is no link between a scheme’s asset-liability management study and its investment beliefs, the regulator said. It added that pension funds often did not provide clarity about their risk attitude towards illiquid investments either. Residential mortgages as an asset class has gained in popularity during the past few years, as mortgages are considered a better-performing alternative to low-yielding government bonds.Dutch pension funds have invested 2.4% of their portfolio in residential mortgages on average, with some schemes having exposures of as much as 20% of their portfolios, according to DNB.The regulator said that it wanted pension funds to develop their own policy,In its opinion, schemes’ policies should also include the proportion of state-guaranteed mortgages (NHG) in their portfolio, the desired duration of the allocation and the types of mortgages owned.The watchdog also emphasised that pension funds must establish the risk and return criteria for mortgage investments and subsequently opt for a matching product, rather than the other way round.DNB added that pension funds must explain how their mortgage holdings fit with their policy on hedging liabilities.It found that many schemes had fully factored in mortgages into their interest rate hedging policy. Others had merely modestly underpinned this decision, in particular in case of a high debt-market value ratio of the portfolio.The supervisor also said pension funds should explain how they had valued their mortgage holdings, and how they assessed the risk of mortgages paid off early.It warned that just using mortgage providers’ quote could improperly affect the valuation of the holdings.During its survey, the regulator also assessed the outsourcing of asset management and visited a number of undisclosed providers of mortgage investments.
A spokesman for EY said that the employer had concluded that the old pension plan didn’t provide for a satisfactory pension, and also cited rising life expectancy.Because of the lack of new pension arrangements, the contract with Aegon had to be extended by six months, but against a much lower annual accrual rate, which had dropped from 1.75% to 0.93%.At Cappital, members will accrue their pension in an individual DC plan with two lifecycle investment profiles and the option to directly purchase a pension income from Aegon.EY added that participants would not be allowed to transfer individually accrued assets to their pensions pot at Aegon’s PPI, and added that it would like to make the reinsured capital at Aegon contribution-free.At 2017-end, the EY scheme had 4,350 active participants, 11,100 deferred members and 2,200 pensioners.Last month, Aegon announced plans to merge its two PPI offerings, Aegon PPI and Cappital, into a single product. The Dutch pension fund of Ernst & Young has placed its new pensions accrual with Cappital, the low cost defined contribution vehicle (PPI) established by insurer Aegon.The scheme’s existing portfolio, worth roughly €1.3bn, as well as €45m of investments at participants’ risk, remained with the pension fund. The scheme was considering its future, it said in a statement.Until now, its members – which also include employees of law firm HVG Law – accrued pensions under collective DC arrangements, with pension claims reinsured with Aegon.However, when the contract expired at the end of 2017, it wasn’t possible to renew the contract on the same terms because of low interest rates.
The International Monetary Fund (IMF) has indirectly criticised Germany’s coalition government’s pension reform plans, saying there were better ways to support adequate replacement rates than the measures it has pledged.The deal struck by the CDU/CSU and the SPD parties earlier this year included measures to cap the pension contribution rate at 20% and set a floor on replacement rates at 48% of average salaries until 2025.In its 2018 Article IV Consultation report on the country this week, the IMF said this was not expected to have a large fiscal cost up to 2025, but would be burdensome if it stayed in place afterwards.A more “durable and growth-friendly way” to achieve adequate replacement rates, according to the IMF, would be to pursue pension and labour market reforms that would make it more attractive for people to extend their working lives. These would have multiple benefits, including lowering risks of old-age poverty, lowering the public pension bill, increasing growth, and reducing the need for workers to save, it said.The German government has installed a pensions committee to develop a plan for the state pension system from 2025 onwards. The IMF’s headquarters in Washington DCThe IMF noted that public pension expenditure in Germany is expected to rise by 1.9% of GDP between 2016 and 2040, compared with an average increase of 0.8% in the European Union. Pension replacement rates were projected to decrease.Earlier this year consultancy Willis Towers Watson said contributions to German occupational pension plans would need to double to compensate for falling payout levels from the first pillar.Gesamtmetall, the employer association for Germany’s metal industry, said the IMF’s recommendations – not just on pensions – were “in nearly every detail diametrically opposed” to the coalition agreement.The IMF also recommended that Germany improve pension transparency, including as a possible means of reducing household “precautionary” savings.Improving the transparency of future pension payouts at the household or individual level would reduce uncertainty about future pension income and could help reduce precautionary savings, it said.Article IV reports are produced after bilateral discussions are held, usually every year, between the IMF and the fund’s country members.
