Denmark’s largest commercial pensions provider PFA has launched a new bid to shift customers out of traditional with-profits pensions and into its unit-link products. The DKK417bn (€559bn) pension fund informed customers in a statement they had a new opportunity to transfer their savings from traditional with-profits products to its unit-link product PFA Plus, involving new transfer rates.PFA said it was now using a a new model to calculate transfer sums which accorded with new rules laid down by the Danish FSA, Finanstilsynet.The company said it recommended that customers pooled their pension savings within the PFA Plus product, which it said gave a higher return at the same time as avoiding an administration fee. Danish pension funds have taken various steps over the last few years to move scheme members towards unit-link products and away from the reserve-heavy guaranteed pensions. However, marketing methods have sometimes been criticised. In March, Sampension found itself the subject of a writ from the Danish ombudsman as a result of an individual case where marketing literature had persuaded a member to switch out of a guaranteed product.Meanwhile, Norway’s Oslo Pensjonsforsikring (OPF) reported a slight fall in investment returns in the first quarter of this year as a result of weaker equities. Investment returns for customers fell to a value-adjusted 1.7% in the first three months of this year, compared with 2.4% in the same period last year.The public sector pensions provider described the return as good, given underlying conditions, but lower than the year-earlier result because of weaker price rises on equities markets.During the quarter, the fund’s asset allocation shifted away from bonds.Fixed income assets represented 54.8% of the portfolio at the end of March, down from 57.1% at the end of December, and equities expanded to account for 22.0% of assets, up from 20.6%.The property allocation increased to 22.2% from 21.8% Within equities, the proportion of assets held in quoted shares was 17.0%, down from 17.2% at the end of December, according to OPF figures.The allocation to private equity rose marginally to 1.9% from 1.8%.Group profit fell to NOK140m (€17.2m) in the first quarter from NOK147m in the same period a year before. Separately, the Norwegian municipality of Bærum has decided to establish its own pension fund, after testing the market for alternatives for the provision of the public service pension.The main provider of the public service pension to municipalities in Norway is Kommunal Landspensjonskasse (KLP).According to the Norwegian pension association, Pensjonskasseforeningen, Bærum decided last year to put its pension provision out to competitive tender, looking for offers for two alternatives — an insurance-based pension and a separate pension fund for the municipality.After evaluating the offers received, the authority decided to establish its own pension fund, the association said. The new pension scheme will cover all of the municipality’s current and former staff including pensioners. It will have around 2,500 members. In other news, the Swedish Pensions Agency is to find options for changing the guaranteed pension so that individuals are encouraged to retire later.The Swedish government has tasked the agency with investigating and analysing methods that promote later retirement for those with low pensions. The aim of the exercise is to ensure that people with low pensions will have better financial outcomes in terms of the guaranteed pension, housing and support for the elderly when they retire, it said.The social security minister Ulf Kristersen said: “A longer working life leads to individual pensions being secured at a reasonable level, at the same time ensuring good welfare.”The pensions agency’s work will be based on the report from the retirement age inquiry (Pensionsåldersutredningen) entitled ’Measures for a Longer Working Life’, the government said.
