However, James Dean, partner at legal firm TLT, said there were indications a separate scheme would struggle to provide the same level of protection members currently experience.“There is more spreading of risk with the current PPF because of the jurisdictions which are involved. There are more schemes,” he said.The concerns would lie with the large financial institutions in Scotland being the main levy contributors to the fund.However, in the event of insolvency, these funds could be too large for a Scottish PPF to manage, as well as it losing a significant source of levy income.“If you limit the number of schemes, and base it on a few, large employers, and one falls over then the risk would be greater to members,” Dean said.In a paper published last year – ‘Pensions in an Independent Scotland’ – the Scottish government proposed to “closely align” the regulatory system with that of the UK.It said it would ensure schemes remain protected and Scottish PPF members continue to receive their pension.It added the best interest for all parties was for Scottish schemes and members to remain covered by the existing PPF, but said it would establish an equivalent fund if necessary.Dean said it is understood the UK government is not keen on cross-border arrangements, while any PPF-sharing would rely on Scotland continuing to use sterling as its currency, currently a point of contention between the supporters and opponents of independence.Joanne Shepard, senior consultant at Towers Watson, said currency would be an issue despite continued participation remaining the simpler option over establishing a Scottish PPF.Precedent for the sharing of lender of last resort for pension funds does currently exists between Germany and Luxembourg, namely through the Pensions-Sicherungs-Verein (PSV). However, the Luxembourg schemes are vehicles set up under German law. “Both options are quite difficult and require quite a lot of thought,” she said.She said the splitting of the current PPF to account for levy contributions from Scottish firms would be difficult to calculate, leading to the potential of prolonged litigation.While levies contributed to the payment of pensions from the PPF, they were also used to support the creation of a surplus, allowing the fund to be self-sufficient by 2030.The fund recently said there was a 90% probability it would reach its target, with Scottish contributors entitled to benefit from this.“Past service pensions and levies already paid have never been split out in any shape of form,” Shepard said.“A Scottish PPF would also need assets to initially cover pensions depending on how it expects to build up its portfolio,” she added.However, Nick Griggs, partner at consultancy Barnett Waddingham, said the risks with a cross-border fund would be high.The issue relates to Scotland promising to create its own regulator, albeit basing this on the current model.The UK regulator’s objectives includes protecting the PPF from risk and from being over burdened.Griggs said if a Scottish regulator took a more relaxed stance on DB funding, the risks to the PPF could increase.“It would not seem fair,” he said.“If you have two regulators, you would need two separate lifeboat funds.”“I would have thought they would have to set up a Scottish PPF, which would take on some assets and the surplus to pre-fund itself.“The liabilities would be complicated and I don’t know how that would be practical,” he added.,WebsitesWe are not responsible for the content of external sitesLink to Scottish government’s paper ‘Pensions in an Independent Scotland’ Scottish defined benefit (DB) members would be at greater risk of losing part of their pension if an independent Scotland attempted to set up its own lifeboat fund, lawyers have warned.With a vote on 18 September to decide on whether Scotland secedes from the UK, the potential level of protection offered to members in an independent Scotland has caused concerns.The Pension Protection Fund (PPF) currently covers Scottish companies and members, with all schemes contributing through levies.The Scottish government said an independent country would offer the same protection as the PPF to Scottish members, either through a cross-border arrangement with the existing fund, or through a new offering.
