The framework focuses on six areas – main characteristics of scheme design, governance, the people accountable for the scheme, ongoing governance and monitoring, administration and communication to members.It sets out a number of ‘control objectives’, based on many of the regulator’s DC principles and quality features, the two bodies said.Objectives on standards of practice for trustees should be underpinned by tough control procedures, they said.Andrew Warwick-Thompson, executive director for DC, governance and administration at the Pensions Regulator, said: “Gaining independent assurance will help manage confidence in this growing segment of the DC market and demonstrate the presence of governance and administration standards that meet our DC code and regulatory guidance.”Although the framework has been developed for master trusts, the regulator and the ICAEW said other larger DC schemes – such as group schemes – may want to adopt the framework as best practice.“The current regulatory landscape is a mess, with different regulators and different standards for different types of schemes.”The consultation closes on 16 December, with final guidance planned for publication in the spring of 2014.The NAPF said it welcomed the Pension Regulator and audit profession’s focus on improving the quality of master trusts, but criticised the excessive complexity of occupational pensions oversight in the UK.The association’s chief executive Joanne Segars said: “Master trusts are a good choice for employers looking for a scheme for auto-enrolment, and the sector is growing rapidly.”But she said there were very few barriers to setting up a master trust at the moment, and no guarantee they are all as well run as they should be.“The current regulatory landscape is a mess, with different regulators and different standards for different types of schemes,” she said.She said there was a risk that regulating one type of scheme more heavily would have unintended consequences, and that, with weak enforcement powers, there was no guarantee that badly run schemes would be forced to improve. “What is needed is a more radical overhaul of the regulation of workplace pension schemes with a single regulator, a greater focus on ensuring strong, independent governance and higher barriers to entry,” Segars said.She said the NAPF had already launched its Pension Quality Mark READY scheme to help employers identify good master trusts. UK accountants and the Pensions Regulator have set out their framework for ensuring the quality of defined contribution (DC) ‘master trusts’, which will form a key part of the country’s auto-enrolment occupational pensions system.But the National Association of Pension Funds (NAPF) said a more radical overhaul of workplace pensions regulation was needed.The Institute of Chartered Accountants in England and Wales (ICAEW) published a new draft assurance framework in conjunction with the Pensions Regulator, aimed at helping trustees of DC master trusts to show clients their scheme is well run.According to the draft, master trusts are expected to get independent assurance from a chartered accountant every year.
“Given the uncertainties as to the overall impact and potential for unintended consequences of applying an obligation on an employer to secure a minimum level of scheme funding in the event of the wind-up of a scheme, it was not considered appropriate to make provision for such a legislative obligation.“While some countries with very large defined benefit markets provide pension protection schemes, it was considered that such an approach was not appropriate in the Irish context.”Discussing late last year why the government had decided against debt upon the employer, the minister said there had been concerns it could “encourage imprudent behaviour by trustees if losses were seen as being backed, in effect, by a guarantee”.Speaking during the committee stage of the Social Welfare and Pensions (No. 2) Bill – the legislation that amended the wind-up order – she argued against a non-government amendment that would have imposed the debt, and said the changes could be seen as “unfair” on companies that had previously launched defined benefit funds voluntarily.“In Ireland, given the very small proportion of defined benefit schemes linked to employers that have a credit rating or another reliably accurate and consistent measure of solvency, it is not the case that a workable framework to apply a debt selectively on the employer is easily achievable,” she said.The issue of debt upon the employer came to the fore after the OECD last year recommended that sponsors not be allowed to abandon underfunded defined benefit schemes, while the notion of a pension protection scheme was once again debated after a European Court of Justice ruling that criticised the inadequate level of protection facing members of insolvent Irish employers. Ireland’s minister for Social Protection has said the potentially unintended consequences of imposing debt upon the employer stopped the government from introducing the changes last year.Labour’s Joan Burton said her department had considered “an obligation on employers to secure a minimum level of funding” prior to scheme wind-up as it drafted last year’s changes affecting the distribution of assets upon wind-up.Asked by a Socialist Party TD if she had any intention of introducing legislative changes that would emphasie the responsibility of pension fund sponsors to guarantee benefits, Burton countered that sponsors had “by and large made great efforts to support and deliver on the promise made to scheme members”.However, she ruled out any measure of debt upon the employer.
