The working group, led by the Dutch Ministry of Social Affairs and Labour, is working to improve the design of individual DC, including the possibility of remaining invested after retirement.At present, participants are obliged to buy annuities – a restriction that has led to lower pension outcomes, some experts have argued.In addition to PFZW, the working group consists of five undisclosed pension funds, including corporate schemes and industry-wide schemes.Borgdorff said that, while the topic of the study was “interesting”, the working group had yet to produce any concrete results.He also stressed that PFZW would not opt for individual DC going forward.“To us, the pension outcome takes precedence over all else,” he said.“We opt for the arrangement that yields the best pension outcome.” Individual defined contribution (DC) pensions could be of interest to industry-wide pension funds in the Netherlands, provided DC arrangements were upgraded to include risk sharing, according to Peter Borgdorff, director at healthcare scheme PFZW.Borgdorff said many within the pensions industry found it hard to consider individual pensions saving schemes, “as we are used to thinking in terms of a collective pot of money producing individual pension benefits”.PFZW’s director – also a member of a working group looking into the feasibility of various improvements to the DC market – said DC pensions required a “different mindset” but also presented “undeniable advantages”.He said these included clarity of ownership and the fact there was no transfer of capital between groups or generations, as trustee boards did not have discretionary authority over the content of individual savings.
Dutch pension funds’ average funding would increase by 2 percentage points as a result of the introduction of a new accounting mechanism for the coverage ratio, according to pensions advisers Mercer and Aon Hewitt.Both consultants looked at the effect of the introduction of the 12-month average of the coverage ratio – instead of the three-month average of interest rates – as part of the new financial assessment framework (FTK), which is to go into effect on 1 January.Mercer estimated that the average coverage ratio had increased by 1 percentage point to 110% in November, the same level reported at the end of 2013.In its monthly monitoring report, it estimated that, if interest rates and investment markets remained level, the average funding would fall by 2 percentage points to 108% in December. According to Aon Hewitt, average funding at the end of November was 109%.Dennis van Ek, an actuary at Mercer, said the new ultimate forward rate, which will also go into effect on 1 January, will come at the expense of 1 percentage point of the average coverage.He added that the expected average funding under the new rules would be 109% at the end of 2014.The coverage is expected to drop to 107% over the course of 2015, following the gradual decrease of the 12-month average effect, Van Ek said.Aon Hewitt estimated that the average coverage at year-end would be between 109% and 110%, if the new FTK rules were applied.However, the consultancy forecast that, if both interest rates and investment markets did not change, the funding would gradually decrease to 102% over 2015.Aon Hewitt based its calculations for the average coverage ratio on an investment mix of 54% fixed income, 32% equity, 8% property, 2% hedge funds and 4% liquid assets.Mercer derived its figures from the latest statistics from pensions supervisor De Nederlandsche Bank (DNB) on average funding, as well as asset allocation.It also factored in an average interest hedge of 37% and a currency hedge of 50%.Mercer further noted that the 30-year swap rate had dropped from 2.73% to an absolute low of 1.61% over the course of 2014.As a consequence, pension funds’ liabilities have jumped by approximately 15%.However, Van Ek pointed out that excellent returns on investments had largely offset this rise in liabilities.He added that, based on the current market rates, the funding of Dutch pension funds would be 106% on average at present.
Its investment portfolio returned 25.9%, mainly due to returns from its liability-driven investments (LDI) portfolio, with falling interest rates being the main driver.The fund’s non-LDI investments performed relatively well, and its allocation to growth assets returned 7% – with CIO Barry Kenneth highlighting global bond portfolios, equity and real estate as key contributors.The £22.6bn scheme generally measures performance against its liability benchmark, which the PPF outperformed by 2.5%, slightly down from the 2.9% in 2014.Chairman of the fund, Lady Barbara Judge, said the global macro environment remained a concern and warned that the PPF could not become “complacent”.“The global macro-economic environment and pension scheme funding remain volatile, which is reflected in the change in our probability of success,” she said.“We remain on track and committed to a prudent approach that strikes a balance between protecting compensation payments for current and future members.”At the end of March 2015, the PPF had the majority of its nearly £23bn in assets invested in debt instruments, which appreciated by more than £2.4bn in value over the course of the year.It also saw a significant increase in its directly held property assets, rising from £181m to £682m in 12 months. The inflows are likely to be a product of the PPF’s decision to build a physical hedging portfolio, rather than rely on derivatives.Kenneth told IPE last year that the amended strategy would see the so-called hybrid portfolio eventually account for 12.5% of assets, cash and bonds for 58%, alternatives 22.5% and equities 7%. The UK’s Pension Protection Fund (PPF) has seen its assets increase by 39% over the course of the last financial year, while its funding ratio rose to 115%.The lifeboat fund for pension schemes whose sponsoring employers have become insolvent saw 61 schemes join in the year to April 2015, bringing with them a total deficit of £322m (€440m).Despite this, the PPF managed to add 3 percentage points to its funding ratio.It did, however, see a 2-percentage-point drop in the probability of achieving self-sufficiency by 2030.
