Home » 2020 » September

Law Commission should offer clarity, avoid fiduciary duty statute – NAPF

first_imgIn its response to the Law Commission’s consultation on fiduciary duties, the association said it was unconvinced of the need for a statutory underpinning for fiduciary duties.“Instead, the Law Commission may wish to consider producing an open letter that could be sent to trustees and investment intermediaries summarising the key conclusions,” it said.“This exercise would benefit trustees by making it clearer they can consider wider factors such as ESG issues when making investment decisions, and that fulfilment of stewardship responsibilities is compatible – indeed, aligned – with a trustee’s fiduciary duty.”The Law Commission’s review of legal duties, announced last year, started a debate about the need to codify fiduciary duties, one that has led to warnings that any attempt to draw up primary legislation could not be a “magic solution”.The association’s response also touched on governance in defined contribution (DC) funds, arguing that contract-based schemes – run by the for-profit insurance industry – could still offer good member outcomes if they were well governed.It said that, to ensure good governance in such arrangements, employers should be obliged to “put in place a governance arrangement to support the interests of pension savers”.It also seemed uncertain if proposed provider-level governance boards would be effective in addressing the governance “vacuum”.“If Independent Governance Committees are formed,” the consultation said, “they should be constituted primarily to act on behalf of employers, who, as the purchasers, are the actors that should have responsibility for bringing in pension arrangements that offer value for money and also have the most influence over the provider (regardless of the fact that the employee holds the individual contract).”The Law Commission previously warned that legal duties were insufficient to protect the interest of DC members and said they needed to be enforced by an efficient regulatory system.,WebsitesWe are not responsible for the content of external sitesNAPF response to UK Law Commission review Rather than the Law Commission recommending greater clarity through statute, pension trustees and asset managers in the UK should be offered greater guidance on the scope of fiduciary duties, the National Association of Pension Funds (NAPF) has said.The association also said it accepted there was a governance “vacuum” in some contract-based pension arrangements that could harm member outcomes, but was unconvinced that proposed provider-level trustee boards were best way to solve the problem.Will Pomroy, corporate governance policy lead at the NAPF, said pension trustees already had a “good grasp” of fiduciary duties, and knew it was their responsibility to act in the best interest of their member.“The law as it is currently understood allows trustees to use their judgement and discretion appropriately,” he added. “This flexibility extends to the consideration of environmental, social and governance (ESG) factors and to the fulfilment of their stewardship responsibilities as set out within the UK Stewardship Code.”last_img read more

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Credit markets: The importance of agility

first_imgAgility should be the watchword in the new bond environment, according to Hermes Credit’s Mitch Reznick and Fraser LundieThere have been gradual but profound structural changes to the credit markets since the financial crisis. It is imperative credit managers recognise the world has changed and find ways to manage the new and rising risks.Although there is less systemic default risk and lower volatility within credit markets, the structural changes have opened up new risks to performance: liquidity, evolving bond structure, duration and idiosyncratic risks. To better manage these risks brought on by this structural change and to deliver outperformance, managers will need flexibility and to lean more heavily on a broader set of fixed income skills.The problem is that many credit fund managers must manage their funds according to narrow mandates and therefore lack the ability to access the pockets of relative value that emerge on a global basis, that more flexible investment mandates permit. Agility should be the watchword in the new bond environment. One of the risks in today’s low-volatility, rising-rate-concerned market is the crowded trade at the front of the credit curve, where one finds short duration and shortening maturity. Predicated on these rate rise fears, investors have heavily allocated to short-duration credit, allowing the pendulum to swing in the issuers’ favour.In the high-yield market, this ‘demand pull’ to feed these mandates has led to a surge in issuance of shorter-maturity, short-call bonds. Many of these have come from smaller companies that were once the province of the loan-market, but, because of bank deleveraging and demand, they have refinanced loans in the bond market.However, with more securities subject to shorter non-call periods, achieving long-term, equity-like returns with less volatility is more difficult. In addition, whatever idiosyncratic risks may exist in these names could be magnified given the paucity of trading liquidity compared with pre-crisis levels. Unexpected bad news could really catch some investors out. Managers must be more vigilant than ever of credit risks and deal structure.As for the risk of rising rates, making use of a broader set of debt instruments can mitigate these risks. For example, by hedging or using CDS, one can effectively manage for rising rates without having to enter what are potentially risky positions. Finally, because the dearth of liquidity will magnify any sell-off, we have managed the compression in the spreads between low and high-quality names by shifting to better credit quality, as one is not adequately compensated for the additional credit and liquidity risks. An effective way to compensate for not trading down in credit risk for yield is to manage on a global basis and look to emerging markets for opportunities.We have found that one can find spread-equivalent securities in higher-quality global emerging market names. These tend to be globally diversified, high-quality, double-BB, large-cap names, with revenue in US dollars. In the first part of the year, this has worked out very well. We have bought in India, Brazil and Russia – but the common defining characteristic is the robustness and global nature of the individual companies. We still see relative value here. There is, of course, some inherent emerging market risk, but this is compensated by the high quality of the companies to which we are gaining exposure. Cocos have been receiving much interest of late. And, while we appreciate their merits, their inherent structure raises some concerns for us, and we are not convinced many of these securities are priced appropriately. For the moment, we prefer more credit-friendly legacy capital securities, and US preference shares are an alternative.For US banks, preference shares perform a similar role to cocos and are favoured by the Federal Reserve as a means of building capital buffers. The securities are typically callable after 10 years, have non-cumulative coupons, and are issued out of the holding companies overseeing banking groups. As relative-value investors, we compared the dollar Wells Fargo 5.85% perpetual preference share, which is callable in 2023, with the BBVA 9% dollar perpetual coco, callable in 2018.The securities displayed similar valuations, but the Wells Fargo preference share has more bondholder-friendly terms. It offers less capital appreciation, but is less volatile and generates a higher Sharpe Ratio in both price and yield terms and should therefore deliver a better risk-adjusted return.Mitch Reznick and Fraser Lundie are co-heads of Hermes Creditlast_img read more

