Denmark has retained its dominant position as leader of the Melbourne Mercer Global Pensions Indexdespite seeing its integrity and adequacy ratings decline in the latest edition.The ranking, published for the fifth time by the Australian Centre for Financial Studies, also revised downward its overall rating for the Netherlands – although the country remained second, ahead of Australia.Other European countries – such Switzerland and, notably, the UK – saw their scores increase.Explaining the changed scores, the index noted that it had introduced several new questions in its integrity sub index, accounting for 40% of a country’s total score. A question on whether private funds were required to prepare a policy paper on potential conflicts of interest was cited as one of the reasons the Netherlands saw its score fall by more than 3 points in the integrity sub-index and 0.6 points overall.Additionally, amended queries about taxation saw several countries’ system adequacy downgraded after questions on tax incentives for contributions were broadened to ask about when members were forced to contribute tax.The index noted that the question was now revised to ask whether the plan’s investment earnings were taxed during the pre-retirement and/or post-retirement period.Of Denmark’s falling rating, it added: “The Danish index value fell from 82.9 in 2012 to 80.2 in 2013 primarily due to the revised tax question, which recognised that investment income in a pension plan is taxed, and a revised score to a question in the integrity sub-index.”The country saw its adequacy rating fall by nearly 3 points to 75.2, going against the grain in a year that saw the average adequacy rating rise 1.3 points.Additionally, the Danish integrity rating fell by more than 6 points, at 80 points now behind Australia, the Netherlands, the UK, Switzerland and Sweden – a decline put down to a new question on conflict of interest policies.Although the 2013 edition saw Mexico and Indonesia added to the ranking, neither country came ahead of the eight European countries assessed.France, similarly affected by the revised tax question that hurt Denmark’s score, ranked 13 out of 20 and drew the lowest overall rating at 53.5 – more than 4 points lower than 12th-ranked Poland.Germany saw its fortunes improve over the 2012 index, rising to 58.5 points as its adequacy rating rose to nearly 70, remaining ahead of Poland in the category and overtaking Sweden as the country’s net replacement rate declined, causing its adequacy rating to fall to nearly 65.European countries retained six of the 10 leading spots in the ranking, with Germany leapfrogging Poland and the US.The UK saw itself displaced by Singapore and Chile, ranking 9th, ahead of Germany, and Sweden and Switzerland swapped last year’s 4th and 5th places due to increased household savings rates in the landlocked nation.
Trustees in the UK need a clearer and more objective way to measure fiduciary management performance if they are to gain confidence in the investment approach, according to Russell Investments. In a survey it conducted among 95 UK trustees about their experience of fiduciary management, the firm found trustees were using a range of different performance measurements to assess how well their fiduciary managers were performing. These included their scheme’s funding level and its performance in relation to the legacy portfolio, as well as absolute returns and the performance of individual mandates relative to asset class benchmarks, Russell Investments said. Shamindra Perera, the firm’s head of UK institutional, said: “Fiduciary management today lacks the objective metrics trustees need. “Without clearer industry standards and more transparency from providers on performance, it is hugely challenging for trustees to evaluate services and feel confident they have made the right decision for their scheme.”In the survey, six out of 10 trustees who had implemented fiduciary management said performance was the most important consideration when they selected the managers, and 79% said performance was the most important factor when reviewing their services. Russell Investments also looked at why some trustees did not use fiduciary managers. The poll showed that 44% of trustees who had considered but rejected fiduciary management did so out of concern they would lose too much control, with 44% specifically afraid of losing touch with the investment decision-making process. On the other hand, 68% of those who adopted fiduciary management did so to be able to spend time on investment issues more efficiently, the firm said. Some 54% believed it would allow them to pursue a more ambitious investment strategy, according to the survey.
