September 2020

UK roundup: TPR, Pensions Act, RetailLink Pensions Plan, L&G

first_imgThe proportion of schemes operating without a SIP fell from 14% to 3% from 2013.In other news, the Pensions Bill, the national Bill that will see the implementation of the single-tier state pension, has been finalised and become law.Receiving Royal Ascent, the Pensions Act 2014, as it will now be called, creates a flat-rate first-pillar pension for those who have contributed to the state for 10 years, although, to receive the full payment, contributions must be for 35 years.It also legislates for the end of contracting out, a system whereby DB schemes could contract out members from the second state pension (S2P) and provide it from within the scheme.The previous tiered system was criticised for disadvantaging self-employed citizens and women who take career breaks.The law also includes legislation to allow government to implement a charge cap on DC schemes, and create a pot-follows-member system from stranded DC pots.Steve Webb, minister for pensions, said the new state pension would provide clarity and confidence to people about retirement income they receive.And finally, the RetailLink Management Limited Pension Plan has begun its winding up process by agreeing a £35m insurance contract with Legal & General (L&G), covering liabilities for nearly 100 deferred and current pensioners.The agreement with L&G incorporated a deferred premium option, which allows the trustees to fully insure the remaining members, staggering a £9m premium payment over the next four years.The sponsor, Enterprise Inns, said after the four years, L&G will issue insurance policies to the members, and the scheme will be wound up. Research conducted by The Pensions Regulator has revealed a growing trend in defined benefit (DB) and hybrid schemes fully integrating risk management and the employer covenant.In the regulator’s annual governance survey, data showed the proportion of schemes fully integrating this rose to 60% from 47%.It also found the proportion of defined contribution (DC) schemes not adhering to the legal requirement to maintain a statement of investment principle as high.A fifth of schemes have gone over the maximum three-year period, while 14% have never reviewed their SIP.last_img read more

​​UK Green Investment Bank to launch £1bn wind farm fund

first_img“We want to do more to maximise our green impact,” he said. “We plan to extend our reach into new markets like community-scale renewables.”The bank added that its proposed wind farm equity fund would allow developers to refinance and noted the “compelling opportunity” for investors to enjoy inflation-linked returns.“These attributes can be well matched to the needs of long-term infrastructure investors such as sovereign wealth funds and pension funds,” it said in a statement.The GIB has so far not been required to gain regulatory approval for its activities from the Financial Conduct Authority (FCA), but it said the new subsidiary was now seeking approval to become a regulated fund manager.A spokeswoman for the bank said no appointments for the new fund manager had been confirmed.However, she said it was expected that several of the GIB’s current employees would move over to new roles at the subsidiary.The bank, launched in 2012, has so far invested £4.8bn in green energy projects, deploying £1.3bn of its £3.8bn in capital.It is no stranger to the refinancing of wind farm projects and in late 2012 was part of a consortium of five banks to assist Dutch pension manager PGGM and the Ampere Equity Fund in the refinancing of a nearly 25% stake in a wind farm in the Irish sea. The UK’s Green Investment Bank plans to launch a £1bn (€1.2bn) fund targeting UK offshore wind farms, the first vehicle to be overseen by a new fund management subsidiary.Announcing its annual results, the bank said it was hoping to attract long-term institutional assets to the new fund, which will acquire equity stakes and is aiming for its first close by the end of the year.The standalone fund manager, for which the state-owned bank was granted permission by the European Commission in May, was a “significant strategic development”, it said, and would allow it to manage funds in any of its designated green sectors – which include offshore wind, energy efficiency, waste and bioenergy.Chief executive Shaun Kingsbury said the bank’s role went “well beyond that of a traditional investor”.last_img read more