F&C Investments, Aviva Investors, Muzinich & Co, Axa Real EstateF&C Investments – Howard Pearce has been appointed chairman of the responsible investment advisory council, which will replace the existing Committee of Reference from January next year. Pearce, who spent a decade as head of the UK’s Environment Agency Pension Fund (EAPF), will begin working with F&C immediately. Following his departure from the EAPF in 2013, Pearce launched his own consultancy, HowESG.Aviva Investors – Veronique Leroy and Jolanta Touzard join the asset manager’s infrastructure team. Leroy has been named head of infrastructure investment services, joining from Octopus Investments, while Touzard is assistant fund manager, joining from Equitix. Leroy was responsible for renewable energy projects during her two years at Octopus and spent nearly three years prior to that as director of EMEA strategy at GE Capital. She has also worked at the Boston Consulting Group and began her career at Alcatel Lucent.Muzinich & Co – Martin Empacher has been named Nordic director of client relations, based in Copenhagen. He most recently worked at Saxo Wealth Management. Axa Real Estate – Guillaume Spinner has been promoted to CFO. He joined the company more than 10 years ago and held various responsibilities in the fund management business. Spinner started his career at Archon Group in France, studying at EDHEC Business School and the London School of Economics. He will report to Arnaud Prudhomme, global CFO and COO at Axa Real Estate.
Asset managers had embraced sustainability as an integral part of the investment process and were supporting the development of responsible investment “in all of its forms”, it said.The Brussels-based association also came out against the Commission’s plan to table a legislative proposal to clarify investors’ duties with regard to sustainability.In its view, such a legislative initiative was not necessary for two reasons.“An EU agenda on sustainable finance should focus on a market-driven approach and avoid creating any unintended barriers to market development”EFAMA“Firstly, consideration of sustainability objectives in investment decision-making or the investment in ‘sustainable’ projects, products or companies has to be driven by those making asset allocation decisions, i.e. asset owners,” said EFAMA.Asset managers could not create “‘sustainable’” products that did not respond or accommodate asset owners’ financial and “impact” objectives, it added.Secondly, approaches to sustainability evolved over time because they were linked to economic activities and associated with innovation and behaviours, EFAMA said.The materiality of environmental, social and governance (ESG) factors depended on economic policy, it added.“Any mandatory sustainability requirement, especially regarding investments, would turn ESG into a ‘tick the box’ compliance exercise,” EFAMA warned.The association was supportive of the overall direction of the action plan, however, and welcomed elements such as the plan to strengthen reporting on sustainability and develop an EU classification of sustainable activities.The Commission should carefully consider the means of facilitating ESG investment, with strengthening choice and transparency being more beneficial than a prescriptive legislative approach, the association said.“EFAMA believes that an EU agenda on sustainable finance should focus on a market-driven approach and avoid creating any unintended barriers to market development,” it said. “This is crucial, given the constant evolution of products, practices and end-investor demands. Any legislative initiatives need to be reviewed carefully to ensure that positive market-led trends continue to thrive.”The fear of a “prescriptive” approach echoed concerns expressed by PensionsEurope in response to the final report from the High Level Expert Group (HLEG) that advised the Commission. The European Commission is wrong to state that asset managers do not systematically consider sustainability in their investment processes, according to the European Fund and Asset Management Association (EFAMA).Commenting on the release of the Commission’s action plan on sustainable finance today, the association said it disagreed with action plan statements asserting this.The Commission stated in its full action plan document: “Evidence suggests that institutional investors and asset managers still do not systematically consider sustainability factors and risks in the investment process.”According to EFAMA, however, evidence suggested that integration of sustainability factors had increased in the market over recent years.