The European Central Bank’s recent decision to start a large-scale purchasing programme for government bonds will be bad news for Dutch pension funds, according to Mercer and Aon Hewitt.The consultancies pointed out that the liabilities of Dutch schemes were discounted against the three-month average of interest rates under an ultimate forward rate (UFR) of 4.2%, set by regulator De Nederlandsche Bank (DNB).Dennis van Ek, actuary at Mercer, observed that, during yesterday’s press conference in which Mario Draghi, the ECB’s president, clarified the quantitative easing (QE) measures, 30-year interest rate swaps dropped from 1.4% to 1.25%, only to settle at 1.31% in the evening.He warned that the ECB’s €2bn daily purchasing programme would have a structural downward effect on interest rates. “The causes of the currently low rates – low inflation, as well as the ECB’s policy of suppressing rates – are still present,” he said. “The purchasing programme will amplify this effect.”Van Ek referred to recent DNB statistics showing that Dutch pension funds were currently no more than 37% hedged when it came to interest risk. “This is not enough to keep up with a further decrease in interest rates,” he said.The €156bn healthcare scheme PFZW recently confirmed that its funding fell from 105% to 102% in December as a consequence of falling interest rates.Frank Driessen, head actuary at Aon Hewitt, agreed that the ECB’s measures were likely to come as bad news for pension funds.“Interest rates could drop further, causing pension funds’ liabilities to rise further,” he said, adding that it was uncertain whether rising equity and bond markets could fully compensate for such an increase in liabilities.However, Driessen indicated that his biggest concern was the potential effect of falling interest rates on the UFR for discounting liabilities.“The application of the current UFR keeps pension funds’ coverage ratios artificially high,” he said. “At the moment, pension funds’ funding is less than 103% on average. However, based on the market rate, the average coverage would be at least 8 percentage points lower.”Meanwhile, Leonique van Houwelingen, head of BNY Mellon’s operations in the Netherlands, said the ECB’s measures would highlight the importance of interest hedging and increase schemes’ dependency on investment returns.“Where the larger pension funds could already have anticipated the possible consequences coming from the ECB measure in their investment strategies, not all pension funds will have taken timely actions to amend investment portfolios to mitigate the possible impact,” she said.
It would be short-sighted for any UK pension tracking service not to work in conjunction with the proposed European tracking service (ETS) unveiled last week, according to the UK’s People’s Pension.Nick Gannon, pensions management consultant at People’s Pension parent company B&CE, noted that the costs of tracking members if a system were not put in place would be significant.Speaking at the launch event for the TTYPE project – short for Track and Trace your Pension in Europe – Gannon said it would also be important that tracing services eventually established could step in to provide information to members that schemes currently had to send out, offering potential administrative savings.“It would be short-sighted for any national tracing service that is developed now not to have some kind of interface capability with a European tracing service,” he said at the launch. Gannon’s comments came the same day as the UK’s Financial Conduct Authority said it would push ahead with the creation of a Pensions Dashboard, which it said in December would be based on the Dutch website mijnpensioenoverzicht.nl.He added that, without such an ability to trace workers who had accrued a pot in the UK, only to return home or move to a third country, pension schemes would be left with the cost of tracking down each member come retirement. “There is a deferred cost aspect there,” Gannon said.People’s Pension parent company B&CE is a provider of benefits to the construction industry, a sector with a highly mobile and transient workforce.Gannon joked that, until a better UK member came along, B&CE was likely the consortium’s UK representative.However, it is understood that the organisation has not yet given a formal commitment to the project.It joins existing consortium members PKA, PGGM, APG and Mn.Germany’s SOKA Bau, the pension provider for the construction industry, cited the mobile nature of its workforce as one of the reasons it would also support the second phase of TTYPE to develop a detailed business model for the ETS.Peter Gramke, head of internal audit at the €4.2bn supplementary scheme, said SOKA would be able to provide a basis for testing the proposed ETS and offer up its expertise in dealing with the “very fragmented” German pensions market, which covers several different funded vehicles, book reserves and private savings options.“The project team would be able to judge quite early if the ideas and the methods and solutions will prove successful in the end, or what steps have to be taken to make it successful in the end,” he said.
