Younger workers who favour abolishing the current Dutch system of average premiums for pension funds as it does not favour them are elitist and selfish, a professor of pensions law at Amsterdam’s Free University (VU) has argued.Erik Lutjens said during a debate on solidarity last week that those advocating for the abolition of the current premium rate would only see it benefit their own age group, without taking the interest of others into account.“They only focus on the disavantages of the average contribution approach, while they ignore its positive points. Moreover, they don’t look at the disavantages of ditching the average premium,” he said.Younger employees have become increasingly vocal in opposing the current contribution, a fixed percentage of workers’ salary. They argue that they are paying proportionally more for pensions accrual than older colleagues, while they are less likely to benefit at older age, because of increased labour mobility.Many advocating for a change would prefer a ‘degressive’ approach, which would allow them to accrue proportionally more pension rights at a younger age.Earlier, the Netherlands Bureau for Economic Policy Analysis (CPB) concluded that while the introduction of such new premium principles would be feasible, it may come at a costs of no less than €100bn.Lutjens pointed out that a degressive accrual would come at the expense of other groups, such as women who enter the labour market after their children have grown up, or people who have been tied up in long-term care and rejoin the work force later in life.“Would these groups then suddenly accrue a proportionally smaller pension,” he asked.“Insisting on a more direct link between the amount paid in and accrued, would also mean a bomb under the mandatory participation, and would push the system in the direction of individual DC,” the professor warned.However, in the opinion of Sandra Oostvriesland from law firm Baker McKenzie and also affiliated with PensioenLab, a think tank of young workers, it is the “unfair” subsidy from young to old, which threatens the system.She called for a hasty end to the average contribution.Martin de Gelder, head of pensions policy and actuarial business at pensions provider AGH, advocated a compromise, through investing the employers’ part of the contribution in the current system of collectivity and solidarity, while investing the workers’ part in an individual DC system.“The latter is approximately one-third of the total contribution, exactly the proportion that young workers pay too much through the subsidy they may recoup when they are older,” he explained.That said, De Gelder acknowledged that, under the current tax regime, his proposed solution is not possible.
AP2 has committed more than $1bn (€760m) to real assets, according to its half-yearly report.The second Swedish National Pension Fund announced respective commitments of $750m and $265m to agriculture real estate and US real estate.The commitments follow AP2’s 2013 decision to increase its investment in unlisted real estate from 10% to 15%.The larger of the two commitments was made to US fund manager TIAA-CREF, with Australia, Brazil and the US targeted for investment. In 2011, AP2 invested $250m with TIAA-CREF in a purpose-built venture, buying and managing agricultural assets and focusing primarily on grain production.At the time, AP2 said it made the decision to invest in agricultural real estate to provide stable returns with low correlation to its existing investments.The following year, AP2 and TIAA-CREF increased their commitments to the venture to $2bn, with Canadian investors also joining the Global Agriculture company.AP2’s second, smaller investment, meanwhile, is part of a joint venture with South Korean pension fund NPS and Tishman Speyer.The trio have worked together before.In late 2012, AP2 bought a 41% stake in property company US Office Holdings, jointly owned by NPS and Tishman Speyer.