Source: National Employment Savings Trust, IPENEST’s asset allocation as at 31/03/2014The public service pension fund has 99% of members and assets invested in the default investment strategy, divided into three investment strategies depending on the member’s age.Its ‘growth phase’, where most members are invested, produced a 17.5% investment return over the year, up from 4.4% in 2014.The strategy, which seeks to return UK inflation plus 3%, is the core portfolio seeking investment returns while managing volatility, investing nearly 49% in equities and 20% in property.NEST’s ‘foundation phase’, which has a lower-risk strategy for newer and younger members and targets the consumer prices index (CPI) measure of inflation, produced a 13.2% return, compared with 3.67% in 2014.The strategy has a 35% allocation to equities, with one-quarter invested in cash to protect fund value and 17% in property to provide an inflation link.Its ‘consolidation phase’, which progressively aligns member assets for retirement over 10 years, produced a 0.51% return, matching 2014.The fund allocates more to investment-grade bonds (18.6%) and UK Gilts (14.1%) but still carries a 33% allocation to equities.NEST’s best returns came in its separate Islamic Sharia-compliant fund (23.2%) and its ethical fund (20.6%) options.These, however, only account of 0.08% and 0.14% of total assets.Earlier this month, NEST published its ‘Future of Retirement’ paper, detailing how it plans to adapt to the DC freedoms granted recently by the UK government. The UK National Employment Savings Trust (NEST) has seen a return of more than 17% in the year to April, quadrupling its investment performance from last year.Overall, the state-backed defined contribution (DC) master trust now has £420m (€592m) in assets, up from £104m in April 2014, while auto-enrolment has doubled membership to more than 2m.NEST said allocations to property, corporate bonds and developed market equities were behind the 17% investment returns, a boost after the below-benchmark return in 2014.Across its holdings, NEST’s asset allocation remained relatively unchanged from 2014 aside from a drop in its proportional allocation to a BlackRock multi-asset fund. Source: National Employment Savings Trust, IPENEST’s asset allocation as at 31/03/2015#*#*Show Fullscreen*#*# While the value invested rose from £13.8m to £14.5m, as a proportion of assets, it fell 10 percentage points to 3.5%.NEST told IPE it would diversify away from the BlackRock fund as assets grew, and instead create its own multi-asset strategy using single-asset mandates.Mark Fawcett, the fund’s CIO, said: “Moving from a single [multi-asset] fund to standalone mandates gives us greater control over our asset allocation.“Our strategy has been to achieve diversification in this way as and when appropriate.”NEST also added an emerging market equities strategy last year – using Northern Trust Asset Management and HSBC Global Asset Management – which now accounts for 1.73% of its overall portfolio.#*#*Show Fullscreen*#*#
The Scottish & Newcastle Pension Plan has agreed a £2.4bn (€3.3bn) longevity swap with UK insurer Friends Life to shift risk of pensioners exceeding longevity expectations.The scheme, now part of Heineken after its takeover of Scottish & Newcastle in 2009, has insured longevity risk for approximately 19,000 pensioners – almost half its membership.Heineken dealt with Friend Life, part of the Aviva Group, in an uncommon arrangement, with the primary insurer retaining some risk.Previously, pension schemes would arrange longevity swap transactions with reinsurers via primary insurers or banks, or directly transact using an insurance company cell. The scheme said it found previously unused capacity in the primary insurance market for longevity swaps and thus arranged a deal with Aviva.Aviva said it partnered with Swiss Re for it to take on some risk but retain some exposure.The scheme, which closed to future accrual in 2011, said the deal should help bring peace of mind to members.Ian Aley, head of pension transactions at Towers Watson, who advised the parties involved, said the move to transact directly with Aviva was another example of innovation in the longevity risk market.“Heineken has broken new ground with this transaction, identifying a new longevity counterparty in Aviva, which provided additional market capacity on this occasion,” he said.Aley added that it was unusual to see a primary insurer take on the risk directly.He said the trustees of the scheme realised a longevity swap would require a long-term relationship and, after approaching several insurance and reinsurance firms, felt comfortable using the newer deal structure with the UK-regulated firm.The £2.4bn deal comes as the UK longevity swap market takes off in 2015, after seeing record deals last year.The BT Pension Scheme created its own insurance company to transact directly with the reinsurance market in a £16bn arrangement.This was part of a wave of longevity swaps between UK pension schemes and global reinsurers, started by Aviva’s reinsuring its own pension scheme in a £5bn deal with three reinsurers.Four of the five longevity swaps in the £25.4bn market directly transacted with reinsurers.US reinsurer, Prudential Financial, said it expected the longevity risk market to grow significantly as appetite spread across Europe, and also that unmediated deals would become the new norm.