It goes on to note the various factors that could impact the value of a currency – ranging from a country’s current account deficit, growth forecasts or budget deficit – and how these impact exchange rates over the short to medium term, even if a long-term equilibrium is eventually established.As an example, it cites the fact that, over the 15-year lifetime of the euro, from 1999 to the end of last year, it has only strengthened by 2.5% against the dollar.The statistic, however, masks the fact euro-based investors saw the purchasing power of their dollar assets decline by 48% from 2000 to April 2008, a trend that was nearly reversed in the years following to March 2015. Currency volatility associated with overseas equities has boosted returns for euro-denominated investors in seven of the last 13 years, according to Deutsche Asset and Wealth Management.In a research note looking at the impact of hedging currency exposure for both US and euro-denominated investors, the asset manager found that non-domestic currency boosted headline returns for US investors by 2%, when basing investment strategy around the MSCI World Index.The result was somewhat different for euro-denominated investors, with the MSCI World only 11.9% exposed to the single currency, with more than 57% of its exposure to US dollars and a further 8.6% to Japanese yen.The note says: “From a euro-based investor’s perspective, non-domestic currency exposure has outweighed the underlying equity market return in seven years of the last 13.”
He said he very much looked forward to working with him.For his part, Smith Hansen said he looked forward to offering his contribution to ATP, which he described as an important institution in Danish society.Before joining Sampension in 2007, Smith Hansen was head of ALM Analytics at Nordea Life and Pensions. Denmark’s ATP is filling the gap in its five-member group executive board with the appointment of Mads Smith Hansen, who has been named chief risk officer at the DKK690bn (€92.5bn) statutory pension fund.Smith Hansen comes to ATP from Danish labour-market pension fund Sampension, where he has been CFO since 2010.At ATP, he will fill the shoes of the previous chief risk officer and chief actuary Chresten Dengsøe, who left ATP in the early summer to become chief executive of Lægernes Pensionskasse, the Danish pension fund for doctors.Carsten Stendevad, chief executive at ATP, said: “Mads is a highly respected leader with deep financial experience.”
PGGM, AXA Investment Managers, Legal & General Investment ManagementPGGM – Erik van de Brake has been appointed as head of infrastructure. He will be responsible for 22 staff managing more than €7.5bn in assets and succeeds Frank Roeters van Lennep, who in September was appointed as CIO of private markets at the €200bn asset manager. Roeters van Lennep had succeeded Ruulke Bagijn, who left PGGM in May to become global head of real asset private equity at AXA Investment Managers-Real Assets.AXA Investment Managers – Marion Le Morhedec has been appointed head of business development for AXA IM Fixed Income after more than 10 years as a portfolio manager. She is stepping down from her role as head of the inflation-linked bond team, with Jonathan Baltora taking over. For the remainder of 2016, Le Morhedec will spend at least 50% of her time working with the global inflation team to ensure a smooth transition, AXA said. Baltora, who joined AXA in 2010, will become the lead portfolio manager on its global inflation strategies.Legal & General Investment Management (LGIM) – Aaron Meder has been appointed chief executive at LGIM America, while Anton Eser has been appointed CIO. Meder will transition into the role over the next few months, moving from London to Chicago. Eser, co-head of LGIM’s Global Fixed Income business, will succeed Meder when he takes up his new role in Chicago. Colin Reedie, head of Euro Credit, will replace Eser as co-head of Global Fixed Income, alongside John Bender, also CIO of US Fixed Income.