Nordea Life & Pension sees 20% lift in first-half returns

first_imgProfits from Nordea’s life and pensions operations increased by 20% in the first half of this year to €84m on the back of higher profits generated by both unit-link and traditional with-profits products, the Nordic and Baltic banking group said.In its interim report, Nordea also posted a 16% increase in gross written premiums to €3.9bn in the six months to the end of June, from €3.4bn in the same period the previous year.Commenting on the business growth, Nordea said: “A solid sales momentum of market return products in the Nordea Bank channel continues to be the main driver behind the strong sales.”The Nordea branches had been responsible for two-thirds of the total sales produced during the second quarter of 2014, it said. The rise in operating profit was attributable to a profit increase from market return products – driven by strong growth in assets under management (AUM) – combined with a higher profit contribution coming from traditional with-profits products, according to the report.These traditional products had, in turn, seen their profits increase as a result of strengthened financial buffers, Nordea said.The balance between unit-link assets and traditional with-profits assets shifted past the halfway mark, with unit-link accounting for 51% of AUM in the life and pensions division at the end of June, up from 45% at the same point last year, according to the report.In terms of contributions, the company said, market return and risk products accounted for 90% of total gross written premiums in the second quarter, up 3 percentage points from the end of the previous quarter, and up from 86% in the second quarter 2013.Meanwhile, at Nordea Liv & Pension, the Danish pensions operation, the return on traditional with-profits products before PAL pensions tax was 7% in the first half, up from the 0.4% loss suffered in the same period the year before.Unit-link returns came in at between 4.4% and 8.5%, the Danish business said, without giving year-earlier figures.In absolute terms, the return on unit-link products was DKK2.3bn (€308m) in the first half.Overall, the business’s profit on assets and liabilities was 3.7% in the six-month period, up from 1.7% in the same period last year.Pre-tax profit was DKK387m, up from DKK297m.last_img read more

IPE Views: Is Pascal the solution to climate change?

first_imgIf you replace God with the idea of climate change in Pascal’s Wager, the argument is clear. If climate change does not exist, and humanity acts as though it does, there will be a cost entailed, but it is finite and can be absorbed relatively easily. If, on the other hand, climate change does exist, and humanity behaves as though it does not, then the temperature rise will lead to global calamity and possibly an infinite loss, which could have been averted for a modest cost.The issue then moves away from any requirement to obtaining absolute certainty there is climate change arising from increased carbon dioxide emissions from burning fossil fuels. Instead, there can be an acceptance that absolute certainty may never be achieved, as in proving the existence of God. In which case, the issue is how should mankind respond in the face of the pay-off profiles for action and for inaction as described. Clearly, if a modest cost can avert a possibly infinite loss, that should be the path chosen.The real issues, then, revolve around the implications of adopting strategies that would reduce climate change effects. For example, what should poor countries such as those in sub-Saharan Africa do for energy if they have abundant fossil fuels that are now being demonised? Alternatives such as wind, solar and hydro-electric are expensive and currently do not have the capacity to produce the energy required to generate the GDP growth that could, as in Asia, lift them out of poverty. Whilst the extreme wing of the climate change warriors may argue it is the idea of economic growth that is at fault, and therefore growth expectations should be reduced if they are based on carbon dioxide-producing energy sources, the populations of countries still struggling to lift themselves out of poverty are unlikely to agree. Unfortunately, Pascal does not appear to have an answer to the question of how GDP growth could be increased in poor countries without increasing global warming. Instead, the solution may be a combination of lower-cost alternative energy sources such as photo-voltaic solar cells combined with cheaper and more effective industrial-scale batteries. If that combination were ever able to transform the energy supplies in the sunbelts of the tropics, it would truly be a miracle, although even Pascal may agree it would not prove the existence of God.Joseph Mariathasan is a contributing editor at IPE IPE contributing editor Joseph Mariathasan applies Pascal’s Wager to the climate change debateAs an ex-physicist, I am always interested to read about the scientific basis for global warming. But I must admit, once you remove the dogmatists who argue either for or against the phenomenon on the basis of emotions rather than facts, it can be difficult to get absolute certainty either way. Since I read that the majority of climate scientists believes the evidence for global warming is strong, then I have to accept that is likely to be the case. Personally, I am happy to accept this logic, but even if I were not, I always think of the French mathematician Blaise Pascal’s arguments for behaviour in the absence of definitive proof for the existence of God. The same arguments can be made for climate change.Pascal’s Wager can be expressed as a set of outcomes arising from living your life in different ways: If you live your life in accordance with the belief God does exist, and you are right, you will be rewarded with eternal life in Heaven and thus an infinite gain. If you live your life with the view God does not exist, when in fact there is a God, you will be condemned forever in the afterlife and hence suffer an infinite loss.On the other hand, if you live your life with the belief there is a God, and in fact God does not exist, there will be no reward and, as a result, a finite loss in terms of presumably illicit pleasures foregone. Finally, if you live your life with the view God does not exist, and you are proved right, you would have just a finite gain through your life but no infinite gain or infinite punishment. More simply, if one behaved as though there were no God, but it turned out to be wrong, then for the sake of just a finite cost, you have missed out on eternal happiness.last_img read more