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Falkirk retains equity overweight despite commitment to alternatives

first_imgAn investment in social and affordable housing, which forms a standalone asset class outside of its 8% target allocation to alternatives, has also already seen over half of the £30m commitment drawn down by Heathstone Investments.Of that, £15m has been drawn down to invest in short-term debt to support social housing constructions and a further £1.8m to support the building of affordable housing.Falkirk added that its investment would eventually help build 191 social housing units across its catchment area.But according to the fund’s 2014-15 annual report, it said both commitments had been unable to lower its equity holdings below the 60% envisaged in its strategic asset allocation.“In spite of the significant allocation to alternatives, the Fund’s actual equity allocation [of 63%] has continued to exceed its strategic asset allocation due to the very strong performance of global equity markets over the past three years.“The Fund’s strategic allocation to all asset classes is being re-appraised in the ongoing review of investment strategy.” The Falkirk Council Pension Fund has remained overweight to equities despite increasing its exposure to alternatives, including investments in social housing and infrastructure.The £1.8bn (€2.4bn) Scottish local government pension scheme (LGPS), which returned over 13% last financial year, said it had recently completed its first infrastructure investment through a joint mandate with Lothian Pension Fund.It has earmarked a total of £30m for the venture with the fellow local LGPS, of which £2.75m had so far been committed to in a renewable energy fund overseen by Ancala Partners.The allocation has seen Ancala able to acquire Green Highland Renewables, owner of small-scale hydro power projects.last_img read more

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Finnish pension funds defend domestic investment stance