The North Yorkshire Pension Fund (NYPF) is to lend directly to small and medium-sized enterprises (SMEs) for the first time as part of a strategic “tweak” aimed at extracting more from its fixed income allocation.The local government pension scheme tendered a £120m-130m (€163m-177m) private corporate debt mandate in connection with the decision to move into this area, which follows a review of its fixed income strategy.The size of the mandate represents approximately 5% of the fund, the “relatively small” allocation the NYPF is aiming for initially, according to Tom Morrison, head of commercial and investments at North Yorkshire County Council.Direct lending to SMEs was one of several illiquid credit opportunities the fund considered as part of an investigation into how it could “get more out of our fixed income allocation”, given unattractive prospects in corporate and government bonds. “We were looking to see what else is around to complement our existing managers and mandates, and this seems to be the most sensible first step for us,” Morrison told IPE.“The idea is to generate extra return for the fund without us having our eye on anything particularly risky”Insurance-linked securities and bank capital release were other options the NYPF looked into during its fixed income review, which started nearly a year ago. The scheme would like to concentrate its direct SME lending on the UK and Northern Europe, in part because “arrangements for organisations other than banks lending to SMEs” are relatively established there, according to Morrison.“The idea is to generate extra return for the fund without us having our eye on anything particularly risky,” he said. “We consider this to be a relatively safe first step into this area.”He added, however, that the NYPF was mindful of the trend toward consolidation in the UK’s local government pension scheme (LGPS) system – “the LGPS investment landscape will look quite different in a few years”.The £120m-130m the pension fund is looking to invest in private corporate debt could be awarded to more than one fund or manager, according to the tender. The deadline for application is 17 February.The NYPF would not be the first UK local government pension scheme to make SME lending investments by bypassing banks. The Greater Manchester, Clwyd and South Yorkshire funds recently committed to a £60m SME development fund that will make private equity investments in businesses based in the North West of England.Amundi dropped The NYPF’s bond strategy review has also led to a shake-up of its liability-matching management, with the fund dropping Amundi to stick with one manager, M&G.The divestment from Amundi reflects the fund’s decision to separate performance generation and liability matching more clearly, thereby folding the role of the latter into one manager that “genuinely performs that function”.“That line,” Morrison said, “has probably been a bit blurred in the past, so we have simplified our arrangements and are looking to generate performance elsewhere.”Amundi and M&G both managed to a UK Gilt benchmark, but while M&G manages UK government bonds for the fund, Amundi managed in a “completely different way”. “They took advantage of a number of what I would describe as relatively esoteric opportunities that had the potential to add more value to the fund,” Morrison said. Amundi’s recent performance has been satisfactory, and, overall, it has contributed significantly to the fund’s outperformance in the past, he added.“It was more a decision about the strategic direction of the fund and the role liability-matching allocation should be playing,” he said.
The Global Challenges Foundation has set itself a target of informing about how to “combat the greatest global risks”.Last year, it funded a project helping scientists brief world leaders ahead of the Paris climate change conference on the measures needed to avoid dangerous climate change.Its goals would build on the work overseen by Andersson during his time at AP4, which saw the fund as co-founder of the Portfolio Decarbonisation Coalition, which was targeting the decarbonisation of $100bn (€92bn) in assets but by December had attracted support to lower the carbon output of $600bn worth of holdings.AP4 in 2014 also unveiled a low-carbon equity index, a project developed with France’s Fonds de Réserve pour les Retraites and MSCI.Andersson said he was departing at a time when the fund was the largest of the four buffer funds, with SEK310bn (€33.1bn) in capital at the end of 2015.Prior to joining AP4, he was CIO of Skandia Asset Management and also worked as head of Nordic equities at Deutsche Bank.He also spent several years as an equity portfolio manager at AP3.His departure is the second senior role to fall vacant at AP4 in recent months, following the decision of Björn Kvarnskog, head of equities, to join Australia’s Future Fund as head of global equities. Mats Andersson, chief executive of Sweden’s AP4, is to step down after a decade leading the buffer fund.Andersson said it had been a “privilege” to head up AP4 since 2006 and that he would remain in his current role until a replacement was found.He stressed that his departure would give him time to pursue other opportunities but said they were unlikely to be operational in nature.“For example, I received an offer from László Szombatfalvy to work more actively with his Global Challenges Foundation, which feels like an enticing continuation of the climate work we at the Fourth AP Fund have conducted together with the UN and international pension funds in recent years,” he said in a statement.
