Lithuanian pension funds ‘surprised’ by contribution increases

first_imgWorkers who joined the second pillar in 2013 will have to make the additional contributions.Existing fund members had until 30 November to choose whether to make the additional contribution, opt out or just continue paying the base rate.The latter was also the default position for those who failed to make a notification.According to SoDra, the social insurance fund, the number of second-pillar participants willing to pay the additional contribution totalled 385,900 (35%) as of the end of November, including 52,500 new workforce entrants, while only 22,000 (2%) have opted out.Mindaugas Gedeikis, chairman of the Lithuanian Pension Funds Members Association, said: “We are somewhat positively surprised people opted for making additional contributions to the funded system more actively than we expected.“We initially anticipated that only some 10-20% of the pension funds’ members would choose to commit making additional contributions on top of the social taxes they have to pay.”According to Gedeikis, the factors that contributed to these decisions included the government subsidy, an active public debate and an official web-based calculator allowing individuals to estimate the impact of their choice on their pensions savings.“The most important reason that a vast part of the population chose to increase contributions to the funded pension system was the growing awareness of the public of the problems of the PAYG system in the face of demographic trends and populist political decisions that are major cause of the growing debt in the social budget,” he added.The high overall participation in the voluntary second pillar – some 85% of the working population – alongside the tiny share of opt-outs this year, sends a strong signal to the current centre-left government, which inherited and then passed the draft legislation from its centre-right predecessor in 2012.Prime minister Algirdas Butkevičius has stated that the government will not be abolishing the second pillar, but would look at revisions and improvements next year. Lithuania’s new second-pillar pension system has suffered relatively few defections, while a significant number of participants has proved willing to make extra contributions.In the existing second-pillar system, which is voluntary in Lithuania, members pay a base contribution – of 2.5% in 2013 – from gross wages.Under the new system, from 2014, the base rate falls to 2%, and existing fund members can make a further 1% in contributions, matched by a state subsidy of 1% of gross average wages.These additional contribution rates rise to 2% apiece in 2016-19.last_img read more

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UK roundup: Russell Investments, Pension Insurance Corporation, Hozelock Pension Scheme

first_img“Smart solutions that deliver efficiencies in the way our investment strategies are implemented are a critical consideration and representative of the way we think,” he said.Previous analysis by Russell of more than 150,000 FX deals showed investors were overpaying on fees by around 6 basis points.The manager said the platform could be made available to the broader pension fund community.In other news, Pension Insurance Corporation (PIC) has agreed to fund the refurbishment and construction of more than 1,000 homes in the Manchester area in a £74m deal.The arrangement, struck with Manchester City Council, sees the insurer act as a key investor in a PFI bond from the council.The bond is guaranteed by Assured Guaranty and was arranged by Lloyds Bank.This deal is in addition to the £72m agreed with neighbouring Salford City Council, taking PIC’s investment in social housing PFI deals in Greater Manchester to around £150m.PIC said it invested more than £2bn into the asset class during 2013.Allen Twyning, investment manager at PIC, said: “With more than £3bn of pension scheme liabilities insured in the past year, we are seeking to invest in assets with long-dated, stable cash-flows.”Lastly, the Hozelock Limited Pension and Assurance Scheme has appointed Aon Hewitt to provide actuarial, investment and pension management services.Aon takes over the £50m scheme, which supports around 750 members for the gardening tools manufacturer, as it looks to broaden its reach away from the larger pension schemes.Russell Agius, partner at Aon Hewitt, said it was clear medium-sized schemes needed the most appropriate advice, too.Trevor Austin, chair of trustees for the Hozelock scheme, added: “Aon Hewitt offered us actuarial and investment advice and the opportunity to gain access to the most up-to-date thinking. That is not always available to smaller schemes.” Russell Investments has launched a programme aiming to reduce the cost of foreign exchange (FX) trading for local government pension schemes.The FX Execution platform has already identified around £300,000 (€361,000) of savings on FX fees for the Cambridgeshire and Northamptonshire local authority pension schemes.Russell said the programme achieved savings through its competitive trade executive abilities and provided greater transparency and management of counterparty risk.Tolu Osekita, who is responsible for investment for the pension schemes, said the platform allowed the schemes to be smarter.last_img read more