Greenwich’s local authority fund has awarded £200m (€230m) worth of mandates, as it completes the implementation of a new asset allocation.The local government pension scheme for the London borough of Greenwich has selected a manager for a £100m multi-asset absolute return mandate, and a second £100m emerging market equity mandate.The 10-year multi-asset mandate has been awarded to Invesco Perpetual, with the manager beating nine other applicants to the award. Greenwich said it was looking for a manager to outperform the three-month sterling LIBOR rate by a significant margin, defined as 3-5%.Fidelity beat a similar number of managers to the 10-year contract for the global emerging market equity mandate. The manager will be expected to outperform the MSCI EM index by 2-4%, placing the funds invested into an existing pooled vehicle. Overseas Equities35% Asset ClassTarget Multi-asset strategy10% Diversified alternatives10% UK equities 5% cap weighted15% The overseas exposure includes the 10% target allocation to emerging market equity but also a 15% passively managed global equity mandate and a 10% exposure to smart beta strategies.The two awards comes after BlackRock was hired for a £400m passive global equity mandate, and Partners Group put in charge of a £100m diversified alternatives mandate – part of £700m worth of new mandates handed out by Greenwich. UK Aggregate Bond Fund10% Emerging markets active10% Previously drawing its equity exposure from a UK equity and a general overseas exposure accounting for 45% of assets, the local government pension fund instead agreed to allocate 15% to UK equities and a further 35% to overseas equities.Greenwich’s revised strategic asset allocation Global equity passive15% Multi-asset credit10% Smart beta10% Greenwich strategic allocation Bonds20% Property10%
Netherlands’ Ministry of Social Affairs, Lombard Odier Investment Managers, Deutsche Asset Management, Wells Fargo Asset Management, Schroders, Insight, Mercer, London Business School, Origo, Aviva, Better FinanceNetherlands’ Ministry of Social Affairs – The Dutch government has named Wouter Koolmees as minister for social affairs and employment. He replaces Jetta Klijnsma, who has held the position since 2008. He is the financial spokesman for the D66 liberal democratic party, one of four parties making up the newly formed coalition. Tamara van Ark, of prime minister Mark Rutte’s VVD party, has been appointed state secretary for social affairs and employment.Klijnsma was recently nominated as the new Royal Commissioner of the Dutch province of Drenthe.Lombard Odier Investment Managers – The Swiss asset manager has hired Robert Schlichting from Deutsche Asset Management to lead its institutional sales for Germany and Austria. He has worked for a number of asset managers including Neuberger Berman, Schroders, BlackRock, Merrill Lynch Investment Managers and JP Morgan Asset Management. In addition, Lombard Odier has appointed Frank Stefes as head of third-party distribution sales for Germany and Austria. He joined the company in 2010 to oversee business development in the two countries.Wells Fargo Asset Management – Dan Morris is the US manager’s new global head of portfolio solutions within its multi-asset team. In his new role Morris is based in London and reports to Nicolaas Marais, president and head of multi-asset solutions. Morris was previously head of US portfolio solutions at Schroders, where he worked alongside Marais until the latter’s departure in January.Wells Fargo has also hired Martijn De Vree from Insight Investment and Frank Cooke from Mercer . Both report to Morris and are based in London. The team is completed by Jonathon Hobbs, who joined from BlackRock in July and also reports to Morris.London Business School Finance Faculty – The school has named three senior finance figures as executive fellows: Dominic Rossi, global CIO for equities at Fidelity International; Stan Beckers, chair of the AQR Asset Management Institute at London Business School and former member of the board of NN Group; and Tom Gosling, partner in PwC’s executive remuneration practice.“We are delighted that these three highly experienced and respected professionals are joining LBS as Executive Fellows of the Finance Faculty. Their appointment comes at a time when business in general, and finance in particular, is coming under close scrutiny for the role it plays in society,” said Professor Suleyman Basak, joint chair of finance at the business school.Origo – The not-for-profit fintech firm has appointed Anthony Rafferty as managing director. He will take on the role from 1 March 2018, succeeding Paul Pettitt. He is currently head of proposition for Aviva’s consumer platform. Rafferty will officially join Origo on 1 January, while Pettitt is set to depart on 28 February. Origo has been involved in the development of the pensions dashboard in the UK, a concept aimed at displaying all an individual’s savings and pension accounts in one palce.Better Finance – The Brussels-based lobby group has elected Jella Benner-Heinacher as president. She is currently the deputy chief executive of DSW, Germany’s oldest and largest association for private investors. “Working at the European level is certainly one of the most important, but also the most challenging, tasks in the field of investor protection,” she said. “Better Finance has to remain one of the strong voices in the future.”