AP2 – The head of external equity managers at AP2 has departed the Swedish buffer fund for a US-based think tank. Mimmi Kheddache-Jendeby joined the Center for Applied Research, State Street’s think tank, earlier this month and will be vice-president and senior research strategist. Kheddache-Jendeby spent several years at the fund as portfolio manager for external mandates and was most recently head of equity for external managers.Ilmarinen – Sini Kivihuhta has been appointed deputy chief executive and “substitute” for the chief executive. Ilmarinen’s current deputy chief executive Timo Ritakallio will take on the role of president and chief executive for the company from the beginning of February. Kivihuhta will also continue to carry out her responsibilities as senior vice-president of pension insurance.Pension Insurance Corporation – Tracy Blackwell has been appointed deputy chief executive, succeeding John Coomber, who is to retire at the end of June. Blackwell, currently CIO at PIC, has been with the company since it was founded in 2006. Prior to joining PIC, she worked at Goldman Sachs, where she held a variety of roles, including head of risk management for the EMEA region at Goldman Sachs Asset Management. PIC said a search for a new CIO was underway. Investment Company Institute Global – Patrice Bergé-Vincent has been appointed to the newly created position of managing director at ICI Global Europe. He will join in mid-April. Bergé-Vincent is currently a partner with PwC France, where he leads the asset management regulatory practice. Before then, he worked within the Department of Regulation Policy and International Affairs at the Autorité des marchés financiers (AMF), the French regulator, serving as head of the Asset Management Regulation Policy Division.Mirabaud Asset Management – André Broijl, Bert Hospers, Sai Kit Lam and George Luijkx have joined the fixed income team from Syntrus Achmea Asset Management in the Netherlands. The team will report to Andrew Lake and be in charge of various mandates and fund solutions for Mirabaud’s clients in investment-grade credit.UBS Global Asset Management – Rachel Hill has been appointed business development director, focusing on UK investment consultants and pension funds. In the past, she has worked at fiduciary manager SEI and more recently at BlackRock, in both client and consultant-focused roles.Eaton Vance Management International – Jeffrey Mueller has been appointed vice-president, portfolio manager and global high-yield analyst. Based in London, he will be responsible for leading the company’s global corporate credit operations. He will join in March from Threadneedle Asset Management, where he has been a high-yield portfolio manager and investment analyst since 2009.Aon Hewitt – Jorge Huitron has joined the manager research team as a senior consultant, with responsibility for covering European private equity. He joins after seven years with bfinance, where he was a director in private market research. Before then, he spent four years at Cambridge Associates as a senior consulting associate. Varma, AMF, Folksam, AP2, State Street, Ilmarinen, Pension Insurance Corporation, Investment Company Institute Global, PwC France, Mirabaud Asset Management, Syntrus Achmea Asset Management, UBS Global Asset Management, BlackRock, Eaton Vance Management International, Threadneedle Asset Management, Aon Hewitt, bfinanceVarma – Berndt Brunow is to succeed Kari Jordan as chairman of the supervisory board of Finnish pensions insurer Varma. Brunow is the chairman of the board of Oy Karl Fazer Oy, while Jordan is president and chief executive at Metsä Group. Jari Paasikivi, president and chief executive at Oras Invest, and Antti Palola, president of the Finnish Confederation of Professionals STTK, will continue as deputy chairmen at Varma. The company’s board of directors has also elected members of the nomination and compensation committee and the audit committee from among its members. During 2015, the audit committee will comprise Ari Kaperi (chairman), Jyri Luomakoski, Antti Palola and Kai Telanne. Members of the 2015 nomination and compensation committee are Brunow (chairman), Paasikivi and Palola.AMF – Dan Adolphson is taking over from Carina Blomberg as security economist at Sweden’s AMF. He has worked at AMF since 2006 in the pensions information department and will take up his new role at the beginning of March. AMF said the most important aspect of the role of security economist was to represent savers’ interests by working on pensions issues. Blomberg is retiring in June.Folksam – Lars Johnsson has been appointed director of real estate at Sweden’s Folksam and will start work at the pensions institution on 2 March. He has 27 years’ experience in the property industry, most recently as deputy director and head of property investments at Vasakronan. Johnsson is replacing Torbjörn Wiberg, who will leave Folksam on 28 February.