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Agirc-Arrco reviews strategy ahead of expected fund manager reshuffle

first_imgThe General Inspectorate of Social Affairs (IGAS) issued a report in June 2013 on “Compulsory retirement systems’ investment control” and pointed to the existence of a number of “loopholes”.Without targeting Agirc-Arrco specifically, it criticised indirect investment through funds, which it said allowed French retirement institutions to own assets they would be prohibited from buying directly.It also questioned the preference for active management over indexing, claiming there was no evidence the former was superior and citing its higher volatility. IGAS also claimed active asset managers did not invest in securities “with a long-term perspective”, allowing them to receive “associated dividends or coupons”.To avoid arguments on this issue, Agirc-Arrco has already taken several steps.First, the GIE Agirc-Arrco central body has taken over the remaining Agirc reserves, calling on decentralised institutions to return assets this summer.Philippe Goubeault, CFO at Agirc-Arrco, said: “If Agirc reserves had been kept by the decentralised institutions, their median portfolio would have fallen to €40m.”Another step was an audit of Agirc-Arrco’s performance and asset-management outsourcing.Over the five-year period between 2009 and 2013, the scheme’s long-term reserves produce an average 6.15% a year – 6.18% at the central body level and 6.13% for the 23 decentralised institutions, half of them (12) being close to the average (more or less 0.5%), the other being split between six outperforming and five underperforming institutions.“Fees,” Goubeault said, “can be as low as 5 basis points (0.05%) on a €1bn fixed income portfolio, and up to 0.5% on a smaller dedicated equity fund.”Today, reserves are scattered among decentralised Agirc-Arrco institutions, and they outsource their investments to 182 fund managers, split among 49 providers of dedicated funds and 143 providers of open-ended funds.As a result, overall investment fees paid by Agirc-Arrco currently amount to approximately €140m a year.Even if it represents 0.20% of the managed assets, it is worth reviewing, as many fund managers now offer more competitive prices.IGAS controllers, for their report, asked Agirc-Arrco why it did not manage reserves at the centralised level, and while such a move would save on fees, it would also require more political will.Many French institutions have a conflict of interest where investment outsourcing is concerned, as they are tied to private sector partners owning asset management subsidiaries.Among the 49 managers of dedicated funds or mandates retained by Agirc-Arrco, seven belong to social protection groups controlling the decentralised Agirc-Arrco institutions.These ‘insiders’ managed €17bn for Agirc-Arrco at end of June, or one-third of the €51bn allocated to dedicated funds and mandates.The three largest ‘in-house’ fund managers were Federis (tied to Malakoff-Médéric decentralised institution) managing €8.1bn of Agirc-Arrco money, Agicam (AG2R La Mondiale) managing €7.9bn and SMA Gestion (Pro BTP) managing €1.4bn.As a comparison, the largest external fund managers were Groupama AM, with about €6bn in Agirc-Arrco money, HSBC AM (€5.5bn), Amundi AM (€3.9bn), Rothschild & Cie (€2.7bn), CPR AM (€2.5bn), Metropole Gestion (€2.3bn), Credit Mutuel CIC AM (€1.7bn), Schelcher Prince Gestion (€1.6bn) and Russell Investment (€1.2bn). French second-pillar pension fund Agirc-Arrco has reviewed its investment strategy ahead of a likely asset-management reshuffle, as economic and demographic constrains weight on retirement.Agirc-Arrco’s financial committee is set to review the findings of the review this November.The committee is expected to recommend concentrating investment into fewer hands, in a bit to reduce fees.Agirc-Arrco is keen to optimise every euro, as the financial crisis has taken a heavy toll on reserves.last_img read more