The European Commission and the UK regulator have called for greater co-operation between the UK and the EU to prevent a possible “cliff edge” that could jeopardise the financial services sector across Europe.In a speech on Tuesday to the City of London, Valdis Dombrovskis, the European Commission’s vice-president responsible for financial regulation, said “supervisors need to work together” to avoid further disruption to pan-European financial services in the wake of Brexit.However, he offered a stark warning: “As vice-president in charge of financial stability, my message to all parties – firms and supervisors – is that they need to continue their work to prepare for all scenarios.”Dombrovskis’ comments echoed concerns raised earlier in the day by Andrew Bailey, CEO of the UK’s Financial Conduct Authority (FCA). Both men warned of the limitations of extending the existing “equivalence” regime, under which non-EU companies can access the single market, to the UK post-Brexit. Dombrovskis said that while “equivalence [was] not perfect…[it] has proven to be a pragmatic solution”.Bailey was unequivocal, saying he recognised that equivalence could “increase choice and competition in home markets” – but he added: “The current EU equivalence regime doesn’t best suit any of the parties.”Under the current system, the EU has more than 200 equivalence decisions across 30 non-EU jurisdictions.“For example, equivalence decisions in the derivatives and trading space have allowed European banks to service clients across the world and EU investors to access pools of liquidity anywhere in the world,” Bailey noted.However, the FCA chief said: “Mutual recognition, as [Brian Hayes MEP] suggests, would be the better way to establish the steady-state between the UK and the EU in future.”Avoiding a ‘no deal’ scenarioBoth men raised the spectre of the consequences of a failure to reach a final deal – even with a transition period in place until 31 December 2020.Dombrovskis said Brexit was already posing many challenges. “For the financial sector, the Commission’s first priority is to safeguard financial stability and ensure investor protection,” he said. “It is my duty to encourage you to take steps to prepare for all scenarios.”For Bailey, however, averting a cliff-edge scenario – “which we should all want to avoid” – was paramount. He welcomed the conditional agreement of the transition period.“This matters in financial services because the risks around contract continuity, data sharing and broader market disruption could jeopardise financial stability, the preservation of which is a shared objective of both sides,” he said.
Koolmees’ amendment was prompted by MPs who noted that the funding ratio of Aon’s Dutch pension fund had increased significantly after relocating to Belgium, and had objected to what they described as “supervisory arbitrage”.Answering questions from Steven Weyenberg, MP for the liberal democrats D66, Koolmees had argued that the amendment was allowed by the Treaty on the Functioning of the European Union, which stipulated that more than one member state had to be involved for free movement of services and capital.Van Meerten, however, contested the minister’s argument.The lawyer said he had already informed the government of a recent verdict from the European Court of Justice, which said that such an agreement was not needed.He said that he had therefore concluded that the same rules should apply for both cross-border and local collective value transfers.In his opinion, were the government to stick to this distinction, the consequence would be that participants would be able to refer to the same rules to potentially block a value transfer between schemes in the same country.A spokesman for the minister said that the verdict had to be assessed first before a response was possible.Since 1 January 2016, €4.3bn of pension assets have moved from the Netherlands to Belgium and Luxembourg.Recent data from the Belgian regulator indicated that assets from foreign schemes had boosted the country’s total assets by 18%. The Dutch cabinet’s decision to set stricter conditions to collective cross-border pension scheme transfers is in conflict with European rules, Hans van Meerten, professor of European pension law at Utrecht University, has claimed.Talking to IPE’s Dutch sister publication Pensioen Pro, Van Meerten questioned the decision by Wouter Koolmees, the minister for social affairs, to raise the bar for schemes seeking to move outside of the Netherlands.Under the updated rules — brought in as part of the Netherlands’ implementation of IORP II — a cross-border collective value transfer from the Netherlands can only go ahead if two-thirds of a pension fund’s participants agree.Prior to this, only the approval of a scheme’s accountability board was needed.