first_imgFor Finland to interest investors, he said, the country must make sure the market functions and that all aspects of the environment are attractive for investment. “I have been particularly worried about the competitiveness of Finnish industry, as well as the regulatory and tax environment affecting the owners,” he said.“The fact private ownership in listed companies has been hit by several tax hikes in the past is a particular concern.”Timo Ritakallio, president and chief executive of pensions insurance company Ilmarinen, said he did not agree Finnish investors were increasingly investing outside the country.“The Finnish pension investors have invested almost 30% of their equity investments in the Finnish equities,” he said.“The share of Finnish equity investments is only slightly lower level that it was 10 years ago.”Looking at other asset classes, particularly real estate, he acknowledged that Finnish pension insurers were increasingly diversifying their investments outside Finland, adding that this was also the case for Ilmarinen.Of its total investment assets of more than €37bn, 30% is invested in Finland.“Ilmarinen is, for example, a key anchor investor in several listed companies and a major infrastructure investor,” Ritakallio said.“Therefore, we do not see any need to increase the share of the Finnish investments in our investment portfolio.”Timo Viherkenttä, chief executive of state pension fund VER (Valtion Eläkerahasto), said those investors that had not started diversifying their investments internationally now seemed to be doing so.But he added that Finnish pension funds did have a substantial share of their investments in the domestic market, even though the funds are relatively big in comparison to the domestic investment universe.“However, it is our job to take care of the pension money in an efficient way that enables pensions to be financed without needlessly high contribution rates,” he said.This, he said, is the most direct way to help the Finnish economy.“There are sometimes too high hopes on how investment in the domestic market would bolster the economy,” Viherkenttä said.“If we think of buying shares in a domestic listed company, the mechanisms through which this would actually help our economy are pretty unclear.”Viherkenttä said the notion that the pension fund would nominate “patriotic” directors to the board, who would favour investing in the home country regardless of the investment calculus, was rather “disturbing”. Ritakallio said Ilmarinen’s goal was to keep pension contributions on a reasonable level and the Finnish national economy competitive. “Diversification is a key element in our investment strategy,” he said. Finnish pension funds VER and Ilmarinen have defended their levels of investment in the local economy in the face of concern that Finnish institutions are becoming less able to invest in domestic equities.Kari Järvinen, managing director of state investment company Solidium, expressed concerns that investment bias of consumers and corporations in the country away from Finland was working against a domestic economic recovery.He told IPE: “Life companies, pension companies and P/C (property and casualty insurance) companies all have a diminishing capacity for various regulatory and portfolio reasons to invest in Finnish equities.”He said Varma and Ilmarinen had both said that, for portfolio reasons, their share of Finnish equities was likely to be smaller in future, while KEVA was likely to be a net seller in the coming years due to pension outflows.last_img read more

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LAPFF presses FTSE companies to ignore ‘illegal’ FRC guidance

first_imgThe Local Authority Pension Fund Forum (LAPFF) has written to all UK FTSE 350 companies, advising them to ignore accounting guidance on distributable profits and the true and fair view issued by the UK’s audit watchdog, the Financial Reporting Council (FRC).Following the FRC’s guidance, the LAPFF warns, could mean “UK listed company accounts are at risk of being contrary to the requirements of the law”.The LAPFF has now enlisted not only top commercial barrister George Bompas QC in its bid to undermine the FRC’s position but also high-profile public-law specialist Cherie Booth QC.LAPFF chairman councillor Keiran Quinn said: “It should not have had to take a leading QC in company law, under instruction from a QC acting for public pension funds, to point out that the financial reporting regulator is reading the basic legislation wrongly. “But that is the essence of Mr Bompas’s further opinion – the law is not as the FRC, nor Mr Moore, have said it is.”The FRC strongly rejects the LAPFF position in the letter.In a statement, the FRC said: “[We are] aware the LAPFF has written to company chairmen. Their letter deals with a very narrow point of company law in terms we cannot support and raises uncertainty unnecessarily.“The FRC and the government have confirmed the Companies Act 2006 does not require the separate disclosure of a figure for distributable profits.”Meanwhile, the LAPFF letter to FTSE boards warns that a “correct interpretation of the company law is central to you and your fellow directors discharging your duties in an unimpeachable way”.It continues that “it can only be in your interest to follow advice that is not only correct but demonstrably independent from a defective position that seems to have taken root with the FRC’s position for whatever reason”.The move marks the latest salvo in an increasingly bitter war of words involving the FRC and leading players in the UK long-term investor community.The LAPFF is an umbrella body for some 65 UK public sector pension fund members, with approximately €235bn in assets under management.The organisation has for some time been concerned that what it says are defective IFRS accounting standards helped fuel and worsen the fallout from the financial crisis.The LAPFF position is broadly that IFRS accounts allow directors to pay out dividends from illusory profits, meaning shareholders’ equity is eroded.In June 2013, the LAPFF, together with Threadneedle Investment and USS Investment Management, published a barrister’s opinion from top commercial lawyer George Bompas QC.Bompas agreed that IFRS fails to protect the interests of providers of capital and does not comply with UK company law.The FRC hit back by posting a statement on its website declaring that Bompas was wrong.“On the specific issue of its legality,” the statement read, “the Department for Business (BIS) has today confirmed that the concerns expressed by some are misconceived.”Alongside this, the FRC obtained its own legal Opinion from Martin Moore QC, which, the watchdog said, “accords with” the BIS view.The LAPFF has pointed out that it merely wants companies to apply the letter of the law rather than rely on guidance documents from non-statutory bodies such as the Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland.The LAPFF also believes it is a conflict of interest for the FRC to rely on guidance from the ICAEW, which it regulates.As an example of an area of the law that the FRC has misapplied, the LAPFF points to what it says is a “defective version” of ‘true and fair view’.The LAPFF claims the FRC has applied this requirement to the accounts in general, rather than the specified items in the accounts as is actually required by Section 393 CA2006.“The LAPFF notes,” the letter reads, “that FRC literature transcribes Section 393 incorrectly, including in its model wording for the ‘Statement of Director Responsibilities’.”It concludes: “The mistaken position that results is that companies can keep two ‘sets of books’ in order to discharge the net asset and distributable profits tests of company law.“But this leaves shareholders and creditors in the dark as to what the fundamental position relevant to solvency and lawful profits actually is.”Ahead of the LAPFF move to publish the letter, the FRC’s Financial Reporting Lab last week released a report on dividend policy and practice disclosure.The report was the culmination of an 18-month project that took in contributions from 19 companies and 31 investors.This latest war of words between investor interests and the UK accounting establishment will be seen by some as underlining the long-standing tensions between the two camps.In April 2005, the chairman of the UK Accounting Standards Board, Ian Mackintosh, wrote in a letter to the Department of Trade and Industry: “Current restrictions on distributions create a rigid link between the amount that may legally be distributed and a company’s statutory accounts.“This creates an unnecessary obstacle to the development of financial reporting that has adopted as its focus the provision of information that is useful to participants in the capital markets.”Mackintosh, who is now deputy chairman of the International Accounting Standards Board, pressed for the law to be changed.He wrote: “In short, the Board is firmly of the view that outmoded and costly company law rules must swiftly be brought up to date to facilitate continued improvement in EU financial reporting, in line with IFRS, and to remove unwarranted burdens on business.”A full statement of the LAPFF’s position is available here.last_img read more