UK’s ACCESS pool seeks market input for external operator search

first_imgIn its notice, the ACCESS pool said the participating funds “wish to carry out market research with regulated third-party operators that would be able to provide one or more collective vehicles to benefit from economies of scale from the management of their pension fund assets”.Kent County Council, as the contracting authority, added: “The administering authorities are considering the scope and specification of services that may be required should they decide to procure such services in the future.”Should the ACCESS pool decide to proceed with an invitation to tender, this would be launched in early 2017 and would likely be split in two, with one part being for core services and the other for additional services, according to the notice.The operator would be expected to provide the core services, such as establishing and operating the Authorised Contractual Scheme (ACS) and providing oversight of investment managers, but it may also provide some or all of the additional services.These, according to the notice, include “manager searches/recommendations/monitoring”, “[leveraging] business relationships to secure fee savings” and “enhanced performance/risk reporting”.Interested companies have until 25 November to register their interest. *The local administering authorities that have proposed forming the ACCESS pool are Northamptonshire, Cambridgeshire, East Sussex, Essex, Norfolk, Isle of Wight, Hampshire, Kent, Hertfordshire, West Sussex and Suffolk The ACCESS asset pool being formed by 11* UK local government pension schemes is carrying out a “market engagement process” to help it with the potential launch of a tender for an external provider of the pool’s investment vehicle.Kent County Council, acting on behalf of the collaboration of the pension funds in the central, eastern and southern Shires in England, informed the market of the pool’s intentions in a “prior information notice”.The ACCESS pool, like the Welsh pool, is expected to hire a regulated operating company rather than build this function in-house.The Welsh LGPS started the formal process in August by way of a pre-tender notice to the market.last_img read more