Source: EUL-R: Michel Barnier, Jean-Claude Juncker, and Donald Tusk arrive in Brussels on SundayIn the wake of the UK’s referendum on EU membership in 2016 a number of UK real estate funds were forced to close to redemptions as investors attempted to pull their money out.EU leaders signed off on a draft agreement on Sunday, while UK lawmakers will vote on whether or not to ratify the deal on 11 December.There has been significant opposition to the deal from all political parties in the UK parliament, but in an impact assessment document published today the FCA said the draft withdrawal agreement was “preferable” to a ‘no deal’ scenario.An assessment from the Bank of England’s Financial Policy Committee, which monitors macroeconomic risks, found that the UK economy was “resilient” to the shock expected in the event of a no-deal Brexit, due to existing or pending legislation and other contingency planning.However, the FCA said the committee “noted that… significant asset repricing could test market functioning and affect the provision of market-based finance”.“Notably, market functioning could be impacted by high demand for liquidity, including from open-ended investment funds,” the FCA’s report said.The FCA’s EU Withdrawal Impact Assessment report is available here. The UK’s top financial regulator has warned of fragmented markets and liquidity shortfalls if the country exits the EU in March without a withdrawal agreement.Reduced liquidity could push up costs and make it harder to execute large transactions, the Financial Conduct Authority (FCA) said in a Brexit impact assessment report, published today.If no deal is agreed by the time the UK exits on 29 March, firms “may be unable to trade certain securities” between the UK and the European Economic Area (EEA), the FCA said.“This could lead to a fragmented market as UK and EEA firms would no longer be able to use the same pool of liquidity,” the regulator said. “Over time, this could have a harmful impact on financial services markets more widely, through reduced competition and increased costs for consumers in both the EEA and UK.” In some areas of the corporate bond markets liquidity has already fallen significantly since the financial crisis as capital requirements imposed on banks have reduced their role as intermediaries.
He added that this differed from pension funds’ aspirations, “who are often already focussing on the next step, such as better apps, financial planning tools and customer service”.The consultancy further concluded that most providers found managing their IT suppliers difficult.“Making sure that a supplier fulfills all of a pension fund’s wishes is a complex game, which not only requires IT expertise, but also commercial and legal knowledge,” IJmker explained .He argued that guiding external partners would become more important, as the survey also revealed a trend toward increased outsourcing by parties still depending on internal IT systems.The survey also showed that insufficient data quality could hamper the improvement of systems and achieving golas such as setting up financial planners.According to IJmker, this doesn’t necessarily mean that a scheme’s data are wrong.“The information could be insufficiently refined, or a pension fund could have poor access to the data,” he pointed out.The study didn’t identify the participating players. However, inquiries by Dutch pensions publication Pensioen Pro in 2018, disclosed that APG, PGGM, MN and AZL needed significant adjustments to their IT systems to cope with individual pensions accrual.At the time, implementing the changes would take up to four years and costs were estimated at up to tens of millions of euros. A survey by organisational consultancy Quint has suggested that nine out of 10 Dutch pension providers are anticipating fundamental adjustments to their IT systems in the coming years.The company, which surveyed 22 providers, insurers and pension funds with in-house administration, found that they mainly aim to improve data security, following a shift to individual pensions accrual in the new pensions system, as well as make use of more flexible systems.The providers intend to achieve their goals by using cloud services through outsourcing their server operations as well as developing or purchasing new software.“Many plans target improving operational quality,” said Arno IJmker, partner at Quint. “The majority of participants in the survey cited this as the focus of their strategy.”
Smart, one of the UK’s largest providers of workplace pensions through the Smart Pension Master Trust, has announced that Natixis Investment Managers has made a strategic investment in the company.The move follows previous investments from Legal & General Investment Management a few years ago and, most recently, from JP Morgan in February 2019 and from Australian administrator Link Group in November.Smart was launched in 2014 and started the Smart Pension Master Trust Smart a year later.It said it has grown rapidly, “helping tens of thousands of UK employers meet their auto enrolment obligations, as well as providing workplace savings technology solutions in Dubai and the Republic of Ireland”. As Smart now plans to enter the US and Australian markets, it said Natixis IM’s equity stake forms part of its ongoing preferred investment round to help position the fintech for “rapid international expansion”.Andrew Evans, Smart’s chief executive officer, said: “Natixis IM shares our vision of utilising digital technologies to help improve outcomes for all savers, and we look forward to working with Natixis IM as we build our platform to power the pensions of the future.”He said that having access to Natixis IM’s affiliate companies will help Smart develop more innovative investment solutions for its members, including the use of illiquid alternative solutions.Jean Raby, Natixis IM’s CEO, said the firm’s investment will help accelerate its growth in defined contribution pension markets in the UK and globally.“This investment is part of the ongoing commitment by Natixis IM to focus on the types of innovative platforms and business models that are leading change across our industry,” he added.To read the digital edition of IPE’s latest magazine click here.