A UK pension scheme has for the first time been lifted out of an assessment period with the Pension Protection Fund (PPF) in a deal that secures members’ benefits in full. CovPress, a UK manufacturer that went into administration last September and whose pension scheme has been in a PPF assessment period, has been acquired by industrial group Liberty House in a deal reached overnight.The CovPress pension scheme is being transferred as part of the sale.Joint administrator of the deal, Eddie Williams of Grant Thornton, said: “This has avoided the scheme’s passing into the Pension Protection Fund through an ongoing employer, which we understand has never been previously achieved for a business in administration. This has been pivotal to the outcome of the administration.” Lane Clark & Peacock advised Liberty, and Timothy Sharples, partner at the pension specialists, said “the members of the pension scheme can now look forward to receiving their benefits in full rather than reduced benefits from the Pension Protection Fund”.A spokeswoman for the PPF said: “In this instance, we were not needed, as the purchaser of the Covpress business voluntarily agreed to take on responsibility for the pension scheme. This has achieved a better result for the scheme members and the PPF.”The PPF acts as a rescue fund for pension schemes whose sponsoring employers have gone into administration and do not have sufficient assets to pay benefits matching or exceeded PPF levels of compensation.Schemes go through an assessment period before entering the fund.There have been instances of other deals being struck to prevent UK pension schemes from falling into the PPF, such as that of the Uniq scheme in 2011 and MIRA Retirement Benefits Scheme in 2015, but these have been buyout deals with insurers and involved a reduction in member benefits, while still exceeding PPF compensation levels.Alex Waite, partner at LCP, told IPE these deals were sometimes referred to as “PPF plus” deals but that the CovPress case was unique because it constituted a full rescue. “This is unique because it is as if the scheme had never gone into the PPF assessment in the first place,” he said. “It doesn’t reduce member benefits, which has never been done before.”In other news, the UK’s Civil Aviation Authority (CAA) Pension Scheme has completed a £90m (€104m) buy-in deal with the Pension Insurance Corporation (PIC) in a second de-risking step.The CAA scheme provides defined benefits to the employees of the National Air Traffic Services and the CAA, and had assets of £2.2bn as at 31 March 2016.The deal with PIC, announced today, is the second de-risking transaction for the scheme, after it completed a £1.6bn bulk annuity with Rothesay Life in 2015.Aon Hewitt and Reed Smith advised the scheme.Paul Belok, partner in the former’s risk settlement group, highlighted the agreement of a price lock during an exclusivity period with PIC as a “particularly positive” feature of the transaction, as this meant the terms of the deal were not affected adversely by market movements during the relatively volatile period before the risk was transferred.Just Retirement today announced that it has completed a £36m medically underwritten bulk annuity deal covering the liabilities of fewer than 50 members of the defined benefit pension scheme of Aliaxis, an industrial company that makes products such as electrical ducts and conduits, and draining systems.Meanwhile, providers of stewardship advisory services have been selected for a new National Framework Agreement available for use by administering authorities of UK local authority pension schemes and other public sector pension bodies.Norfolk County Council ran an EU procurement process on behalf of several local government pension schemes (LGPS) for a multi-provider framework that covers services split into five “lots”, mainly covering voting and engagement but also “stewardship research and data services” and “stewardship-related project services”.The providers that made the cut for various services were: BMO Global Asset Management, FTSE Russell, GES International, Glass Lewis Europe, Hermes EOS, Manifest information Services, Mercer, MSCI ESG Research, oekom research, Pension & Investment Research Consultants, Robeco Institutional Asset Management, Sustainalytics UK and Vigeo Eiris.Only with respect to one service category, for combined voting and engagement services, was no cut made; five offers were received, and five providers awarded a contract.Depending on the type of service they require, pension scheme administering authorities will either have to run a further competition between the providers named to the National Framework Agreement, or they are free to choose from the list based on a “supplier catalogue”.
Norges Bank Investment Management, which manages the Norwegian sovereign wealth fund, Europe’s largest institutional investor, has also waded into the debate. It called for CEOs to be paid in shares that were locked-in for 10 years.“Companies are clearly looking for investors to engage on pay,” said Michael Herskovich, head of corporate governance at BNP Paribas Investment Partners. “Issuers are coming to us outside of voting season to hear what investors think.”In 2012, significant proportions of investors voted against pay packages at Aviva, Barclays, UBS, and Citigroup. At the time, such opposition was almost unprecedented.Iain Richards, head of responsible investment at Columbia Threadneedle, said it was “very, very likely” that the UK would see another shareholder spring this year as investors react against executive pay packages – and the people responsible for them.“If you have an issue with executive pay, shouldn’t you have an issue with the remuneration committee chair?” Richards said. “One of the characteristics I expect to see is a focus on the chairs of remuneration committees – taking responsibility for culture and approach, and being held to account for it.”Columbia Threadneedle voted against 23% of the remuneration proposals it saw last year, Richards said – and he expected a “marked uptick in voting action” in 2017.Hans-Christoph Hirt, co-head of Hermes Equity Ownership Services (Hermes EOS), added that this year was “probably as active as I’ve seen it”.