The UK’s £3.8bn (€4.4bn) National Employment Savings Trust (NEST) has launched a trial of a savings product to sit alongside its auto-enrolment pension fund service.At an event last night in London, the pension provider – set up by the UK government to lead the establishment of auto-enrolment into pension funds – announced it was testing a “sidecar” savings product with one of its clients.Guy Opperman, pensions and financial inclusion minister, described the trial as a “ground-breaking project” that “has the full support of the Department for Work and Pensions and the Treasury”.The minister also called for the financial services groups supporting the launch to get their staff involved in the trial. Timpsons, a high street chain of shops specialising in shoe repairs, will be the first employer to trial the savings account. It will roll out the service across its 5,600-strong workforce from the start of next year.Opperman told attendees at the launch event: “I can’t be financial inclusion minister without pointing out the opportunity to ensure your staff are signed on for something like this…“If you’re not motivated to support this, I question why you’re here. This really matters.”How it works Timpsons will be the first employer to trial the ‘sidecar’ savings conceptDesigned to improve “financial resilience”, the service will involve individual employees saving into what NEST has dubbed “jars”, with any pension contributions above the auto-enrolment minimum (currently 8% of salary) diverted into the savings account.This account is subject to a cap, set at £1,000 for the trial. Once the cap is hit, all contributions will go to the pension fund.Investors will be able to access the savings account – NEST’s research explored the application of barriers to accessing this account, but it has not implemented any formal restrictions. A spokeswoman for NEST said the account would be labelled “for emergencies”, as studies had shown that this kind of framing could influence how people used the money.Once the savings account falls back below the cap, contributions will automatically split again to pay into both accounts, until the savings account hits its limit again.Caroline Rookes, a trustee at NEST and chief executive of the UK’s Money Advice Service (MAS), said roughly a quarter of the UK population had no savings, and giving them the ability to save “absolutely transforms people’s lives”.Michael Royce, strategic lead on budgeting and saving at MAS, added: “We hope that [the trial] builds on emerging evidence that workplace savings initiatives can be an effective means of helping people enhance their financial resilience throughout their working lives both for the short-to-medium term and for when they move into retirement.”The model was developed by NEST and backed by research from the Harvard Kennedy School in the US.JP Morgan Chase’s charitable foundation and MAS are providing financial resources for the trial, while Salary Finance will provide the savings accounts.