Royal Bank of Scotland, which earlier this year anticipated the proposals by booking a £4.2bn (€5bn) hit for past service cost, wrote: “We are not convinced restricting the recognition of a defined benefit surplus by considering the rights of pension trustees in isolation is the right approach.“Despite these rights, it may well be the case the surplus is an asset – i.e. the employer expects to receive economic benefits from it.“The rights of pension trustees – in the UK, at least – are subject to trustees’ fiduciary and other obligations.”But consultants Willis Towers Watson argued: “The proposed changes should reduce diversity in practice.“However, difficulties remain in interpreting the intent of IFRIC 14 with respect to unlikely or irrational actions that could potentially affect an entity’s unconditional right to a plan’s surplus.”In total, roughly half of all respondents supported the committee’s approach to the project, while the remainder disagreed or voiced specific concerns on the proposals.Critics argued that they were either inconsistent with the principles in IFRIC 14 and IAS 19, or that they failed to represent the substance of DB pension schemes.In addition, critics said the committee’s approach draws an artificial distinction between a scheme buy-in and a buyout.The amendments address how a DB sponsor should assess the availability of a refund from a DB plan when other parties can either wind up a plan or change its benefits without the sponsor’s consent.The committee has proposed an amendment to paragraph 12 of IFRIC 14.This would clarify that an entity does not have an unconditional right to a refund if other parties can wind up a plan or use any surplus without the sponsor’s consent.But, although the committee believes the exercise of these powers could affect the existence of an entity’s right to access a surplus, it said it did not think the same was true of a trustee’s ability to undertake a buy-in.In explaining the distinction, the committee said that, although this investment decision affects the amount of any surplus, it does not affect the existence of a right to a surplus.In addition, the committee proposed an amendment to paragraph 7 of the interpretation.This will require plan sponsors to take account of substantially enacted legal requirements, as well as terms and conditions of the plan that are contractually agreed, plus any constructive obligations. The International Financial Reporting Standards Interpretations Committee (IFRS IC) has signalled it is ready to consider the next steps on its stalled project to address the availability of plan surpluses to a plan sponsor under IFRIC 14.The move comes despite the mixed response from defined benefit (DB) plan sponsors and their advisers to its proposals.Introducing the issue to the committee, staff said they planned to bring back a more detailed analysis of the feedback, together with recommendations for moving the project forward in September.A total of 75 respondents commented on these proposed amendments.