“There’s a lot going on and a strong direction of travel,” Hirt said. However, he added that activity was unlikely to just focus around company AGMs as boards attempted to address shareholder concerns “behind the scenes”.Not just the shareholdersOther factors have also driven the uptick in engagement activity. Many companies in the UK face a binding vote on remuneration policy for the first time this year, after a rule requiring one every three years was introduced late in 2013.In addition, the Business, Energy, and Industrial Strategy (BEIS) committee – a group of politicians from the UK’s lower house of parliament – earlier this month published a green paper on corporate governance. In it, they called for a new approach to executive pay and for new rules to be implemented by the Financial Reporting Council (FRC).The BEIS committee said: “It is hardly consistent with [prime minister Theresa May’s] vision of an economy that works for everyone to see levels of pay for those at the top increasing at a rate that vastly exceeds increases for ordinary employees and which seemingly is at odds with the value created in the company.”The committee also called for boards to face a binding vote on pay within 12 months if more than 25% of shareholders voted against an initial proposal – an idea Columbia Threadneedle has supported.“If 25% of shareholders dissent on the remuneration report, you should then require it to be put to a binding vote next year,” Richards said. “They would then have 12 months to get their act together before a very public vote.”Linking pay and strategyCatherine Howarth, chief executive of ShareAction, said there was a “huge disconnect” between corporate profits and corporate pay.“In the last 20 years, particularly in the FTSE 100, pay has leapt ahead of shareholder returns,” she said.ShareAction’s activities this year will focus on the link between remuneration and corporate strategy, Howarth added. Major UK listed companies such as Shell and BP face “significant challenges” regarding climate change and carbon emissions in the next 10-20 years and “really need to prioritise their business strategies”, she said.The BEIS committee’s paper recommended that bonuses be aligned with “broader corporate responsibilities and company objectives”, and tasked the FRC with incorporating it into their forthcoming corporate governance work.“We’re saying shareholders should be engaging with boards of directors to see how they’re going to be successful investment in a low carbon world,” Howarth said.“The remuneration policy should be encouraging directors to focus on that. At the moment pay is linked to selling more oil and gas. We think that’s out of line with long-term strategy and requirements. We don’t think they are presenting to shareholders a plan that is long-term resilient.”The Pensions and Lifetime Savings Association last year set out tough new guidelines for voting on executive pay, while the Social Democrats party in Germany has made executive pay an important part of its election manifesto. The European Union is also considering introducing binding vote rules for remuneration at European listed companies.“The shareholder spring showed that investors overall are ready and do not hesitate to say ‘no’ or to put forward shareholder proposals,” said BNP Paribas’ Herskovich. “I would expect more and more markets to get binding votes on pay.” The public debate over executive pay at BP could be just the start of another ‘shareholder spring’, according to engagement experts.Listed companies are seeking investors’ feedback more than ever in a bid to avoid unfavourable headlines regarding executive pay, several investors told IPE.While headlines have trumpeted uprisings among disgruntled shareholders for each of the past five years, co-ordinated activities led by groups such as ShareAction in Europe and International Shareholder Services in the US indicate that 2017 could lead to significant results.At BP, CEO Bob Dudley has agreed to a pay cut this year following criticism of previous remuneration.
As a consequence, DNB had demanded measures to ensure sound management.Initially, the pension fund had played down the urgency for change, saying it would seek talks with similar schemes about setting up an APF.However, following further pressure from the supervisor, Rob van Pernis, the scheme’s chair, stepped down and was replaced by Heemskerk. Heemskerk led the Dutch pension fund of Royal Bank of Scotland when it joined the Centraal Beheer APF last year.At the moment Cindu’s board is negotiating with four APFs, according to Heemskerk.He said a potential problem was that the employer and unions were in conflict about the pensions accrual, which had been unilaterally reduced by the sponsor. However, the unions said that they were prepared to compromise.With a funding of almost 120% at July-end, the Pensioenfonds Cindu is financially relatively healthy. During the past 19 years, it has been able to grant 78% indexation based on the consumer index. A Dutch chemical company’s pension scheme is to join a general pension fund (APF) following pressure from supervisor De Nederlandsche Bank.DNB deemed the €173m pension fund of the former Chemische Industrie Uithoorn (Cindu) vulnerable because of ageing demographics and difficulties finding new board members, according to Jacco Heemskerk, the scheme’s new independent chairman.With just 74 active partipants but more than 1,000 pensioners and 435 deferred members, Cindu was on DNB’s list of “vulnerable and not sustainable” pension funds.The scheme had experienced difficulties coping with new legislation and finding new board members. Its annual report for 2016 showed that it didn’t comply with legislation or DNB’s code for pension funds on many issues. In addition, its investment cycle was not up to scratch and it also lacked compliance management.