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West Midlands: Birmingham only council refusing to make top-up

first_imgA spokesman for Clancy said he was not refusing to pay but had stated that Birmingham could not find an additional £65m on top of £42m already paid this year towards the pension fund deficit.Clancy said: “The hard-pressed citizens and taxpayers in Birmingham should not be asked to find £65m a year to bail out investment fund managers.”He has published a book on the topic of what he argues are excessive fees paid to investment fund managers, particularly by public bodies.The WMPF said it was now in talks with all participating employers as part of the 2016 actuarial valuation, which reviews and resets employer contributions from April 2017.“As has been widely reported, the vast majority of pension funds are in deficit and face a challenge in generating sufficient investment return and contribution income to pay pensions,” it said.The WMPF said it had flagged up the potential increase in employer contribution rates three years ago, as well as earlier this year, giving employers time to work these into their financial plans.Clancy said the pension fund needed to “stop cosseting the investment fund managers who got us all into this mess in the first place”.He said the pension fund lived in another world, adding: “It needs to get real.”WMPF defended itself, saying it was recognised within the industry as a front runner in promoting transparency in the reporting of investment management costs.The fund said it was “voluntarily embracing and disclosing deeper layers of costs and working with CIPFA and the National LGPS Scheme Advisory Board to develop a code of transparency for asset managers”.Over the last three years, it said it has cut its own ongoing investment management costs by £35m a year, achieved by re-shaping the portfolio to focus on value-added, but without compromising risk and return opportunities.Over the same period, the WMPF said its assets had outperformed, adding more than £2bn in value and reducing the funding deficit by more than £280m. A spat between Birmingham City Council’s leader and the West Midlands Pension Fund (WMPF) over the top-up fee sponsors are due to pay to the scheme and external investment management fees has prompted the fund to defend its management costs.John Clancy, who leads Birmingham City Council – one of several UK local authority sponsors of the scheme – has been reported in the media as refusing to pay next year’s top up into the WMPF, saying he would use the £65m (€73m) to protect services from government funding cuts due next year.Ian Brookfield, councillor and chair of the pensions committee governing the WMPF, said on behalf of the administering authority: “We note the comments by the leader of Birmingham City Council, but his views do not represent the wider political leadership of the West Midlands. No other employer is refusing to pay employer contributions.”One newspaper reported that several Labour councillor trustees of the pension fund were “poised” to reject the £100m top-up fee requested by the fund’s professional advisers.last_img read more