It added that work would be undertaken to develop infrastructure further as an asset class and increase the amount of financing available to markets.The document also committed G20 members to lowering barriers to investment, boosting the pipeline of projects ready for investment and helping pair up investors and projects.As part of the initiative, the G20 will launch an infrastructure hub based in Sydney to coordinate global governments’ efforts.Against expectations, the G20 also said it supported “strong and effective action” on climate change but did not include any specific wording on cultivating a low-carbon economy.This is despite a report tabled at the G20 finance ministers meeting advising countries on how to factor climate risk into both public and private investment.Australia’s prime minister, Tony Abbott, has previously expressed a desire for the annual meeting to focus solely on job creation measures and resisted attempts by other countries to include the issue of climate change on the agenda.Those in favour of the matter being discussed in Brisbane have pointed to the need for the largest economies to reach a compromise ahead of next year’s climate conference in Paris, which aims to agree new and binding carbon-reduction targets.The Institutional Investor Group on Climate Change (IIGCC), which earlier this year called on governments to create a regulatory environment conducive to low-carbon investments, last week called for the topic of climate change to be part of the G20 agenda in Brisbane.The organisation’s chief executive Stephanie Pfeifer said leaders of the world’s largest economies should seize the momentum building in the wake of the US government’s joint announcement with China to cut carbon emissions and emphasise the importance of a global agreement.“Politicians have said the focus of the G20 is jobs, growth and security,” Pfeifer said. “Tackling climate change by moving to a low-carbon economy provides an opportunity to deliver all three.“Global investors need strong political signals about the direction of travel on climate change in order to invest in low-carbon assets. World leaders should not waste the opportunity to send these signals this weekend.”The OECD will be holding a conference on long-term investment policy in Paris on 26 November The world’s largest economies are to ensure regulation is not preventing pension funds and other institutions from investing in infrastructure under an agreement signed at the G20 summit.The meeting, held on Brisbane, Australia, saw the heads of government agree to implement the OECD’s high-level principles of long-term investment financing, which said public funding should not “crowd out” private long-term capital.In a communiqué announcing the G20 global infrastructure initiative, world leaders said they would look to increase the transparency and functioning of securitisation markets, a goal of the European Commission to attract funding to small and medium-sized enterprises.“These actions will assist in our goal to attract increased private sector financing for infrastructure investment and for small and medium enterprises,” the agreement said.
Craig Stevenson, senior investment consultant at Towers Watson, discusses where allocations to activist hedge funds should sit in pension fund portolios
Sweden’s central bank is to trial a more expansionary monetary policy at it launches its own asset purchase scheme and takes repo rates negative.Riksbank announced that it would cut repo rates by 10 basis points, resulting in a negative rate of 0.10%, and that it would begin buying SEK10bn (€1.05bn) worth of government bonds in a move branded “historic” by local financial group SEB.In a statement, SEB argued that the -0.10% rate should be seen as “a test balloon for negative rates”, with further decreases likely in the near future.It also argued that the asset purchase programme – which will see Riksbank buy SEK10bn of nominal Swedish debt with maturities of 1-5 years – was “not optimal”, despite declining inflation rates. It said it would maintain its expansionary monetary policy until its target measure of inflation – CPIF, which excludes energy prices – once again rose to 2% from its December level of 0.5%.The move comes less than a month after the European Central Bank announced it would launch its own €60bn a month asset purchase programme in March, with critics warning the changes in asset allocation would be “toxic” for pension funds.The negative interest rates recently introduced by the Swiss National Bank have also caused problems for local pension funds, with the institution recently ruling out protecting the industry from the pain of the move.Mats Glenhage, head of business finance at Swedish insurer Folksam, admitted the negative repo rate could impact the return of those saving into pensions, but predicted that the action would initially have a marginal impact.He further pointed to the insurer’s diversified portfolio as being able to offset any immediate impact.However, others were less relaxed about the central bank’s move.Speaking at the Terminsstart Pension conference in Stockholm, Nordea chief economist Annika Winsth said the rate cut would cause unnecessary concern, Pensionsnyheterna reported.Winsth added that both the rate decision and the move towards quantitative easing signalled a concern about an oncoming crisis, and that the bank did not believe there would be a recovery in the near future.SEB noted that many investors would have been surprised by Riksbank’s doveish decision but warned about having too great an expectation of the Swedish quantitative easing (QE) programme.“We don’t see scope for a Swedish QE programme to match the size of the ECBs, [and] we believe that EUR/SEK is close to peak,” it said.