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Ortec designs ‘consolidation module’ for ABB schemes worldwide

first_imgShe added: “It looks at the diversification between various plans, the concentration risk, for example – the fact there is a lot of equity investments in some plans but not in others, in some countries the FX risk is higher, etcetera.”With this information, the group can then assess “how a decision on the country level will impact the group level and where it makes sense to make additional contributions or take other measures”.But Bourqui stressed that the pension boards in the countries still made the final strategic decisions, adding that “each of the pension funds is managed locally – the money is not pooled”.She and her team function as “a centre of excellence, as internal consultants in the group to reinforce governance and expertise in the countries”.Bourqui added it had been “a lot of work” over the last five years talking to ABB pension boards in the countries about the ALM vision, which is now being implemented within the various boards and investment committees.She also pointed out that the company was “trying to build a pool of managers we can trust to be able to then mandate in different countries”.In total, ABB has around 100 DB plans in 25 countries with $12.1bn (€8.9bn) in liabilities in total, as per year-end 2013.Pension assets stood at $10.9bn, with the lion’s share in Switzerland, Sweden, Finland, Germany, the US and the UK.Additionally, there are 40 DC plans in around 25 countries, including several emerging markets.Bourqui said that, even before she joined the group two years ago, ABB had taken de-risking measures, as pension liabilities were recognised as a “major risk”, including closing down defined benefit plans wherever possible to replace them with defined contribution or hybrid schemes. Swiss power and automation company ABB has taken further steps to better understand pension-plan risk from the global, group level while keeping individual country schemes decentralised.The group hired BNY Mellon as global custodian and “record keeper” in order to be “better able to track assets”, Elisabeth Bourqui, head of group pensions at ABB, told delegates at the Swiss Pension Conference in Geneva organised by the Swiss CFA Society.  Further, the company has used tools provided by Ortec to introduce a risk-management system in order to have a “consistent ALM over all pension funds while delivering an optimiser for the individual country-specific portfolios”, she said.Ortec has now constructed for ABB a “pioneer consolidation module” that “allows us to project funding levels into the future at the group-consolidating level over all plans and all liabilities”, Bourqui said.last_img read more

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EU accounting committee gives IFRS 9 green light for endorsement

first_imgNews of the ARC vote came in an updated status report from the European Financial Reporting Advisory Group.The ARC provides the European Commission with its opinions on proposals relating to the adopting of IFRSs under Article 3 of the IAS Regulation.The committee is made up of representatives drawn from the bloc’s member states, and it is chaired by the European Commission. Final endorsement of the new standard is now pencilled in for the end of the year.Listed companies throughout the EU, including banks, will apply IFRS for annual reporting periods beginning on or after 1 January 2018.The IASB launched its IFRS 9 project in 2009 in response to calls for it to reduce complexity in financial reporting and fix impairment.Critics of the board’s existing impairment rules in IAS 39 argue that its incurred-loss impairment model has meant banks have delayed recognition of losses on impaired assets.Among the most vocal critics of both IAS 39 and IFRS 9 has been the Local Authority Pension Fund Forum.The European Parliament has yet to endorse the new standard.Back in September 2015, IPE reported that well-placed sources close to the issue did not expect the Parliament to block IFRS 9 – despite recent sabre-rattling.Speaking on the condition of anonymity, the sources revealed that, rather than reject IFRS 9 in its entirety, the Parliament would instead vote on a non-binding own-initiative resolution of its ECON Committee that could be highly critical of both the IFRS Foundation and the IASB’s standards.Earlier this month, the Parliament’s Committee on Economic and Monetary Affairs issued a highly damning report on the London and Delaware-based foundation and board. The European Union’s Accounting Regulatory Committee has voted to recommend that the European Commission adopt the International Accounting Standards Board’s (IASB) proposed new financial instruments standard, International Financial Reporting Standard 9 (IFRS 9).The 27 June vote means the new financial instruments standard has now cleared its penultimate endorsement hurdle.All that stands between the new standard and its endorsement for application across the 28-nation European Union is a green light from the European Commission.The Commission is widely tipped to give the final go-ahead.last_img read more