IPE Conference: Ircantec alternative credit appetite targets SMEs

first_imgCasper Hammerich, investment consultant at Kirstein in Denmark, said the long-seen shift in institutional investment portfolio asset weightings towards alternatives had in recent years been very much dominated by a move into alternative credit.“It is clear that both traditional and leading investors are starting to increase risk,” he said.He explained the notion of the two investor types, saying the firm had witnessed investors falling into these two groups, with certain ones – the “leading” ones – being quicker to move into assets with better perceived prospects for higher returns, and “traditional” investors to a large extent following in their footsteps.Meanwhile, Chris Redmond, global head of credit at Willis Towers Watson in the UK, said the landscape and implementation of alternative credit investment was evolving rapidly.Even though the firm’s clients now have some £39bn (€46bn) of assets invested in alternative credit, he said: “We are nowhere near where we ought to be in terms of strategic allocation to this.“We all know equities and bonds are unlikely to deliver the returns they have before, and we are going to live in a world where growth will be tepid, and there could be a nasty outcome if central banks are unable to do what they are aiming for.”There are significant opportunities in alternative credit for institutional investors, he said.Le Meaux said even though Ircantec would like to switch some of its investment exposure to alternative credit from government bonds, it faced a big challenge in actually doing this.“It takes time to get involved,” she said. “It’s a very long process, and we need to start from a lower level and be slow.”She said it was necessary to take time – to work out how to deal with the risk embedded in these new assets, for example.Also, every fund has a different regulation framework to operate within, and, in the case of Ircantec, the regulators are still quite nervous about the fund lowering its investment in government bonds, she said.“We can’t go against their will,” she said. “Something we have to do is to engage with them – we need to speak to all our regulators.“We need to have a pension that is risk-aware, and also one that is growing over time, because not growing is a big risk.” French public sector pension scheme Ircantec is aiming to increase its exposure to alternative credit, particularly by lending to small and medium-sized enterprises (SMEs), a conference in Berlin heard on Friday.On a panel discussion on credit and alternatives at the 2016 IPE Conference & Awards, Caroline Le Meaux, head of external management at Caisse des Dépots et Consignations, Ircantec’s fiduciary manager, said: “We are targeting SMEs, and why we choose to invest in those companies is that our trustees felt they wanted to have an impact.”The €9.2bn pension scheme started adding private debt to its overall portfolio from 2014, she said.“The private debt market for bigger companies is quite crowded, so we felt we would have a better risk/return profile for smaller companies,” Le Meaux said.last_img read more

PPF sets out proposal for levy for schemes without sponsors

first_imgHe said this is because the PPF’s standard approach, which is centred on assessing the likelihood of a sponsoring employer becoming insolvent, is not suitable for schemes without a substantive sponsor.The primary risk posed to PPF levy payers from these schemes was the risk of failure in a scheme’s investment strategy, according to the PPF.“For a scheme without a substantive sponsor a claim on the PPF requires only a deterioration of the scheme’s funding position,” said Taylor.Put options are the “financial instrument most closely comparable to the risk presented to the PPF’s levy payers by a scheme without a substantive sponsor,” wrote Taylor.Two principles underpin the PPF’s proposed charging methodology.The first is that the resulting levy should be “fair”, in that it does not contain “an in-built cross subsidy from or to other schemes”.A second key principle is that a scheme without a substantive sponsor “will always pose a higher risk than an otherwise identical scheme with a continuing sponsor, however weak”.Under the PPF’s proposal, such a scheme will therefore always be charged as a minimum the amount that would be due under its standard rules for levy charging.‘Complex’ areaThe PPF emphasised that “this is a complex area, in which experience of specific propositions may evolve over time”.The consultation coincided with the UK government’s wide-ranging green paper published yesterday regarding on defined benefit (DB) pension reform.  The PPF said any new rules would be effective for 2017/2018, and would be limited to schemes that run on without sponsors as a result of arrangements put in place after the start of the 2017 calendar year. It added that it may have to develop its approach in response to experience of operating the rule or government policy.The PPF said it does not expect the new rule to be needed widely, and that there may end up being no schemes charged on this basis for 2017/18.“However, we consider it appropriate to have a rule in place in case it is needed – rather than risk an effective cross-subsidy from existing levy payers – and in order to provide clarity and transparency on our approach in the event such an arrangement is being contemplated,” wrote Taylor.BSPS is in negotiations with its current sponsor, Tata Steel UK, the Pensions Regulator, and the PPF about separating the link between scheme and sponsor. Tata claims the ongoing costs of the DB scheme could push it into bankruptcy, while BSPS believes it has sufficient assets and investment strategy to survive outside of the PPF.The consultation is open until 6 March and the PPF will publish final rules by the end of March.The consultation document can be found here. The UK’s Pension Protection Fund (PPF) has proposed a new levy for pension schemes without a “substantive” sponsor.It is consulting on its proposal, in line with plans it set out late last year.The introduction of a levy for schemes operated by standalone pension funds could be significant if it paves the way for schemes like the British Steel Pension Scheme (BSPS) to run without a sponsor but still be eligible for PPF coverage. The PPF takes over defined benefit (DB) pension schemes when their sponsoring employer becomes insolvent, and it charges a levy to DB funds to help fund its operations.Introducing the consultation document, David Taylor, general counsel at the PPF, said that the lifeboat fund was proposing to base its charging methodology on “a commonly used pricing model for assessing put options”.last_img read more