“The stress test will retrieve valuable information on the sensitivity of IORPs (Institutions for Occupational Retirement Provision), sponsoring undertakings and members and beneficiaries to such a scenario,” Bernardino said.The regulator said it was running the stress test and the quantitative assessment alongside each other to minimise the burden on IORPs.Both exercises will run until 10 August, the deadline for data to be submitted to the national supervisory authorities (NSAs).On 19 May, there will be a workshop with participating IORPs, and a Q&A procedure for the institutes will go on between May and August.From the end of August into September, EIOPA will then carry out what it described as a centralised quality assurance of all submissions, and finally, in December 2015, it will publish the results of the stress test analysis.The stress test exercise will be conducted in seventeen European countries and cover both defined benefit (DB) and defined contribution (DC) pensions.EIOPA said it would use the quantitative assessment to gather data from pension funds on the potential uses of its controversial holistic balance sheet (HBS) idea – which critics have said is too standardised – within an EU-wide supervisory framework.The outcomes would, it said, help EIOPA in further developing its advice to the European Commission on EU solvency rules for IORPs.At the same time, EIOPA has published responses to the consultation it launched last year addressing further work on the solvency of IORPs.Among other things, the paper discussed possible uses of the HBS, such as an instrument to set funding requirements.The responses reveal many negative reactions to this idea from the pensions industry.The UK’s BT Pension Scheme questioned whether EIOPA’s proposed one-size-fits-all approach was the best way forward.“Developing and complying with a mandatory and prescriptive regime predicated on the use of a holistic balance sheet will inevitably be time-consuming and costly for IORPs,” it said, adding that it did not see that this would lead to better outcomes for IORPs or their members than the processes already used locally.On the sponsor side, umbrella employers’ association Gesamtmetall in Germany described applying more solvency requirements to pension funds via a “Solvency II-like” approach using the HBS methodology as “objectively unnecessary and counter-productive”.Jerry Moriarty, chief executive of the Irish Association of Pension Funds, told IPE: “Like most people in the pensions industry, we struggle to see why EIOPA is proceeding with the stress tests, since the European Commission has taken the issue of solvency away from the IORP review that’s currently taking place.“It seems to us this is going to cause quite a bit of work and cost to schemes but doesn’t add anything to the protection of schemes across Europe, as it’s largely an academic exercise.” The European Insurance and Occupational Pensions Authority (EIOPA) has announced details of its first stress test for occupational pension funds, as well as a quantitative assessment of the solvency of the institutions.The stress test is aimed at judging how resilient pension funds are to tough market scenarios, as well as a longevity scenario, the EU regulator said.Gabriel Bernardino, chair at EIOPA, said: “Pension funds are already experiencing a challenging environment with low interest rates and rising life expectancy.”He described the long period of low interest rates – combined with the fall in asset prices as risk-on financial markets had been reappraised – as a key vulnerability for the occupational pensions sector.
Sweden’s AP2 has urged Shell to leave several US and European industry groups it argues are obstructing a transition towards a low-carbon economy.In a letter organised by the UK’s ShareAction, the buffer fund and 18 other institutional investors – including the pension funds for the London borough of Enfield and employees of UK union UNISON – said the oil firm’s continued membership in the trade associations was “inconsistent with Shell’s evolving position on climate change”.Catherine Howarth, chief executive of ShareAction, argued that the trade associations were ”known to do companies’ dirty work when it comes to backroom lobbying on climate policy”.The signatories include a dozen institutions that backed a recent shareholder resolution for Shell to disclose how it would transition to a low-carbon economy – a resolution endorsed by the company’s management ahead of last month’s AGM. In the letter, signatories noted comments by Ben van Beurden, Shell’s chief executive, that it might leave the American Legislative Exchange Council (ALEC), which they argued had been “strongly obstructive” when it came to climate change policy.ALEC was one of a number of industry groups a recent report by the Policy Studies Institute of the University of Westminster said risked damaging its membership by espousing views contrary to firms’ public pronouncements.At the time, Howarth argued that such “Jekyll and Hyde behaviour” had to stop.The letter also urged Shell to reconsider its membership with European groups including FuelsEurope and BusinessEurope, which it said had put forward views that were “inconsistent” with the company’s recent statements on climate change.“It would appear these trade associations have lobbied to weaken two important pieces of legislation,” the letter continues, citing the European Commission’s 2030 policy on climate change and energy, as well as a revision of the European Union’s Emissions Trading System.Leaving the trade associations, which would follow in the footsteps of BP’s departure from ALEC and Unilever’s resignation from BusinessEurope, would “reassure” shareholders Shell’s climate change policy would remain consistent, while also discrediting the associations.The company’s departure from industry groups would also provide a “counter-balance to the unhelpful positions these associations have historically taken on climate and energy policies”, the letter concludes.The letter comes ahead of December’s UN climate conference in Paris that is expected to see developed and emerging countries agree to a new carbon reduction target.