Two Danish pension funds have revealed they made profits of DKK500m (€67m) or more on the financial markets in the first two months of this year from the effects of the wave of currency speculation on the Danish krone.Labour-market pension fund Sampension and PKA, which runs three labour-market pension funds, made quick gains of DKK500m and DKK600m, respectively, in January and February as the Danish central bank (Danish National Bank) fought off upwards pressure on the krone partly by dropping some interest rates into negative territory.The krone had attracted heavy buying from speculators after the Swiss National Bank surprised markets in January by abandoning the Swiss franc’s peg to the euro.The European Central Bank’s (ECB) announcement that it would start large-scale quantitative easing later this year also created buying pressure for krone. The Danish National Bank has since said two-thirds of the krone buying in January and February came from domestic pension funds, insurers, investment funds and companies seeking to hedge different kinds of euro assets by buying kroner in the form of futures.Kasper Ullegård, head of fixed income at Sampension, told IPE: “We had previously established a relative position where we would benefit if Danish interest rates fell more than euro rates (…) and that’s what happened when the krone came under pressure.” In the second half of 2013 and the first half of 2014, Sampension had bought Danish government bonds and sold euro-denominated, high-quality government bonds, issued by countries such as Germany, Finland and the Netherlands.It had also been buying Danish mortgage bonds and selling euro-denominated, AAA-rated covered bonds.As well as this, in the derivatives markets, it had been buying receive fixed, pay floating in krone interest rate swaps (IRS) and pay fixed, receive floating in euro interest rate swaps – matching maturity for the krone and euro swaps.“When we did all this, we had no idea that was going to happen,” said Ullegård. “We thought the Danish economy was sound, so there was no way interest rates would exceed euro rates on a prolonged basis – we would argue that the opposite should be true.”Since Denmark operates with a significant current account surplus, with capital flowing into Denmark every day, that money needs to be diverted with low comparative interest rates set by the central bank, he said.Effectively, Sampension was betting on Danish interest rates being lower than euro rates, and when that scenario became exaggeratedly the case, for a phase at least, it closed positions to take the profit.“This was more than what we hoped for,” Ullegård said.Although he believes there could yet be another wave of speculation pushing the krone, Sampension firmly believes the Danish National Bank will succeed in maintaining the peg.“It won’t break because it’s institutional – it is clearly the primary goal of Danish central bank policy,” he said.Meanwhile, Pension fund administrator PKA, which runs three labour-market pension funds, also made a large profit in the first two months of this year on the foreign exchange markets as a result of the sudden drop in krone interest rates.The company hedges its currency exposure using forex forwards, effectively selling dollars and buying Danish krone, to avoid having to pay a high capital charge due to regulatory rules.Inger Huus Pedersen, head of fixed income at PKA, told IPE: “In January, obviously some in the market thought the krone should appreciate.“When you have krone forwards, and Danish interest rates fall, you make money.”Huus Pedersen and her team reacted to the changed market conditions with a tactical move, changing the forex hedges into contracts that hedged euro, rather than the domestic currency, against dollars.The regulation allows pension funds to hedge foreign currency exposure against either kroner or partly euro.“The net result was that we earned around DKK600m on the transactions, some of it realised and some not,” she said.Huus Pedersen said PKA would not have switched its hedging from kroner to euro unless it was absolutely certain the krone would not be detached from its peg to the euro.“The law allows pension funds to hold so much euro unhedged assets, that this is an implicit confirmation of the peg to the euro,” she said.