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Auto-enrolment helps increase Italian pension membership

first_imgThe number of Italian workers enrolled in a supplementary pension scheme rose by 7.7% during 2016, according to COVIP, Italy’s pension regulator.Data released by the authority show that at the end of last year, Italian pension funds had €149bn of assets under management.The figures only take into account fondi negoziali (industry-wide pension schemes), open pension funds, and “new” PIPs (piani individuali pensionistici). Pension funds that predate the 1993 reform, “old” PIPs, and casse di previdenza (first-pillar pension schemes for white-collar workers) are excluded from the count.Assets managed by new PIPs and open pension funds grew fastest, adding 18.8% and 10.8%, to reach €23.8bn and €17bn of AUM respectively. Industry-wide pension schemes grew AUM by 8% to €45.9bn. Similarly, open pension funds and new PIPs saw a 9.5% and 10.5% increase in membership. Total membership for the two categories is now 1.26m and 2.87m respectively. Meanwhile, industry-wide pension schemes registered a 7.3% increase in membership, reaching a total of 2.56m members.Slower growth in membership at industry-wide schemes was despite the large increases in members of certain schemes, driven by a form of automatic enrolment. Under the terms of new labour agreements signed recently, some schemes, such as those serving the construction industry, automatically enrolled all members of the sector.However, only employer contributions are mandatory, and the increase in membership was not mirrored by a proportionate increase in assets.Discussions are taking place within other industries to implement similar forms of automatic enrolment.Meanwhile, PIPs and open pension schemes, which are generally sponsored by banks and other for-profit financial institutions, are adding members thanks to better information and marketing networks, Covip said.Italian workers badly need second-pillar pensions, as the replacement rate of state pensions decreases dramatically. Around 6.7m workers are covered by a second-pillar pensions, which equates to less than a third of the working population.In terms of pension fund investments, Covip said that all three categories of pension schemes covered by its report showed positive returns. Industry-wide pension schemes and open pension funds registered an average return of 2.7% and 2.2% respectively. New PIPs returned 3.6% on average. The results are net of asset management charges and taxes.Covip added that pension funds with higher exposure to equities performed better in 2016 compared to those with higher exposure to fixed income securities.The authority said returns were significantly higher than the revaluation rate of TFR (trattamento di fine rapporto), the severance pay fund. The TFR grew 1.6% net of tax during 2016.The TFR is a form of severance pay provided by employers, and is mandatory under most employment contracts. It is paid as a lump sum to workers at termination of employment. It is seen by the majority of Italian workers as the most convenient form of workplace pension. TFR is therefore used as a yardstick for how well pension schemes are doing.Workers who decide to contribute to a second-pillar pension deposit their TFR contributions, paid by their employers, into a pension scheme of their choice.last_img read more

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APG CEO van Gelderen to exit in August

first_imgAPG chief executive Eduard van Gelderen is to leave the Dutch asset manager in August to join the University of California’s investment team.Van Gelderen joined APG Asset Management – which is responsible for running €451bn of assets for pension fund clients – in 2010, initially as chief investment officer. He became CEO in 2014, succeeding Angelien Kemna.He will leave APG on 1 August, according to a press release from the Dutch group.Gerard van Olphen, CEO of APG Group, said: “With the departure of Eduard, we will lose a top investor and an excellent colleague. Under his management, APG AM has produced €100bn in returns for our pension funds and their participants. We understand the attractive challenges of this new role in the US and we wish him good luck.” Before joining APG, van Gelderen was deputy CIO at ING Investments, and has also been head of investments at Lombard Odier.He is to join a star-studded investment team overseeing $107bn (€96bn) in pension and endowment assets at the University of California’s Office of the Chief Investment Officer. Led by CIO Jagdeep Singh Bachher, the team also includes former US public pension chiefs and a former US treasury adviser.According to a memo published by the university yesterday, van Gelderen will be a senior managing director reporting to Bachher. He will be “product manager” for the university’s $56bn pension fund, and have oversight responsibilities for the team’s public equities investments – at $52bn, the largest allocation to one asset class.The memo also highlighted van Gelderen’s experience in real assets, an area the university wants to expand, and praised his contacts across Europe as a “key factor” in diversifying the portfolio geographically.Van Gelderen will remain at APG until 1 August to help the board “safeguard a careful and thorough transition”, the asset manager said. Bart Le Blanc, who chairs the APG Group’s supervisory board, added that the “international cooperation projects and internal innovation programs” van Gelderen had introduced would “serve APG for a long time”.last_img read more