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Joseph Mariathasan: Trumping the loss of manufacturing in the US

first_imgPerhaps the simplest way is to recognise that countries are unable to generate enough wealth for the population at large to enjoy the lifestyles and public benefits they have come to expect. Deficit financing means paying for current consumption by issuing debt. QE allowed that debt to be issued at low cost. But it has not resolved the problem that economies in developed markets are not producing enough decently paying jobs for populations to enjoy what they perceive are the levels of comfort they are entitled to, and certainly what previous generations have been enjoying.Emerging markets, by contrast, are in a phase where their economies are generally growing fast, existing populations have few if any social security benefits, and many are close to or below the poverty line. The future looks brighter for new generations that can still expect to do better than their parents and grandparents. Wage levels are sufficiently low as to be attractive to outsource manufacturing from developed markets. But even if Trump does put up tariff barriers to bring back manufacturing, countries such as China and India have sufficiently large domestic economies and numbers of consumers that they are perfectly capable of developing their already extensive manufacturing capabilities to supply the growing domestic consumer base.The problem for the developed nations is that being innovative has not been enough to create jobs for the population at large that pay decent wages. Apple may be the most valuable company in the world, but now it employs barely 80,000 direct jobs in the US compared with General Motors which at its height in 1979 employed more than 600,000 in the US. Service industries, rather than manufacturing, are seen as the post-industrial future for developed economies.The problem has been that the employment created has been concentrated at the McDonald’s end of labour rates. Rising inequality has been the characteristic of the US at a time of rising employment. QE has made the owners of capital more wealthy without having any noticeable impact on the creation of decently paying jobs to replace those lost through outsourcing manufacturing. Trump has come in promising that will change, and that is the hope that has driven so many to vote for him. But, unfortunately, for the US and the world at large, it is unclear whether he can change that without tipping the world into trade wars and possibly recession by imposing tariffs.QE caused massive outflows from emerging markets to developed ones, pushing up developed-market stock markets. The US has now seen a Trump-induced rally of its stock markets that has led to all-time highs. But if creating higher-quality jobs requires a greater focus on manufacturing – and if that can only be achieved through protectionist measures – then there is not an easy solution. Perhaps it is time to reconsider the merits of emerging markets.Joseph Mariathasan is a contributing editor at IPE Joseph Mariathasan questions the chances of bringing back high-quality jobs by focusing on manufacturingThe world anxiously awaits what a Donald Trump presidency in the US will actually bring beyond the populist, garbled and inconsistent rhetoric that has been the experience so far. His Cabinet appointees are a mega-wealthy collection of businessmen, including many Goldman Sachs alumni, which belies his campaign slogan of “draining the swamp”, referring to the Washington establishment.Fortunately, America’s greatest strengths may lie in the maturity and independence of the many competing sources of power to the White House. They will provide a brake on the exercise of presidential power, as Trump will find when it comes to actually exercising it – and as outgoing president Barack Obama also found to his cost, when it came to enacting legislation.The US still attracts the best in the world to come to study, work, set up businesses and become its citizens. Europe can only look in envy as European countries put up increasingly tough barriers to entry in an environment of economic malaise. Yet there are similar, deeply rooted problems for both Europe and the US that can be looked on in many different ways – an excess of debt, a loss of productivity, etc.last_img read more

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The small Dutch adviser influencing the UK’s biggest schemes

first_imgThe UK’s £25bn (€27.1bn) Railways Pension Scheme (Railpen) announced last month that it had hired Ortec Finance for performance attribution analysis.It is the latest major UK scheme to adopt the Dutch consultant’s attribution model, and it follows Ortec’s appointment to provide a similar service to the entire £256.8bn UK local government pension scheme (LGPS). It also counts two of the UK’s biggest pension funds – the Universities Superannuation Scheme and the BT Pension Scheme – among its clients.IPE spoke to Ortec’s UK managing director Lucas Vermeulen to find out what some of the UK’s (and Europe’s) largest investors were getting from the Rotterdam-based advisory firm.“If you are only analysing the reports from your asset managers, calculating returns compared to their benchmarks, that doesn’t take into account the decisions made before money is handed over,” Vermeulen says. “You have to analyse the bigger picture.” Making connections between performance and different points of the investment processThe approach has its roots in the early 1990s, when Dutch oil production giant Royal Dutch Shell approached Ortec seeking help with performance attribution within its pension schemes.“They were very early in understanding that you can’t use a bottom-up approach,” Vermeulen says. Instead, a “top-down” overview of the entire investment process was agreed to be more appropriate.He continues: “Custodians have [records of] all the transactions, but they don’t have the knowledge or understanding of how and why the transactions are produced. You have to go really into detail about how decisions are taken: look into complicated overlay structures, what you do with currency investment. When you can measure, you can start managing.”In making this move, Shell and the other schemes that followed this process have shifted away from focusing on provider reports and a “hiring and firing” approach. Instead, trustee boards and management committees have redirected their attention to longer-term themes and adopting the best internal structures to achieve their objectives.For example, when shifting assets from a UK equities manager to a US equities manager – regardless of the size of the investment involved or even the decision to manage in-house or externally – the pension scheme has to understand why it is making the decision and what value it is likely to provide, Vermeulen explains.“If you have a few managers that have reported decent performance compared with their benchmarks, in aggregate their contributions on a performance basis are strong, so you would assume you’ve done very well,” he says. “But overall the result could still be disappointing because the timing for moving money around could be bad. You can’t tell that from manager reports.” At the biggest schemes, which typically employ more complex processes, there are “multiple decision makers all contributing to overall investment returns”, he explains. For proper attribution of the value added at different points of the process – and to assess efficiency – schemes must “follow the flows, calculate profits and losses, and then you can calculate the values of all the agents in the process”.last_img read more