Its members, according to a recent survey, most want inflation protection, flexibility, savings that match longevity, market-risk protection, access to lump sums and the ability to pass on funds to dependants.NEST currently has 2.1m members and more than £470m (€660m) in assets under management, with a public service obligation to accept any employer undertaking auto-enrolment.At retirement, the system will transfer 90% of a member’s savings into the income drawdown fund, with the remaining 10% transferred into an accessible cash fund.The drawdown fund will invest in an income-generating portfolio, which NEST said would provide a monthly retirement income.NEST said it would look to design an investment solution that accounted for inflation protection, as well as sequential risk – the risk of members losing a significant proportion of savings in early years due to market falls.The 10% cash fund is to run separately from the drawdown and will be invested in money market instruments to allow savers to take out lump sums without having to sell other assets.NEST said the separate cash fund meant members could access 10% of their savings without undermining the sustainability of the monthly income provided by the drawdown fund.After retirement, around 2% of the income drawdown fund will be siphoned off annually to finance an eventual annuity purchase.The deferred annuity will be bought after 10 years in retirement and kick-in after an additional 10 years.The master trust said it needed to consult with the industry to work out how the annuity would be offered, given that the UK deferred annuity market was not yet fully developed.It said it had not ruled out a collective DC (CDC) system, whereby members pooled mortality risk, and annuities were provided from a central fund, but it acknowledged it had reservations.However, it ruled out making monthly or annual deferred annuity purchases – akin to Denmark’s ATP’s approach – as this would prevent members from growing the annuity fund with contributions from the drawdown fund, as well as hinder flexibility.When the annuity becomes active 10 years after purchase, the income a member receives will flatten out and provide a steady income until death. (see chart)#*#*Show Fullscreen*#*# The National Employment Savings Trust (NEST) has set out its new structure after the move away from compulsory annuities in the UK forced an overhaul of its at-retirement system.The government-backed defined contribution (DC) master trust will now change from offering annuity-matching and cash-pot options to include a three-phased system with income drawdown.Members will have the flexibility to choose their approach, but there will be a default that includes income drawdown which simultaneously supports a cash account and slicing off savings to fund an annuity purchase.NEST said this would ensure its system met all its members’ requirements. Source: National Employment Savings TrustRetirement income stream under NEST default option with assumed retirement age of 65NEST said it had yet to work out whether the provision of income drawdown would be managed in-house or externally, but it did stipulate there could be a minimum fund size to enter the drawdown option – with preliminary discussions mooting the £30,000 mark.CIO Mark Fawcett said the implementation timeline was still unclear and – given that the average pot size is approximately £200 – would not be required for some time.According to NEST, members will be able to move out of the default option at any point prior to annuity purchase, while any remaining funds can be added to the annuity fund or passed onto dependants as inheritance.“We have confidence the over-arching aim of a standardised strategy should be to provide a regular income throughout retirement, without requiring regular intervention by the member,” it said.“To reflect differing needs at different phases of retirement, there should also be varying proportions of flexibility, inflation protection and longevity protection.”Fawcett said the scheme developed an evidence-based blueprint to meet member needs and hoped it would stimulate the necessary innovation.He added that, while its design had been considered, the technicalities – particularly around the deferred annuity purchase – needed further consultation and industry input.
Source: Strathclyde Pension Fund / Glasgow City CouncilStrathclyde Pension Fund asset allocationThe fund currently allocates around 20% to short and long-term strategies, however after meetings this summer it has decided to emphasise multi-asset credit and private debt.It will also consider amending its equity portfolio to become equally weighted across global markets by underweighting its exposure to the US market and capping its UK exposure to 5% via a Legal and General Investment Management (LGIM) mandate.The LGPS is currently devising a plan on regional allocations to be submitted to the board in November, and will increase its exposure to fundamental indexation strategies. Strathclyde also invests in absolute return strategies, mainly through a PIMCO-administered mandate which returned 3.3% in