The Dutch pension fund for disabled workers, PWRI, is still considering merging with another scheme despite the failure of its talks with healthcare scheme PFZW last year.In its 2016 annual report, the €8bn fund said it still believed a merger would be a good solution for its long-term future – although continuing independently would also be a possibility.Last October, negotiations with PFZW ended without result. According to PWRI, joining the €186bn healthcare scheme would have offered its participants insufficient benefits.However, a month later PWRI was boosted by the introduction of a €10bn annual payment from the Dutch government, introduced as compensation for the effect of the Participation Act. This legislation prescribed the regular business community to start employing disabled workers. Since then, PWRI has continued as a closed scheme.The board indicated that the PFZW merger negotiations had spurred it on to improving its pension arrangements.The pension fund posted an overall return on investments of 7.7%, with its matching portfolio (63% of the overall portfolio) generating 6.1%.Its liability-driven holdings, including interest rate swaps, returned 25% as a consequence of falling interest rates.The scheme’s return portfolio (37%) yielded 8.6%, primarily due to equity and high yield returns of 10% and 10.2%, respectively.Equity emerging markets and local currency-denominated emerging market debt performed best, generating 14.9% and 12%, respectively.Unlisted property – Dutch housing and retail assets in particular – delivered 7.1%.PWRI said it kept its interest rate hedge, based on the ultimate forward rate, at 25% last year. Its strategy allows for an increase in the hedge when interest rates rise.The scheme’s administration costs per participant grew by €9 to €90. It cited additional costs following new legislation as well as surveys linked to the merger negotiations, and also mentioned the introduction of VAT on administration and the effect of its decreasing number of participants.The pension fund spent 32 basis points on asset management and 5bps on transaction charges.At year-end, PWRI had 208,350 participants in total, of whom 90,270 were employees and 48,610 were pensioners.Its coverage ratio improved from 98.1% to 102.6% during the first six months of 2017, largely as a result of rising interest rates.
The parliament of the Swiss canton of Wallis (Valais) has passed the local government’s recovery plan for its ailing public pension fund, the CHF4.3bn (€3.8bn) PKWAL/CPVAL.Politicians agreed to the plan by a large majority of 101 to 18 votes. The result means that, as per January 2020, the existing pension fund for employees of the canton and affiliated bodies will be closed and a new fund will be created.This is the first time such a split will be carried to ease the burden of an underfunded Swiss Pensionskasse.When the plan was first presented by a cantonal expert group over the summer, Swiss think tank Avenir Suisse called it an “innovative and elegant” solution. Currently, the PKWAL/CPVAL has a funding ratio of 80%. As part of the split, the canton has pledged to inject CHF1.35bn into this part of the fund over the next 20 years.All employees hired after 2012 will be transferred to a new open fund, which will initially be funded by the canton with CHF265m.From 2020 onwards, however, it will not have a funding guarantee from the canton, but will have to be fully funded.To cope with increasing longevity, the technical parameters for both funds will be adjusted and a flexible retirement age of between 58 and 70 will be implemented.Public pension funds in Switzerland have traditionally seldom been fully funded as most cantons offered guarantees.However, in the continued low interest rate environment, and with the burden from demographic developments increasing, many cantons have reconsidered their financial commitments.According to the most recent pension fund “monitor” published by Swiss consulting company Prevanto, the average funding rate for public pension funds was 94.4% as per November 2018. The Swiss canton of Wallis/Valais is home to the Matterhorn, one of Europe’s tallest peaks
“This is a violation of a good Norwegian budget practice, which emphasises openness and overall budgeting”Øystein Olsen, Norges BankHe continued: “This is a violation of a good Norwegian budget practice, which emphasises openness and overall budgeting, and that all expenses must be prioritised within the same framework. This will be bypassing it.”Olsen also expressed concern about the way the government had been increasing its use of oil fund money in recent years.Over the last 10 years, the government’s annual withdrawal of GPFG funds has more than tripled to NOK231.2bn in 2019, from NOK74bn a decade ago, according to inflation-adjusted figures in the news report.“I have talked about this a bit in previous annual speeches, and pointed out that we have reached a very high level,” Olsen said. “It is a concern, somewhat independent of these guiding principles.”Coalition agreement proposes new rulesThe plan was first revealed in the government’s new coalition agreement published last month. The declaration includes a paragraph on the idea of changing the principle of the state acting as its own insurer.Under this principle, the state does not insure itself, but covers damage and losses when they arise.