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Netherlands sticks with pension age rise despite longevity trend

first_imgAt the start of the AOW system in 1957, Koolmees said, retirees received the state pension for an average of 14.7 years. By 2014, that had risen to 19.8 years. The Netherlands intends to press ahead with raising its retirement age to 67 in 2021, despite actuaries arguing that such a change is not necessary until 2026.Wouter Koolmees, the Dutch social affairs minister, responded to parliamentary questions about the retirement age rise last week.In 2013, politicians decided that the state pension – or AOW – age would rise to 67 in 2021. However, Gijs van Dijk, of the Dutch Labour party (PvdA), highlighted an article in financial newspaper FD quoting Dutch actuarial association Actuarieel Genootschap (AG), which stated that longevity of 65-year-olds had increased less rapidly than expected in recent years. However, Koolmees responded that the increase should be seen as ‘catching up’ with earlier trends. Life expectancy compared with the 1950s has risen sharply in the Netherlands, while the state pension age has remained 65 years for a long time.  Wouter Koolmees, social affairs ministerWith the increase in the state pension age to 67 in 2021, Dutch retirees will receive the benefit for roughly 18 years on average. The government intends to link the retirement age to life expectancy to maintain this duration from 2022.Those who retired between 2006 and 2020 would receive their state pension on average for longer than 18 years, the minister said.In addition to affordability, Koolmees also mentioned labour market arguments for raising the AOW. He said there had to be a balance between working people and pensioners in the Netherlands in order to guarantee that there would be a large enough workforce in the future.Koolmees acknowledged the actuaries’ argument but added that CBS, the Dutch government’s statistics body, believed the reduction in longevity improvements was temporary and life expectancy would continue to rise over time.In 2017 there were fewer retirees claiming the state pension for the first time than the Netherlands’ government had anticipated. This was expected to save the country €30m a year, according to government estimates, but Koolmees warned that such forecasts were uncertain.last_img read more

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LGPS to create compliance system for cost transparency code

first_imgLGPS funds and their providers are to transition to the CTI templates next year, but IPE understands that the compliance and reporting system the LGPS scheme advisory board is looking to establish is only intended for the LGPS, with the CTI yet to have decided on any kitemarks.Speaking at a media event last week, Jeff Houston, secretary to the SAB, said that once such a system was in place the board would then need a rule “to kick [managers] out of the code, and it’s probably going to be ‘three strikes and you’re out’”. The advisory board for the UK’s local government pension scheme (LGPS) has started the search for a provider to monitor and report on asset managers’ compliance with its cost transparency code.The scheme advisory board (SAB) said it was procuring a system “in order to fulfil its stated intention to police the code”. The LGPS was a major player in developing the UK’s new cost transparency reporting system.According to the tender notice, the board is looking for providers “who are able to design, build, host and support a system to validate/check for completion the templates received from the relevant fund managers for each of the relevant LGPS funds and/or pools”.The LGPS’ own cost transparency code was launched in May 2017, and helped pave the way for the formation of the Cost Transparency Initiative (CTI), an industry-wide body working on cost reporting standards for UK institutional investors. CTI templates are due to be unveiled in the coming weeks. The LGPS Code of Transparency badge“Part of making it public that you can be part of the code, and you can have the badge and use it in your marketing material… the other end of that process is ‘if you don’t do this we will very publicly take that off you’,” Houston said.As at last week, 117 managers were signed up the LGPS cost transparency code, representing the vast majority of the scheme’s managers, and listed assets of some £180bn (€208bn).Some managers have started to sign up to report costs in accordance with templates for alternative assets once these are ready.The contract for the cost transparency compliance and transparency system is for five years and is estimated at £500,000.The deadline for applications is 27 May. The SAB expects to award the contract during June and the core of the compliance system is likely to be operational by the end of 2019.Compliance system profileAccording to an SAB briefing note, the purpose of the compliance system was “to provide cost effective template data collection and LGPS Code compliance checking”.It would take the form of an online facility intended to:accept and store template data; check the timeliness of data submission and report late returns;ensure that data is signed off by managers as ‘true and fair’; andprovide a check against MiFID II cost figures submitted separately by managers to their LGPS clients.However, the system would also allow for some reporting and data comparison. For example, it could be used by LGPS clients to replace existing Excel format templates provided to them by managers, the tender notice said.In addition it could allow clients to “view a useful but limited set of on-screen reporting and comparison tools”, or give permission to other LGPS clients or trusted third parties to access and export their template data.The SAB said that in specifying the system it had “placed great emphasis on security and confidentiality”.last_img read more