The International Financial Reporting Standards (IFRS) Foundation has questioned a push from the EU to make changes to its accounting rules.The Foundation has issued a call for stakeholders to respond to a European Commission consultation on a possible power to allow the bloc to adapt IFRS for the EU.It warned that any bid to develop a localised version of IFRS could undermine the G20’s objective of creating a single set of global accounting standards.In a statement posted on its website , it said: “It is not clear why the EU would consider departing from this goal at a time when the EU is rightly concerned about global economic standards being under tremendous pressure more generally.” Under existing legislation governing the use of IFRS in the EU, although the Commission can carve out provisions, it is unable to add requirements.On 21 March the Commission published a questionnaire seeking feedback on a possible ‘carve in’ power along with other measures.The Commission described the move as a “fitness check” intended to assess the relevance of the EU’s public reporting framework.Question 19 of the survey asked whether it was “still appropriate that the [International Accounting Standards] regulation prevents the Commission from modifying [IFRS] given the different levels of commitment” to it across jurisdictions.Critics of plans to diverge from IFRS have argued that it could also harm the ability of EU companies listed in the US to file IFRS-compliant financial statements without the need to reconcile those accounts with US generally accepted accounting principles (GAAP).A carve-in could, however, allow the EU to make provision in its financial reporting framework for transactions covered poorly by existing IFRS rules, such as pension plans of the type popular in the Netherlands, Belgium and Switzerland.Prior to a rule change in 2007, IFRS-compliant foreign issuers were required to show the difference between their accounts and local GAAP in a number of key areas – among them pensions.Interested parties have until 21 July to comment on the measures.New IASB framework reintroduces prudence conceptThe International Accounting Standards Board (IASB) has announced the release of its revised conceptual framework .In it, the IASB has reintroduced a reference to prudence, describing it as enhancing characteristics of the concept of accounting neutrality.The project to revise the framework has been keenly followed by the Local Authority Pension Fund Forum (LAPFF), which represents public sector funds in the UK.The LAPFF lobbied the board to reintroduce the concept of prudence into the framework after it was removed in 2010, in part to align the IFRS with US standards.Critics of the move argued that its removal from the framework could lead the board to develop accounting standards that were inherently imprudent in their nature.Opponents of the concept, however, claim that it creates secret reserves in the accounts that are unavailable to shareholders.FRC rebuts LAPFF criticismMeanwhile, the UK’s Financial Reporting Council (FRC) has hit back at a call from the LAPFF for it to be scrapped .Sir Win Bischoff, chair of the accounting watchdog, wrote in a letter to the forum : “We are concerned… that there are a number of inaccuracies and errors in your published introductory remarks and are anxious to dispel these so that others have a more informed understanding.”The publication of the rebuttal statement follows the release of the FRC’s latest three-year strategy document .Among its plans for the next three years, the FRC said it would focus on directors’ obligations under section 172 of the Companies Act 2006 to promote the long-term success of their businesses.It planned to involve its Financial Reporting Lab in climate-change reporting, and said it wanted to “consider the longer term development of corporate reporting”, which was described as covering “the role, purpose and relevance of the annual report in its current form”.
But the culture of entrepreneurism and the American dream actually began in England 70 years before the Mayflower set sail. England was then a small kingdom at the margin of Europe, relatively insignificant in world affairs, facing an existential struggle for survival.Over the course of three generations, a constellation of courtiers, intellectuals, scientists, artists, buccaneers and some of England’s most prosperous merchants “masterminded a relentless series of commercial enterprises dedicated to discovery, exploration, development and settlement”.The book offers a detailed description of the forces that drove the initial explorers such as Sir Walter Raleigh and a host of others to North America. It tells the stories of the early attempts by merchants to pool resources to invest in highly speculative and often unsuccessful ventures to develop more trade and markets for England’s, primarily wool, products.Initially, this entailed trying to find