UK government urged to develop ‘responsible investing framework’

first_imgAccording to the consultancy, a key action for governments should be to “encourage and improve consistent, standardised and transparent disclosure” of information relevant to evaluating ESG factors.Such evaluation was problematic at the moment and “from the investor’s viewpoint this can legitimately be used as a reason not to act”.The consultancy said its research had shown a lack of consensus about the impact of responsible investing on returns and a lack of standardisation of definitions across the industry, which together posed “one of the biggest hurdles for investors”.“What is clear through our involvement and interaction with trustees and other institutional asset owners is that while there are many groups that are engaging with this topic, there is still significant confusion around terminology, materiality and, more relevantly, what trustees’ duties are in this area,” said Aon.“We therefore believe that the government has an important role to play in setting standards, clarifying duties and responsibilities, and providing the tools and access to reliable data that is necessary to assess financially material risks.”The DWP’s recent investment regulation proposals were helpful, Aon suggested. It said these would “encourage and ultimately lead to greater standardisation and agreement across the industry, which we see as a necessary first step towards greater adoption of [responsible investing] principles by trustees”.‘Problematic’ members’ views proposalMeanwhile, a proposed requirement to take members’ views into account was “the most problematic aspect” of the policy changes proposed by the DWP, according to Aon.The government has proposed that trustees be required to make a statement on the extent to which its membership’s views would be taken into account regarding investment decisions. Aon said it was supportive of the general direction of the proposal but suggested the draft regulations, if unchanged, could be misunderstood.“Under the draft regulations, regardless of caveats, most trustees will feel they have to actively seek those views from members, especially in [defined contribution] schemes where the information will be made public,” the consultancy said.“This could be a difficult and costly exercise for schemes, with substantial challenges to obtaining members’ views in a meaningful way.”The UK’s pension fund association rejected the changes proposed by the government, describing them as neither “practical nor purposeful”. The UK government should work with the pensions and investment sectors to establish an “agreed responsible investing framework”, a consultancy has suggested.Aon made the recommendation in its response to a consultation by the Department for Work and Pensions (DWP) on regulatory changes aimed at “clarifying and strengthening” trustees’ investment duties, in particular with respect to environmental, social and corporate governance (ESG) matters.Working towards an agreed responsible investing framework would enable the regulations to be effective, according to the consultancy.One of the main changes proposed by the DWP was a rewording of current rules for occupational pension schemes to make it clear that trustees should consider financially material ESG matters.last_img read more