the year to April 2015.However, the fund is now considering moving from PIMCO’s second Absolute Return Strategy to its third option with a higher return target, in order to better account for the scheme’s short-term enhanced-yield strategy. The £15.4bn (€21.8bn) Strathclyde Pension Fund is looking at add multi-asset credit into its portfolio as the scheme further looks for “enhanced yield” opportunities.The local government pension scheme (LGPS), the largest in the UK, has begun searching for a multi-asset credit manager.Strathclyde said it has provisionally earmarked £300m for the strategy but could allocate more over time.In April, it announced a radical reduction in its equity portfolio in order to fund a move to “enhanced yield” strategies, considering a range of alternative options to manage downside risk. The pension fund, which provides retirement income to public sector workers in the west of Scotland including Glasgow, said managers should be able to provide returns of LIBOR +4% and primarily invest in high-yield and syndicated loans.However, it said managers would be given freedom to invest across other credit markets under certain guidelines.“The main purpose of this mandate is to provide exposure to higher yielding credit market beta. We do not envisage that hedge fund strategies or extensive use of leverage to be appropriate,” the pension fund said.Interested managers have until 22 October to contact Hymans Robertson for further information on the mandate, with the fund expecting to shortlist 6-8 managers before making a final decision. The scheme’s move to enhanced yield means shaving between 10 and 20 percentage points off its equity allocations in order to fund moves to both short and long-term enhanced yield strategies by 2018 – which would account for 40% of assets (Options 1 and 2).#*#*Show Fullscreen*#*#
The German government has come to a long-awaited decision regarding discount rates, or Rechnungszins, used to calculate pension liabilities under local accounting standard HGB.It extended the period from which the rate can be calculated from the previous seven years to the previous 10, to include pre-crisis years with higher interest rates.It has also given companies the option to apply the new HGB provision to their 2015 annual reports.The new regulations, however, include a ban on increasing dividend payouts that could be afforded as liabilities go down. According to consultancy Mercer, the amendments to the calculation period will set the discount rate at 4.1% for 2016 instead of 3.37%.The consultancy, however, argued that “companies are not profiting” from this new regulation.It deemed the new regulation “a bad compromise” that would “considerably increase stress among those preparing balance sheets”.It pointed out that the extension of the calculation period was “considerably weaker” than the industry expected, as the original draft contained an extension of 15 years, while the government had been considering a 12-year extension for some time.Mercer warned that companies would now have to make two parallel calculations applying discount rates calculated on a seven-year period and on a 10-year period.Over the last 12 months, many industry representatives have called on the government to come to a decision on the issue, in light of the low-interest-rate environment.In November, pension fund association aba published calculations estimating that the discount rate companies can apply to their pension buffers would fall below 3% by 2017 from currently just over 4%, if no action were taken.This, in turn, would have meant companies with on-balance-sheet pension obligations would have had to pay an additional €35bn-45bn in total annually over the next three years to offset this decrease.
PensionDanmark has seen returns of up to 3.2% over the first half of the year, with the result viewed as satisfactory despite overall investment return halving compared to the same period in 2015.The Danish provider said its fund for members aged 40 returned 1.3% in the six months to June, while those aged 65 saw investments return 3.2 – overall equating to an investment return of DKK3.8bn (€510m).The result is significantly down over the same period in 2015, when the pre-tax return from investments stood at DKK7.9bn.However, the provider noted a significant improvement in the investment environment since the end of June, and said that the fund for those aged 40 and the investment option for those aged 65 had seen returns improve to 3.5% and 4.7%, respectively. Torben Möger Pedersen, chief executive of PensionsDanmark, nonetheless struck an upbeat tone.”Overall, we have achieved satisfying results in the first half-year, during which our investment portfolio once again proved robust despite the significant turbulence in the financial markets, while simultaneously managing to bring down administrative costs even further.”The provider said it had further seen its costs fall 10 to DKK142, and that assets under management had risen to DKK189bn.The growth was aided by continued increases in contributions to DKK6.4bn – up by DKK700m compared to a year ago.