“The government will investigate and assess whether replacements where the state is self-insured should be able to be entered as an item 90 in the state budget,” the document states. This refers to funds taken directly from the oil fund rather than from fiscal revenue.The administration wants to use the money to fund a new government building in Oslo for NOK15bn, after the existing buildings were seriously damaged in a terrorist attack in 2011. It also wants to buy a replacement for the KNM Helge Ingstad frigate, which sank in November after colliding with an oil tanker.Norwegian prime minister Erna Solberg has argued that these expenses were extraordinary.“What we have been exposed to here is a massive terrorist attack, in which four major state buildings have been destroyed. We have got a ship that has gone down,” she told Norwegian news agency NTB earlier this month.She said her idea was not to bypass the rules but start a discussion about how the self-insurer principle did not necessarily work for such major incidents.Plans criticisedSeveral other prominent figures in Norway have spoken out in the national media against the government’s idea of taking more money from the oil fund.Svein Gjedrem, a top government economic adviser and former head of the central bank, told Norwegian newspaper VG the idea was in clear conflict with the budget rules.“My main objection is that this is not a loan, but expenses that are not repaid,” he said. “These are actual expenses that have full impact on the Norwegian economy. In this case, according to the budget rules, they should be covered by current income.”Øystein Dørum, chief economist at the Confederation of Norwegian Enterprise (NHO), told VG the projects should not be financed outside the usual state budget.“I am still of the opinion that this should be taken above the line,” he said. “A new government quarter for NOK15bn will undoubtedly impact the Norwegian economy.”The current rules governing the GPFG are designed to ensure only gradual, long-term and responsible use of the oil wealth. They state that the government may take no more than 3% of the fund’s capital a year. Norway’s central bank governor has criticised government plans to change the rules regulating the country’s NOK8.6trn (€881bn) sovereign wealth fund to relax limits on annual withdrawals.Øystein Olsen, who also chairs the Government Pension Fund Global (GPFG), added his voice to those criticising the government’s plan to alter the rules so it can dip into the fund to replace terrorist-hit buildings and a crashed Royal Norwegian Navy frigate.This would involve taking around NOK19bn from the GPFG, which has grown from Norway’s oil revenues.The idea was a “violation” of good Norwegian budget practice, Olsen told Norwegian news service E24 yesterday. A spokesman for Norges Bank, the central bank, confirmed his comments to IPE. “They say they should investigate the matter,” Olsen told E24. “I don’t think they need to spend so much time on it, because there is not very much to study.”
Johan Sidenmark, AMF chief executive officer, said: “I am very pleased that together with like-minded partners we can vigorously expand and broaden our efforts to invest in viable Swedish companies that are in need of capital to get through the economic crisis we are in.”At the beginning of April, the pension fund announced it was preparing to invest billions of kronor over the coming months, to support local firms it viewed as long-term investments during the pandemic, earmarking SEK5bn as a first step.The fund followed up on the pledge by by investing SEK114.5m in a capital placement deal for struggling Swedish brake-component maker Haldex in May.AMF said SEB had invested SEK1bn in Sindre Invest, with FAM and the Wallenberg Foundations putting in SEK500m – totalling SEK3.5bn including AMF’s SEK2bn contribution.It said SEB would also be contributing staff to the joint venture – to get business started quickly by 1 July – with Sindre Invest hiring those with relevant experience in investing, credit management, equity and debt financing.Jan Amethier, head of SEB’s tech finance business, will take up the role of CEO, AMF said.To read the digital edition of IPE’s latest magazine click here. Sweden’s second-largest pension fund AMF announced it is forming a new joint venture, alongside bank SEB and FAM, the holding company of the Wallenberg foundations, to invest SEK3.5bn (€333m) in unlisted domestic firms under pressure from the pandemic-induced economic crisis.The SEK622bn blue-collar pension fund said it had put in SEK2bn to the new company, named Sindre Invest, which would mainly invest in privately and family-owned companies that did not have access to the stock market.AMF said in a statement: “Sindre will invest in medium-sized Swedish companies that were successful before the crisis and are expected to be so again when the economy returns to normal.”The pension fund said investment targets would be firms with at least 250 employees and turnover of over SEK300m, with Sindre Invest becoming a minority shareholder. The stated aim would be for firms to be able to repurchase the shares when the crisis was over.