Dutch union demands state pension increase as second-pillar cuts loom

first_imgTuur Elzinga, FNVIt quoted Hedda Renooij of employer organisation VNO-NCW as saying that cuts at pension funds “shouldn’t be compensated by general government measures”. Pension funds are allowed to smooth out any discounts over a 10-year period, which means that a 10% cut would result in a 1% pension reduction in 2020.In the interview, Elzinga indicated that he would like to discuss the discount rules for pension funds, but acknowledged this would be too heavy a burden on the work to elaborate the pensions agreement. This process is to start within two weeks, when a steering group for all players involved is to convene.Further readingBiggest Dutch pension funds face imminent benefit cuts following new rules ABP and PFZW may have to cut pension rights for their almost 6m members next year despite solid returns on investments in the second quarter of 2019Dutch social partners and government reach agreement on retirement age In June, employers, unions and the government reached an agreement in principle on elements of pension system reform, including the state retirement age and retirement options for workers in physically demanding jobs The Netherlands’ biggest union has called for the government to increase state pension benefits to compensate for looming cuts to second-pillar pension payments.FNV’s vice chair and lead pensions negotiator Tuur Elzinga called for a higher state pension (AOW) in an interview in Dutch national newspaper De Volkskrant, arguing that such a measure was needed to maintain pensioners’ purchasing power.When a pensions agreement was concluded in early June between unions, employers and the government, it was assumed that cuts to pension rights and benefits could be avoided, restoring confidence in the pensions system.However, the financial position of pensions funds has worsened through declining interest rates and poor equity market performance. In addition, in June an independent committee recommended changes to the calculation of the ultimate forward rate that could increase scheme liabilities and further hurt funding levels. According to De Volkskrant, employers have rejected a proposed increase to the AOW, which is regularly subject to indexation.last_img read more

​Norway’s new SWF chief agrees to shed AKO Capital in 11th hour deal

first_imgThe hedge fund billionaire set to take the top job at Norway’s giant sovereign wealth fund in a week’s time last night agreed to relinquish his remaining stake in AKO Capital entirely as a new employment contract was drawn up in response to parliamentary demands.Norges Bank announced at a press conference in Oslo yesterday evening that its executive board and the incoming CEO of Norges Bank Investment Management (NBIM) – the central bank arm running the NOK10.3tln (€972bn) Government Pension Fund Global (GPFG) – had renegotiated the terms of Tangen’s employment contract.Under the new agreement, the bank said Tangen is to divest himself of his holding in AKO Capital – his hedge fund-led fund management firm – transferring it to the charitable entity AKO Foundation which he established seven years ago.Tangen’s management agreement with Gabler Investment will also change so that his fund investments are liquidated and the proceeds held as bank deposits, Norges Bank said. The complex arrangement previously agreed as part of Tangen’s job contract sought to put him at a distance from his vast financial interests, creating an “information barrier” in order to address politicians’ key concern of potential conflicts of interest while he was NBIM CEO.However, in this new agreement, Norges Bank said Tangen will no longer have any ownership interest in AKO Capital, and that this will apply in perpetuity.Tangen said: “I have taken these actions to remove any doubt about which hat I am now wearing. I want to be CEO of the oil fund, and have only one objective: creating wealth for future generations.”Øystein Olsen, chair of Norges Bank’s executive board and the central bank’s governor, said the agreement addressed the concerns raised by the Storting’s (parliament) Finance Committee on the contract of employment with the new CEO. Nicolai Tangen and  Øystein Olsen at the Norges Bank press conference yesterday eveningThe committee made a series of demands on Friday, which Finance Minister Jan Tore Sanner was to present to the Norges Bank board.The cross-party panel said the head of NBIM could not have any ownership or interests that created – or could appear to create – conflicts of interest that could weaken the trust in, and reputation of, Norges Bank.It also said the new CEO could not have interests that could weaken the GPFG’s work with tax and transparency – a demand prompted by the use of tax havens by some of entities in the AKO group.Sanner, who had previously said Norway’s central bank law stopped him from telling the Norges Bank board what to do in the CEO appointment process, gained new legal clout at the last minute when the Ministry of Justice and Public Security’s Legislation Department said on Friday that there were “good indications” the act did not prevent him instructing the executive board on the matter.Norges Bank said now that matters have been clarified and agreed, Tangen would be able to take office on 1 September, but that the actual implementation will take “somewhat more time”.Olsen said: “The executive board has been of the opinion that the contractual framework surrounding Tangen’s employment contract was sufficient in preventing potential conflicts of interest, but we have noted, of course, that the Storting takes a different view.“Their concerns are something the executive board, in dialogue with Nicolai Tangen, has now addressed,” he said.Looking for IPE’s latest magazine? Read the digital edition here.last_img read more