Moscow, RussiaCredit: Mistery08/Pixabay It was brought in to reduce federal budget transfers to the PFR, with the most recent freeze expected to save the state around RUB551bn (€8bn).For the NPFs, which now manage the greater portion of second-pillar savings, asset growth potential remains restricted to investment returns and acquiring more of VEB’s clients – the so-called ‘silent ones’ who had ended up with the state-owned manager by default.The NPFs’ client base has grown by 15.1% year-on-year to 34.4m as of the end of September, according to Bank of Russia (CBR) data, while assets rose by 14.9% in Russian rouble terms to RUB2,410bn.VEB’s pensions savings net assets, meanwhile, fell by 5.6% to RUB1,787bn.The returns on VEB’s extended portfolio, however, gained 8.5% for the first nine months of 2017, outperforming the NPF average return of 4.9%.For individual pension savers the series of moratoria will lead to inadequate second-pillar pension pots.There are third-pillar occupational pensions, with some 5.7m savers enrolled in schemes managed by NPFs, but they tend to be offered by the larger companies that can afford them.Last year the CBR and finance ministry unveiled the Individual Pension Capital (IPC) scheme of auto-enrolled employee-funded pensions savings for the start of 2019 but,as reported previously , this project has been postponed.Although the IPC’s architects had to yield to the labour and social protection ministry, and switch from an ‘opt-out’ to an ‘opt-in’ enrolment, there remained too many unresolved legal and technical disagreements.As a result, draft legislation has been put off until the end of next year. The moratorium on pensions contributions to Russia’s mandatory second pillar will be extended to 2020 following the third and final reading of the bill by the country’s lower house.The bill still needs the approval of the upper house and the president.Since 2002, 6% of the 22% annual employer-paid social security contribution has been diverted to a funded system, managed by private non-state pension funds (NPFs), state-owned Vnesheconombank (VEB) or by private asset managers, for the first-pillar Pension Fund of the Russian Federation (PFR).The moratorium, first introduced in 2014 and extended each subsequent year, sent the full social security amount to PFR.
Five years ago, a special code for pension funds was established in which the sector agreed that boards would include at least one male and one female trustee as well as a trustee aged under 40.In the wake of the agreement, a manual for diversity was introduced. In addition, the PensionLab was established to help people in their twenties and thirties familiarise themselves with the sector.However, hardly any young trustees – and only slightly more female board members – have been appointed since then.Margot Scheltema, chair of the code’s monitoring committee, noted that some schemes didn’t see the urgency for change, according to FD, “although much research has highlighted the value of diversity for proper decision-making”.Two-thirds of pension funds still have not appointed any trustees aged under 40, the newspaper reported, and less than 7% of the 1,600 board members in total are under 40.In addition, almost 40% of pension funds lack a female board member.Gerard Riemen, director of trade body PensioenFederatie, acknowledged the need for diversity for improved decision-making and support among participants.However, he emphasised that pension funds had difficulties finding candidates and that any punishment for falling short of the desired diversity would come at the expense of the pension fund and its participants.Riemen suggested that the organisations of employers, workers and pensioners, which supply the board candidates, should improve their efforts.Semih Eski, chairman of the youth branch of union CNV, pension funds could also do more through offering work experience places. He highlighted the importance of support among young participants for a board if not all of its trustees were 50-plus.FD quoted Ellen te Paske-Lievestro, a young trainee on the board of the €47bn metal scheme PME, who said younger participants often looked differently at things such as short supply in the housing market and the increasing number of self-employed workers.Scheltema said she didn’t expect pension funds to meet Van Weyenberg’s deadline, as not enough board seats would become available. Instead, she suggested annually monitoring the number of board vacancies and establishing how often they are filled with a female or a younger trustee.“Within three years, we should see a significant improvement,” she said.See the original article from IPE’s sister magazine, Pensioen Pro, here (in Dutch). One of the partners in the Netherlands’ coalition government says it will legislate for diversity rules for pension fund boards next year if schemes fail to implement agreed changes voluntarily.The liberal democratic party, D66, led the calls but other parties are said to support the move. “For years, pension funds haven’t stuck to their promise to improve diversity among their trustees, and we have reached the limit now,” said D66 MP Steven van Weyenberg, quoted by Dutch financial newspaper FD.According to FD, opposition party GroenLinks also expressed dissatisfaction with pension boards’ diversity, while Social Affairs minister Wouter Koolmees – also a D66 MP – has promised parliament he would address the sector on the subject.