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IORP II will increase regulatory pressure on pension funds: consultant

first_imgShe added that pension funds, like banks and insurers, would probably also have to state an opinion about the way their required assets were calculated.At the session about governance and bureaucratic risks, Thissen said governance had become much more complicated during the past 10 years, and had led to the establishment of new supervisory bodies and risk committees.Thissen noted that the number of thematic surveys by supervisors had also risen significantly.Pension funds should expect an increase in international regulation, Thissen said, adding that Dutch regulator De Nederlandsche Bank (DNB) would intensify its supervision domestically.“Following the ongoing consolidation, players are becoming ever larger and, combined with population ageing, pension funds are increasingly posing a [systemic] risk to the Dutch economy,” she argued.Adri Jansen, actuary and trustee at six small and medium-sized pension fund, responded that increasing supervision would cause problems for this category of scheme.Although he said that all supervisory questionnaires made sense, he warned that board members were effectively “brought to their knees” as a result of new and highlighted regulation as well as the way in which rules are enforced by watchdogs.Jansen noted that DNB had started to more strictly enforce existing regulation, including the rules on IT policy.In his opinion, many trustees had lost sight of the overall view because of the amount of fragmented questionnaires they were required to complete. This came at the expense of their motivation to be involved with risk management, he said.He added that small schemes’ budget for advisory services was limited and questioned whether this would contribute to “well-considered policy”. The new IORP II pensions directive will further increase regulatory pressure on pension funds, a Dutch consultancy has warned.In addition to communication rules and factoring in environmental, social and governance (ESG) criteria into risk management policies, IORP II would also come with conditions similar to Solvency II for insurers, said Lonneke Thissen, partner at Sprenkels & Verschuren. It also brought a requirement for pension funds to provide their own risk evaluation every three years.Thissen was speaking at the annual conference of IPE’s sister publication Pensioen Pro. IORP II came into force in January this year, and affected funds have until January 2019 to comply.Thissen said that pension funds were also expected to create key functions for risk management, audit and actuarial matters.last_img read more

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Switzerland confirms CHF320m backstop for public sector fund

first_imgThe pledge was brought to light as a result of a change in the way the federal government accounts for employee benefits.A spokesman for the finance ministry told IPE that employee benefits were managed as a contingent liability until 2016, but as of last year they are accounted for and reported as liabilities.Switzerland’s government recognised the funding gap in 2011 and pledged to request the money to plug it in the event of underfunding at Publica. The fund’s coverage ratio has to fall below 100% for the pledge to be activated, in which case the government would have to apply to the federal parliament for the money to be released.The federal audit office’s report said the risk was high of this happening. “Due to the situation in the financial markets and the benefits that have been agreed, funding ratios are tending to decline,” it said. Swiss pension fund Publica could be in line for a CHF320m (€270m) payment from the federal government in the event of underfunding, according to a recent report from Switzerland’s federal audit office.The amount is to cover a longevity gap that arose during the financing of Publica, the pension fund for federal employees, in 2003. This was because provisions for longevity were not calculated on the most up-to-date technical basis.Dieter Stohler, director at Publica, welcomed the newly reported information about the pledge. He said Publica’s coverage ratio was well above 100%, but indicated that it would come under pressure next year as a result of the switch to a lower technical rate and different life expectancy assumptions.In the event of underfunding the government’s pledge could be meaningful, although it appeared parliament would still need to approve the funds, he added. Credit: Daniel Schwenlast_img read more

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