westward routes to the fabled Cathay, trying to emulate earlier explorers who had successfully established trading links with the emerging Russia and founded the Muscovy Company. For the commercial sponsors of the voyages, what mattered was what tradable products could be brought back for sale. There were even unsuccessful attempts to find gold in North America to emulate the astounding success of the Spanish in central and South America.Finally, in 1607, the first colony, Jamestown, was established with the realisation that there were advantages to be had in establishing colonies in North America which could be self-sufficient through agriculture and trade and ultimate highly profitable through crops such as tobacco in Virginia.Targett, as well as being an award-winning journalist, also holds a doctorate in history and perhaps this is reflected in the immensely detailed descriptions of events. The book itself introduces so many characters that there are 12 pages just devoted to listing them out, and a further 50 pages of bibliography and notes. There are also many themes including the origins and development of American culture that could be worth exploring further.Butman and Targett’s book certainly has much of the raw material. Perhaps there is a case for exploring some of them separately in future articles by the authors. What the book does succeed in is in making a strong argument that the culture of entrepreneurism and risk taking that has made America great, was instilled in the country from its origins through the actions of English merchants. New World, Inc.John Butman & Simon TargettLittle, Brown & Co, 2018 Thanksgiving is the quintessential American holiday when the whole nation stops to celebrate the safe landing of the Pilgrim Fathers at Cape Cod in Massachusetts on 21 November 1620.The story of the Pilgrim Fathers has been turned into an American legend that has become a central theme to the identity and culture of the nation. But it was not always so. The story of the Pilgrims did not play such a central role in the American psyche until some 200 years after the first Thanksgiving in 1621 when the emigrants who had sailed on the Mayflower celebrated their survival after a harsh winter.What played a much more important role in defining American culture was not the retold fable of moral rectitude and national goodness exemplified by the Pilgrims, but instead the activities of English merchants. They were traders, and while not all may have been sinners, few if any would be regarded as saints. They overcame numerous hardships, disasters and setbacks to create commercial enterprises that ultimately allowed Britain’s American colonies to flourish. In so doing, they also laid the foundations of what later evolved into the British Empire. That is the premise of a new book entitled appropriately New World, Inc., by John Butman and Simon Targett.The authors argue that the commercial aspects that underlie the foundations of America have been downplayed or suppressed, and as a result this key aspect of the country’s national character has been largely erased from the picture. Instead, the championing of the Pilgrims as ideal Americans by statesmen such as Daniel Webster was done in the service of a greater cause, the destruction of the slave trade in the southern states. “It is not fit that the land of the Pilgrims should bear the shame of slavery any longer” he declared in December 1820. That, says the authors, marked the beginning of the “Pilgrim Century” during which the Pilgrim narrative was established as the founding story of America.
The UK government is likely to request an extension to the Article 50 negotiation period in order to secure parliamentary backing for its withdrawal agreement, according to fund managers.Politicians overwhelmingly rejected the agreement in a vote last night, leaving prime minister Theresa May facing a vote of no confidence today, and a difficult battle ahead to save her deal with the EU and garner support from lawmakers.A number of asset managers commenting in the past few hours have argued that, while abandoning Brexit entirely is unlikely, the prime minister may be forced to ask the EU for more time to pass the bill through parliament.Investors have also played down the likelihood of a ‘no deal’ outcome, given the growing opposition to such a scenario in parliament. Pieter Jansen, senior strategist for multi-asset, NN IP“Given the limited time and the lack of consensus, political experts believe it would be impossible for Theresa May to close the gap with some tweaks to the original deal and therefore making it difficult to reach an agreement before 29 March. As result, postponement of the withdrawal is becoming more likely.“UK equities have room to weaken significantly on negative news. We expect markets to stabilise either when a feasible solution appears or when it’s clear that the current deadlock will lead to postponement.