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Dutch schemes fail to improve funding ratios in June

first_imgMercer, which uses a different method to calculate the coverage ratio, has already observed a 1% drop in the policy funding ratio to 106%. The average funding ratio based on the pure rate of market interest is now at 98%. Aon calculated the actual coverage ratio as 104%, while Mercer arrived at a figure of 102%. Aon argued that the current coverage was able to remain at the same level during June due to the recovery of stock markets, which offset the negative effect of the decreasing interest rate.  The financial position of Dutch pension funds did not improve in June, according to data from Aon and Mercer.The current funding ratio of schemes largely remained the same, but the average policy coverage ratio dropped further. Coverage ratios are the main factor in deciding whether schemes can link benefits to inflation, or even whether they must cut pension payments.Aon’s data showed that the average policy funding ratio was 107%, but given the sharp drop in coverage in May the consultant stated that pension cuts were becoming increasingly realistic. The policy funding ratio, which is a rolling 12-month average, would “decline even further in the coming months, since the higher funding ratios of the first half of 2018 will no longer be taken into account”, Aon said.  Metal industry schemes PME and PMT remain at risk of having to cut benefits from next yearBoth consultants noted that the interest rate in June fell by about 20 basis points. According to Mercer, the 30-year euro swap rate was 0.73%. Aon remarked that the ultimate forward rate, with which pension funds calculate the value of their liabilities, had a somewhat dampening effect on falling interest rates, and remained at 2.3%. Due to the drop in interest rates, however, liabilities increased on balance by more than 3.8% according to Aon. Mercer reported an increase of 3.4%. According to both advisers, developed and emerging market equities rose by 4% in June due to the expected easing of monetary policy by the European Central Bank and the US Federal Reserve. Investors who had hedged half the currency risk on the dollar, pound and yen would have recorded a gain of more than 5%. Aon stated that all risky investments increased in value last month. Corporate and high-yield bonds generated 1.6% and 2.5% respectively, due to falling credit risk and interest rates. As the value of long-term government bonds increased, fixed income allocations gained by 3.9%.Aon emphasised that the risk of cuts to pension entitlements was still real, especially for the big funds with a coverage ratio of around 100%. This was despite the relaxation of the rules for pension cuts introduced as part of the new pension agreement.Pension funds with funding levels under the required coverage ratio for five successive years – and with a ratio below 100% at the end of this year – will have to implement unconditional cuts in pension entitlements to enable them to return to 100%, the secretary of social affairs Wouter Koolmees stated in a letter to the Dutch parliament.This scenario is particularly likely for metal and engineering sector schemes PMT and PME, which had policy funding ratios of 101.2% and 100.2% respectively at the end of May. In May Dutch pension funds were faced with a drastic deterioration in their funding levels, as interest rates dropped by 10 basis points and stock markets fell, dragging down the average actual coverage ratio by 3 percentage points.last_img read more

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