Sweden’s AP7 fund and its co-lead plaintiffs have reached a $150m (€138m) settlement with JP Morgan Chase, ending a 2012 securities class action over the trading and risk management activities at the heart of what has become known as the London Whale trading scandal.AP7, the government-backed default option for the premium pension system in Sweden, was lead plaintiff alongside US public pension funds from the states of Arkansas, Ohio and Oregon.Together, they have agreed to settle the class action for $150m in cash.Richard Gröttheim, chief executive at AP7, who oversaw the litigation on behalf of the scheme, said: “The settlement represents an excellent recovery for the class after more than three years of litigation. “AP7’s involvement in this matter illustrates its continued commitment to represent the interests of investors.” The settlement marks the end of a six-month mediation process and years of litigation, including the court’s certification of a class of investors.The case was initially filed in a New York district court in July 2012.The lead plaintiffs were appointed a month later and in April 2013 filed the complaint on which the mediation was based.The complaint alleged JP Morgan violated federal securities law by making false and misleading statements about the activities of its CIO and the extent of the risk posed by the so-called London Whale trades within the CIO’s synthetic credit portfolio.The complaint claimed these ultimately caused damage to investors.Carried out by a trader called Bruno Iksil, nicknamed the London Whale because of the size of his positions, the trades led to more than $6bn in losses for the US investment bank and nearly $1bn in fines from US and UK regulators.The Ohio state joint-lead plaintiff was the Public Employees Retirement System (OPERS).One of Sweden’s five buffer funds, AP1, recently announced that it was stepping down as lead plaintiff in a consolidated lawsuit against practices in so-called dark pools.
The European Commission has launched a consultation to help it decide whether there is a need for an EU framework for the amicable prevention and resolution of disputes between public authorities and investors.The main focus of the consultation is on mediation, which the Commission said could help ensure a cost-effective and quick resolution of disputes between investors and public authorities, and even prevent such problems.However, mediation did not appear to be used very much, it said.An alternative policy option, according to the Commission, could be to establish a network of national contact points, which would be responsible for providing advice and information to investors about the local legal environment relevant to their investment. These contact points could intervene on investors’ behalf with public authorities when complex legal or factual situations require such action. The Commission is also seeking views on where more awareness about the existing rights of cross-border EU investors is needed.It said there was “currently some degree of complexity and an apparent lack of awareness amongst a number of market participants, legal practitioners and the public authorities on the level of protection afforded to cross-border EU investors by EU law”.The Commission said it planned to provide guidance on existing EU rules for treatment of cross-border investments.The backdrop to the consultation is the Commission’s Capital Markets Union (CMU) project and the ambition to facilitate more cross-border investments in the EU.Commission vice-president Valdis Dombrovskis, responsible for financial stability, financial services and the CMU, said: “The single market already contains clear safeguards for setting up businesses or buying companies in other EU countries.“But for a well-functioning single market the adequate and amicable prevention and resolution of disputes could be a useful supplement to existing rules. This is why the Commission is exploring whether rules for the amicable resolution of investment disputes should be set up in order to save time and money both for EU investors and national authorities.”The consultation is open until 3 November 2017 and can be found here.
Chris Sier, co-founder of ClearGlass and one of the architects of the UK’s new institutional cost transparency code, said: “The response from asset managers has been very encouraging and certainly better than we had anticipated.“We are keen to acknowledge the stand-out performance of these four firms in particular as each, in its own way, has proven itself to be totally committed to the cause of full cost transparency at the earliest possible opportunity.”Baillie Gifford, LGIM, Majedie and MFS all supported a previous incarnation of the disclosure code introduced by the Local Government Pension Scheme. Baillie Gifford director Piers Lowson and Majedie director James Mowat were members of the industry-wide Institutional Disclosure Working Group that came up with the disclosure templates now in use.This article was amended on 10 May to add James Mowat as a member of the IDWG. ClearGlass, a provider of investment cost analysis tools, has praised a quartet of asset managers for “exceptional commitment” to complying with new UK disclosure standards.Baillie Gifford, Legal & General Investment Management (LGIM), Majedie Asset Management and MFS “distinguished themselves by seeking pre-compliance, leveraging internal development teams to rapidly develop the ability to collect data, asking detailed and insightful questions, and/or by returning data within incredibly short timeframes”, ClearGlass said in a statement.The company has analysed costs based on data from 105 asset managers, acting on behalf of UK pension funds. Five investment groups declined to provide data to ClearGlass, it said – although it has refused to name them.“ClearGlass is not at liberty to reveal the names of the five managers who have so far declined to provide any data, as this is a matter for the pension clients of these asset managers and… regulators,” the analytics firm said.