“Currently, we have a cautious allocation to risky assets. A rise in uncertainty on the back of last night’s vote would therefore have a smaller impact on our portfolios. In addition, we have largely hedged our sterling exchange rate risks and hold moderate UK exposures.”David Lafferty, chief market strategist at Natixis Investment Managers:“From our view, the most likely outcome is that May acquiesces and either delays or revokes Article 50, effectively pushing the ‘pause button’ just before the train flies off the tracks. UK businesses and consumers should expect to live under continued uncertainty for quite a while longer.”David Zahn, head of European fixed income at Franklin Templeton: David Zahn, head of European fixed income, Franklin Templeton“Extending negotiations seems to us to be the most likely outcome. But it brings with it more uncertainty. Any extension has to be agreed unanimously by the other EU members. We’d expect some of them to seek particular concessions before agreeing. Plus, we’d question whether there’s enough time before 29 March to secure approval from 27 different parliaments.“Some rumours from Brussels suggest any extension would be limited, perhaps only until the summer. The two sides have been negotiating for two years and haven’t reached an agreement, so we’d question how much a two-month extension would change things. In addition, we recognise that markets don’t like uncertainty; extending Article 50 prolongs the uncertainty.”Bethany Payne, portfolio manager for global bonds at Janus Henderson:“While near-term developments may look supportive of a softer deal and compromise in the following days, it is hard to see a straight path to a final deal… What is clear is that it is highly likely that Article 50 will be delayed, to allow a grace period for the UK to be able to pass the necessary legislation that prevents it crashing out without a deal.”Richard Buxton, head of UK equities at Merian Global Investors:“Continuing uncertainty over Brexit will remain a significant ‘handbrake’ on the UK economy and UK stock market. Only when certainty over the UK’s future relationship with the EU emerges is business confidence and investment, and indeed consumer confidence, likely to return. Until such a time, the ‘handbrake’ will, I believe, remain obstinately jammed. Any extension of the Article 50 process would, in my view, simply perpetuate the present impasse.However, not all managers were as confident that the ‘no deal’ risk had diminished…Stefan Kreuzkamp, CIO at DWS: In her speech to politicians last night after the vote, May attempted to reassure that the government did not intend to “run down the clock to 29 March”. “That is not our strategy,” she said. “I have always believed that the best way forward is to leave in an orderly way with a good deal and have devoted much of the last two years negotiating such a deal.”However, Michel Barnier, the EU’s chief Brexit negotiator, warned that “the risk of a ‘no deal’ has never been so high”.“An orderly Brexit remains our absolute priority over the coming weeks,” he said. “However, as I speak, no scenario can be ruled out. This is particularly true of the scenario which we are trying to avoid: a ‘no deal’ scenario.”Other options are also still on the table, including a second referendum on EU membership or a general election, the latter most likely if the current government loses tonight’s ‘no confidence’ vote.Pieter Jansen, senior strategist for multi-asset at NN Investment Partners: Stefan Kreuzkamp, CIO, DWS“Like many of our peers, we continue to hope for an orderly exit of the United Kingdom from the EU. But the path to get there remains unclear, and in any case cobbled with plenty of hurdles.“We also have to acknowledge that the probability of a hard Brexit has increased. Even though the majority of British MPs claim that they want to avoid it, the whole Brexit process continues to be driven strongly by party interests.“Let’s remember: The whole endeavour began as a – failed – gamble under David Cameron. Why shouldn’t it eventually end up as that? The behaviour of British politicians to date has certainly not reduced our concerns in this regard.”Azad Zangana, senior European economist and strategist at Schroders:“If the UK has not made progress in securing a majority for a deal, then the EU is unlikely to support a delay without a clear mechanism to break the deadlock in the UK’s parliament. This could come in the form of a second referendum or a general election. “As European Parliamentary elections are due in May, the EU is keen not to have the UK’s membership spill over into the new term, unless the UK decides to remain permanently.“In our view, the risk of a ‘no deal’ or ‘cliff edge’ Brexit is probably as high as it has ever been. At the same time, the need for a general election or a second referendum to break the deadlock in parliament seems more apparent than ever.”