“The big balancing act is between the implied or expected cautiousness of pillar one and how you maximise pensions”Mats Langensjö“Having this kind of structure in the first pillar system is rare, as there are not many such systems that rely on market returns – in fact, I haven’t come across any others where this is the case,” he said.“So the question is, how do you then position that? It is a given that the structure is there, but what is the appropriate level of risk and appropriate objective, particularly for the savers?”Other issues that needed to be resolved in the report included defining the target group for the default fund.“In one sense you are targeting the whole population of Sweden, but maybe you need to prioritise certain groups such as people who are younger, older, or have different earnings levels,” he said.New investment guidelines?Langensjö said he would also consider whether AP7’s investment universe should be updated, as a consequence of the objectives and risk profile.AP7 currently invests more than 80% of its portfolio in equities, but its leadership has called on the Swedish government to broaden investment rules to allow real estate and infrastructure allocations.In his report, Langensjö said he would also address AP7’s use of leverage.He cited Nobel Prize-winning economist Richard Thaler, who last year stated that AP7 should not apply leverage to its investments, but Langensjö said there were good arguments for and against the use of gearing.Langensjö refused to be drawn on the specifics of how the investment universe might be altered.“It is too early in the process to say, but the big balancing act is between the implied or expected cautiousness of pillar one – the social security approach – and how you maximise pensions, which in simplistic terms is to maximise risk,” he said. “In the end that will define the investment universe and the type of portfolio.”Further readingSweden cuts one third of investment options in system overhaul Pensions regulator outlines plans to cull a third of the investment funds from the PPM, transferring roughly SEK9bn (€879m) to AP7Swedish Premium Pension: Safe and sound Reform of the Premium Pension System aims to root out poor management practices and make the system sustainable, writes Gail Moss “It was set up at a time when there were no other investment options in the first pillar system, then later it became the default option and now it is a fund in excess of €50bn because more than two thirds of savers have chosen to stay in it.”AP7 was the most rapidly growing investment fund in the world, he said, which meant the framework had now to be changed. According to data from IPE’s Top 1000 Pension Funds survey, it has grown from €8bn in 2009 to almost €62bn as of last year, as a result of investment returns and policy reforms.AP7’s growthChart MakerLangensjö’s report is likely to be submitted by the summer and will probably be put out for consultation later this year as part of the second stage of the PPM reform that is currently under way.Just over 13% of Swedish individuals’ state pension contributions – equating to 2.5% of salary – are directed into the PPM, which allows people to put their money into a wide range of private investment funds or into the default option, the balanced Såfa fund run by AP7.In compiling his report, Langensjö said he would look at what the future role and objective for AP7 should be as the default fund. The Swedish Finance Ministry has tasked pensions expert Mats Langensjö with devising a new framework for the country’s largest public sector pension fund.AP7 is the manager of the default option within the defined contribution (DC) segment of the state pension, known as the Premium Pension System (PPM).Langensjö – who has played significant roles in several pension reform processes in Sweden – is considering all options for the fund, including expanding its investment universe as well as changing its use of leverage.He told IPE: “AP7 has been around since 2000, but nothing has really changed since then in terms of the framework.
“We have never been able to afford the basic pension,” the spokesperson said, adding that funds for the measure are based on EU financial transaction tax that will never exist.A national debate has erupted yet again after, on May 15, the German parliament reviewed in the first reading a draft law for the introduction of the Grundrente for long-term insurance in the statutory pension, based on a gorvernment proposal.The coalition partners, consisting of the SPD, CDU and CSU parties, included the basic pension in a contract to support Angela Merkel’s government in 2018, reviewed last November, but still a source of doubts on essential points.The SPD originally required that the income would not play a role to assess whether a person had the right to a basic pension, while the Union (CDU/CSU) asked to take into account not only their income but also their entire financial situation.The pension expert for the CDU/CSU parliamentary group, Peter Weiß, now believes that a basic pension will start in 2021, but one condition, he said, is a solid financing concept.The government intends to present various financing models, including a European financial transaction tax, but “we lack a binding, clear statement of where and when this money is available. This is a basic requirement for the Union. The financial concept must also be in place if we give the final consultation (on the law) in the parliament,” he explained.Under the new scheme, additional pension will be paid to anyone who has at least 33 years of contributions to the