Some major asset owners remain unconvinced about the importance of diverse workforces, according to research by think tank New Financial.In a report published this month – Diversity from an Investor’s Perspective – the organisation said it had found a notable division in mindset between those that believed diversity was important and those that did not.“Despite pressure from government, regulators, peers and society to challenge a lack of diversity in the workforce, there is still a widely held and deeply entrenched belief in the investment industry that improving diversity compromises returns, and/or comes at a cost that is not worth paying,” it said.Some “believers” saw diversity as part of their fiduciary duty, New Financial said, but others feared a focus on diversity could be a violation of fiduciary duty. State Street’s ‘Fearless Girl’ statue was moved from Wall Street in New York to Paternoster Square in London, close to the London Stock ExchangeThe group’s report analysed responses from 100 asset owners around the world, and built on previous research into the subject published last year. The 2018 report found “broad consensus across the investment industry that diverse voices enhance investment performance by increasing diversity of thought, which in turn improves decision making, investment idea generation and guards against group think”.The 2019 report found that the most commonly cited reasons for improving workforce diversity were:to improve decision-making;to attract and retain talent;to innovate and compete;to reflect members and communities; andto enhance financial performance.New Financial said these reasons were “not mutually exclusive; rather they overlap and reinforce each other”.Research for the 2019 report – which was conducted with the UK’s Pensions and Lifetime Savings Association and supported by law firm Pinsent Masons – gathered information on asset owners that had been identified as “the most progressive on diversity”.European pension funds surveyed include the Greater Manchester Pension Fund, Alecta, Railpen and Rabobank Pensioenfonds. Progressive asset owners and the most forward-looking firms from other parts of the investment sector were developing and refining their messages to bring round sceptics, it said.“For those asset owners in our sample that said diversity enhances financial performance, the business case is clear,” the report said.However, many among the unconvinced wanted to see hard data showing that using diverse fund managers would improve returns. “Such a data set is a tricky proposition and the evidence is unclear,” New Financial stated.
An annual conference of UK local authority councillors, pension fund managers and finance directors was disrupted by climate change protestors earlier this week – but they were not the only ones seeking to shake up the status quo.Next week, the Cost Transparency Initiative (CTI) – the body set up by asset owners and managers to finalise and monitor cost disclosure models for institutional investors – is set to publish its first templates, according to the Pensions and Lifetime Savings Association’s (PLSA) Joe Dabrowski.In a session on costs, Dabrowski told conference delegates: “We are standing very much at the precipice of starting a new era next week, with forthcoming templates, reporting and guidelines from the CTI.”Backed by the PLSA, asset management industry group the Investment Association and the Local Government Pension Scheme’s (LGPS) advisory board, the CTI has already run pilot programmes with around 20 investors, Dabrowski said. “We are now at the point where we are pretty much ready to launch – and that is going to be a substantial change for everybody,” he said. “These [templates] will be the industry standard.” “We are standing very much at the precipice of starting a new era… These templates will be the industry standard”Joe Dabrowski, head of DB, LGPS and standards, PLSAThe work leading up to these templates has already had a substantial effect. Roger Phillips, chair of the LGPS Scheme Advisory Board, announced at the conference that the code of transparency it introduced two years ago had revealed investment costs of more than £1bn across the system.However, he was keen to emphasise the importance of the “narrative” around the figures, given the LGPS’ leading role in improving cost transparency in institutional investing. These were not new costs, Phillips said, but predominantly existing costs that had not been fully reported before.LGPS sheds light on investment costs…Chart MakerIn the space of five years reported investment costs have risen by more than 100%, from £504m in 2014 to £1,041m in the 12 months to the end of March 2018, the latest year for which data is available.However, as the LGPS has grown – English and Welsh schemes now have £275bn in assets between them – costs have not, it seems, grown at the same pace…. but fees remain relatively lowChart MakerAs the chart above shows, investment fees have grown as a proportion of assets under management, but much less steeply: by 11 basis points since 2014, and only 3bps since 2015.Another relative success story for LGPS funds, as Phillips reported, was falling administration costs. The cost per member has been volatile in recent years as local authorities have had to implement a shift from final salary to career average accrual, but even as overall membership has grown, the cost of administering LGPS benefits has fallen to £32.74, down almost 9% year on year.LGPS administration costs fallChart MakerData for 2019 will not emerge for a few months as individual LGPS funds prepare their reports, but it is likely to show another nominal increase, reflecting the increasing impact of the disclosure work. Proportionally costs may increase too, given volatile equity markets and growing exposure to illiquid assets, the fees for which are typically higher than for traditional listed assets.Phillips called on LGPS staff to “shout from the top of the mountain” about the system’s success in creating a workable cost disclosure tool that is now set to be rolled out across the UK pension sector.However, Dabrowski was keen to emphasise that the CTI’s work had only just begun.“It’s been a long journey for cost transparency, and the journey doesn’t stop next week,” he said. “It continues, it will evolve and emerge, undoubtedly, over time.”
Replacing the Netherlands’ current discount rate for liabilities could destroy the entire Dutch pensions system, prime minister Mark Rutte has warned. During a debate in parliament about the country’s 2020 budget last week, he contended that changing the discount rate method – from one based in interest rates to one based on expected future returns – could cause younger workers to reject the current principle of mandatory participation in a pension fund.Several political parties, including the Freedom Party (PVV), the Socialist Party (SP) and the party for the elderly (50Plus), had urged the cabinet to prevent looming pension cuts that could hit millions of savers from next year.Geert Wilders, the PVV’s leader, highlighted that raising the discount rate was one of the options that could prevent a reduction of pension rights and benefits. The Dutch sector scheme for the fashion industry is one of a growing number of pension funds facing benefit cuts from next yearThe case of the latter two has been triggered by their funding falling short of the minimum level, the “critical coverage ratio”, under which they cannot recover to the required minimum funding level within the next 10 years.The floor for this critical funding level has been raised by more than 6 percentage points to approximately 95% for ABP and PFZW as a consequence of new, lower assumptions for future returns.Cuts at the four largest Dutch sector schemes alone would affect 8m pension savers in total.The industry-wide pension funds for media staff (PNO Media, €6.6bn), textile and fashion workers (MITT, €3.7bn) and pharmacists (SPOA, €2bn) have issued warnings about possible cuts.In August, the coverage ratios of the €20.2bn scheme for the agricultural sector (BPL), the €7bn pension fund for the food industry (Levensmiddelen) and the €6.1bn scheme for the cleaning industry (Schoonmaak) all dropped below 95%.Multi-sector fund PGB had a coverage ratio of 95.8% at August-end, just above the safe level. A spokesperson for PGB said that its critical funding level, based on the new return parameters, was 94%.However, she emphasised that this was only an indication of the scheme’s position “as the level of both the discount rate and the critical funding ratio keeps on changing in the wake of fluctuating interest rates”.Robeco presents gloomier forecast for returns Dutch asset manager Robeco has published expectations for future returns that are significantly lower than the most recent assumptions applied to Dutch pension funds.Schemes must use new parameters set by the government to calculate their recovery plans as of 2020. These allow for net equity returns of 5.6%.However, Robeco forecast results of just 3.25% for the next five years.It added that investors were likely to see annual losses of 1.75% on government bonds from developed market economies in the same period.Robeco’s predictions for fixed income, however, were difficult to compare to the government’s, as the advisory committee for the parameters – chaired by former Dutch finance minister Jeroen Dijsselbloem – used a different method.If Robeco’s forecasts were to be applied to Dutch pension funds, their critical funding level would rise again by several percentage points, the asset manager said. He argued that pension funds had reported long-term returns that were much higher than the current discount rate of 2.2%.“ABP, for example, has achieved annual results of 7% on average during the past 20 years,” Wilders said. “It would be dangerous to only take returns into account while ignoring the long-term perspectives of the discount rate”Mark Rutte, Dutch prime ministerRutte, however, highlighted that pension funds’ returns could fluctuate significantly.“Good years, like 2016, alternate with bad ones, such as 2018, when ABP incurred a 2.3% loss,” he said. “Therefore, it would be dangerous to only take returns into account while ignoring the long-term perspectives of the discount rate.”The prime minister added that part of the returns of pension funds were due to the low interest rate environment and schemes’ search for yield as a consequence. In addition, despite the low interest rates, there were still pension funds with sufficient financial buffers that were able to grant inflation compensation.In his opinion, other pension funds should have to bite the bullet and apply rights cuts.However, the government also emphasised that it would assess the options to prevent “unnecessary” cuts, as urged by the entire parliament. Wouter Koolmees, the minister for social affairs, said he would discuss the subject with pension funds, employers and the trade unions.Number of pension funds facing cuts increasingMeanwhile, the number of pension funds – the larger industry-wide schemes in particular – facing cuts to pension rights is steadily increasing.Metal sector pension funds PMT (€77bn) and PME (€50bn) were already headed for rights discounts next year, and civil service scheme ABP (€431bn) and healthcare pension fund PFZW (€217bn) have also warned their participants of possible cuts in 2020.