statutory pension insurance based on periods of employment, child-rearing or care work.The basic pension is calculated in steps, from 33 to 35 years of contribution to ensure that also below 35 years additional payment is provided, according to the legislator.The Grundrente is guaranteed after assessing that single earners own a maximum monthly income of €1,250, or €15,000 per year, and €1,950 per month (€ 23,400 per year), for married couples or partners.The parliamentary commission labour and social affairs” will hold a hearing on the draft law on May 25. The Deutsche Rentenversicherung (DRV), the administrator of the state pension scheme, has submitted a series of proposals to streamline the financial and bureaucratic processes to grant a basic pension.In a statement, the DRV had considered an “enormous challenge” assessing the requirements for granting a pension. For the first time, pensions must be retrospectively examined and, if necessary, insurance biographies upgraded.The authority foresees July 2021 as the earliest date possible for the payment of the additional pensions because the IT architecture has to be adjusted in a highly complex pension system, and the 26 million already existing pensions can only be processed by the end of 2022.The DRV thinks it is possible that the basic pension is financed with taxes, but “parameters” for financing the measure in the new rules have not been determined exactly.An increase of the federal subsidy may not be sufficient in the long run to cover the additional expenses for pension insurances.The DRV, therefore, supports a reimbursement scheme that would also take into account additional administrative and procedural costs. Reimbursements are made, for example, by the federal government in the context of the Claim and Benefit Transfer Act (AAÜG) or by the Federal Employment Agency for reduction of earning capacity.The spokesperson for Gesamtmetall said: “The basic pension creates new injustices. Everyone involved would be well advised to forego the basic pension.”To read the digital edition of IPE’s latest magazine click here. The introduction of a basic pension in Germany – or Grundrente – has been raising pressing questions over its long-term financial sustainability.“Pension policy decisions will cost money for decades to come and the basic pension will not help against old-age poverty,” a spokesperson for Gesamtmetall, the organisation representing companies in the metal and electrical engineering sector, told IPE.According to Gesamtmetall, the costs to provide a basic pension are “enormous”, with €400m in administrative expenses to calculate in 2021 alone for a pension insurance pot of €1.3bn.A total of around 1.3 million people will benefit from the basic pension from 2021, including 70% of women.
Kristin Skogen Lund, CEO of media company Schibsted, has been named as the committee’s leader.“The main point of the committee’s work is that we want a pension system that is economically and socially sustainable and one that emphasises the value of being able to keep working,” Solberg said.The government said the committee had been given extensive duties – to evaluate whether the long-term goals of the reform had been able to be achieved, and to assess the need for adjustments that could ensure the financial and social sustainability of the pension system.The system should provide good pension levels, it said, while ensuring reasonable burden sharing both within each generation and between generations.“It is therefore important to stick to the main principles of the pension reform,” the government said in its announcement.The reform a decade ago was broadly aimed at increasing pensions flexibility while at the same time encouraging people to work longer.The new committee comprises representatives appointed by Norway’s political parties as well as professionals with specialist knowledge of pensions and public finances, the government said.Labour market interests would be involved via a council which would be established to follow the committee’s work and provide input, it said.Representatives of youth parties would also be invited to provide ideas, in order to make sure the younger generations were involved in shaping the pension system of the future, it added.Torbjørn Røe Isaksen, the labour and social affairs minister, said a pension system had to be predictable and long term, and it could take decades for changes to have full effect.“For this very reason, it is important to facilitate broad political settlements in pension policy,” he said.Besides politicians, the 12-strong committee includes four professors – Ola Grytten of NHH Norwegian School of Economics in Bergen; Axel West Pedersen of the Institute for Social Research in Oslo; Ragnar Torvik of the Norwegian University of Science and Technology in Trondheim and Kjell Vaage, professor at the University of Bergen.To read the digital edition of IPE’s latest magazine click here. The Norwegian government has announced it is setting up a panel of politicial representatives and pension experts from various sectors, to investigate how successful the last pension reform was – and pinpoint new work that now needs to be done.Norwegian Prime Minister Erna Solberg said: “The pension reform is perhaps the most important welfare reform of recent times.”It was therefore crucial, she said, to evaluate whether the legislative overhaul was working as intended and consider whether any adjustments were now needed.The government has given the new pensions committee nearly two years to do its work, setting a deadline for its final report of March 2022.