Many in the pensions industry believe the auto-enrolment earnings trigger should be lowered.Gregg McClymont, director of policy at defined contribution master trust The People’s Pension, cited previous government analysis that lowering the auto-enrolment earnings trigger to the national insurance threshold of just over £6,000 was estimated to help an additional 1.2 million people save for their future, including those with multiple jobs currently ineligible.“A big majority of these people would be women, and a significant percentage from ethnic minorities, helping address stark gender and ethnicity pension gaps,” added McClymont, who is also a former Labour party pensions spokesman.Steve Webb, partner at LCP and a former UK pensions minister, has a different view on the earnings level triggering an auto-enrolment requirement.“The repeated freezing of the £10,000 threshold for automatic enrolment will be good news for lower-paid workers, more of whom will be brought into the scope of automatic enrolment as earnings rise,” he said.“This will be particularly true for those covered by the national living wage who have seen substantial real increases in recent years.”Speaking to IPE, Webb also said keeping the threshold at £10,000 made sense given the level of the state pension, which is just over £9,000.He also argued that lowering the threshold to around £6,000 would lead to a situation where individuals would be enrolled in workplace pension schemes only to make very small contributions – “pennies” – and that it was important to bear in mind that employers offering jobs on these wages were not sophisticated corporates but could include childminders, carers or possibly even private citizens.Webb said he did not want to dismiss the issue of individuals working multiple mini-jobs whose cumulative earnings would trigger auto-enrolment, but suggested this could be tackled by the UK’s tax, payments and customs authority.“HMRC could do something, through the national insurance system or through NEST,” he said. “It’s the one organisation that knows about both the jobs, and they have this thing called real time information, where employers are constantly telling them what they’re paying. It knows a lot more than it used to, quite quickly.”PIC completes capital raiseThe Pension Insurance Corporation (PIC) is to receive £750m in investment to support the specialist defined benefit insurer’s activity in the growing pension risk transfer market.The money was drummed up by PIC’s ultimate parent company in a previously announced capital raise.PIC has said it believes it to be the largest private capital raise in the UK over the last two years.Tracy Blackwell, CEO of PIC, said: “The money we have just raised from our long-term, supportive shareholders will allow us to help increased numbers of defined benefit pension scheme trustees move their risks to a specialist insurer, guaranteeing their members’ benefits for life.”This significant investment by our existing shareholders is a vote of confidence in our growth plans.”Nearly two-thirds (60%) of the total funds invested will be available to PIC’s parent company immediately, with the remaining 40% callable upon request before 26 January 2021.Consultants and insurers are estimating £30-40bn worth of pension risk transfer deals a year for the next few years in the UK, after a record year last year.Two deals for more than £2.7bn in total have been announced this year so far alongside a smaller, £2.3m buyout. For the seventh year running there will be no change to the auto-enrolment earnings trigger in the UK, it became clear last week.The earnings trigger will continue to be £10,000 (€12,017) for 2020-21. There is also no change to the lower and upper limit of the qualifying earnings band.In a written statement to parliament, Guy Opperman, minister for pensions and financial inclusion, said the main focus of this year’s annual review of the auto-enrolment thresholds was “to ensure the continued stability of the policy whilst learning from the April 2019 auto-enrolment contribution increase”.“We also want to ensure that our approach continues to enable individuals, for whom it makes economic sense, to save towards their pensions whilst also ensuring affordability for employers and government,” his statement continued.