The new upgrades follow a Commission finding that the rules laid down in the 1996 Directive “were not always correctly applied in practice by member states”.At the time of the Commission’s new proposal, commission president José Manuel Barroso said: “The European Commission is taking concrete action to stamp out the unacceptable abuses.”The DG itself writes that the proposed new safeguards would include raising the awareness of workers and companies about their rights and obligations; clamping down on ‘letter-box’ companies; and dealing with any administrative penalties and fines.The DG says the biggest ‘sending’ country is Poland, followed by Germany and France.Receiving counties include Germany, France, Belgium and the Netherlands.The next step for the draft will be further refinement of the text by the Parliament. EU member state governments have agreed in Brussels to clear legislation that upgrades workers’ rights, including pension rights, when their employer moves them from one jurisdiction to another.The revisions are to the Posting of Workers Directive, adopted in 1996, and in force since December 1999. The member state governments’ move, which still faces further steps, follows a proposal by the European Commission’s employment and social affairs DG in March 2012. The rules cover around 1.2m workers, mainly in the construction sector, who are ‘posted’ from their home country to work on contracts across national borders on a temporary basis.
A UK High Court judge has overturned the decision by the Deputy Pensions Ombudsman offering compensation to trustees after out-of-date data was used in a scheme’s levy calculation.The case refers to the West of England Ship Owners Insurance Services Limited Retirement Benefits Scheme’s 2010-11 Pension Protection Fund (PPF) levy, when failure-score provider Dun & Bradstreet (D&B) used dated accounts to calculate a failure score.The scheme’s sponsor is West of England Insurance Services, based in Luxembourg, with D&B’s local office charged with collecting the data used in failure-score calculations.However, D&B Luxembourg only used the accounts for the scheme sponsor up to 2007, on the premise trustees must submit up-to-date accounts. This resulted in the scheme’s 2010-11 levy being significantly higher than anticipated or required given sponsor guarantees and its risk of insolvency.After the trustees asked the PPF to reduce the levy using the current accounts and contingent assets, the lifeboat fund said it could not retrospectively change the score provided by D&B.After appealing the PPF’s decision to the Deputy Ombudsman, in February 2013 it was ruled that the PPF did have the right to make amendments to a score after it had been produced.The PPF was ordered to remove any interest payments on the delayed levy and provide £10,000 (€12,000) to the trustees for legal costs.However, taking the case to the High Court, the lifeboat scheme won its appeal against the Ombudsman’s decision.The court ruled the PPF did not have discretion to amend a failure score, or ask D&B to revise its score if calculated in its ordinary course of business.It said there was no scope in the levy determination for the PPF to depart from a failure score provided by D&B, and that it was not unreasonable for the PPF to set stringent rules in levy determination, some of which the trustees failed on.It was also not the PPF’s responsibility to consider whether D&B’s failure-score calculation was fair.A lawyer acting for the trustees said that, while it was helpful the PPF’s powers were clarified, the end result for trustees was a levy that could not be based on a sponsor’s true risk of insolvency.Lesley Browning, partner at law firm Norton Rose Fullbright, said: “Trustees and scheme employers must be careful to ensure D&B has up-to-date financial information at the relevant time.“It will be interesting to see how Experian’s appointment, and the proposal that a bespoke failure-score system will be developed, will affect trustees and employers.”Experian is expected to replace D&B as the PPF’s failure-score provider for the 2014-15 levy, providing a bespoke score system, details of which have been beset by delays.Nick Griggs, partner at consultancy Barnett Waddingham, said the case should act as a timely warning that data issues arising from the switch to Experian needed to be identified and addressed.”The issues are not directly related, but there is a clear parallel,” he said.Commenting on the case, a PPF spokesman said the lifeboat fund was pleased with the decision, as it underlined its approach to using the failure score.“It also underlines how important it is for all levy payers to engage with our insolvency risk provider to make sure they have all of the information,” he said. “This particularly remains the case when we move to a new insolvency risk provider.”
However, rising interest rates led to a 5.4% loss on its 44% fixed income allocation.This loss was the main reason behind the scheme’s overall return of 1.8% for the period, SPMS said.Steenvoorden attributed SPMS’s 5% loss on emerging market equities to slowing economies and rising interest rates, triggered by the US central bank’s tightening of its monetary policy.“Falling local currencies contributed to the investment loss,” he added.However, the director stressed that SPMS would not alter its investments in emerging markets.“We consider the disappointing performance as a temporary phenomenon and are positive about the long-term prospects,” he said.Hedge funds returned 8.5%, according to the pension fund, which noted marked performance gaps between various strategies.Steenvoorden declined to provide details on the strategies, but confirmed that returns ranged between 1% and 14%.The pension fund’s 10% property portfolio delivered an overall return of 0.2%, with European listed real estate returning 11%.By contrast, non-listed property and US listed real estate produced 1% and 2% losses last year.SPMS said that, on balance, rising interest rates had had a positive effect its financial position, as decreasing liabilities lead to a funding increase of 5 percentage points to 117% at year-end. The pension fund has granted all of its participants a 3% indexation. The €7bn pension fund for medical consultants (SPMS) in the Netherlands has reported a 50% return on its Japanese equity investments in 2013.Jeroen Steenvoorden, the scheme’s director, said: “Because we fully hedged the currency risk on the yen, we could fully benefit from the equity yield.” He added that, without currency cover, the net return in euros would have dropped to 22%.Meanwhile, SPMS’s 34% equity allocation generated a 17% return, with US and European equities returning 28.5% and 27.2% respectively.
PGB, the €19.3bn pension fund for the Dutch printing industry, has said a 30.7% return on its government bond holdings was the main contributor to its 18.3% overall return for 2014. As part of its preliminary figures, the scheme also reported a 20% annual return on its portfolio of alternative fixed income investments.Equity, infrastructure and property generated 15.9%, 13.6% and 5.6%, while credit delivered 7.4%, PGB said.It added that inflation-linked bonds (-1.2%) was the only loss-making asset class. PGB’s matching portfolio consists of 32% euro-denominated government bonds and 17.5% credit.The industry-wide scheme announced that it would gradually increase its current allocation to equity (30%) and alternatives (20%) to 55% combined this year.It said the decision was based on a survey into the risk-preparedness of its participants, as well as an asset-liability management study, which concluded that its investment mix could be improved.Rob Heerkens, a board member of the pension fund, said: “The ALM made clear that the new mix could achieve purchasing power for our participants of at least 90% by 2030.”He said that, given the scheme’s financial position and the rules of the new financial assessment framework (FTK), the indexation options would not be sufficient to keep up with inflation over the next 15 years.PGB also said it would gradually reduce the interest hedge on its liabilities from 50% to 45% over 2015.“We assume that larger interest movements, in particular during economic recovery in the mid term, are most likely to go up, as there is more upward margin,” Heerkens said. “The interest risk is becoming more and more asymmetric.” PGB closed the year 2014 with a funding ratio of 104.8%, which was, according to its board, insufficient for granting any indexation.Last year, PGB’s total number of participants and pensioners rose by 16,655 to 250,000.
One cause of the asset writedown was the use by some pension insurance companies of a less conservative risk premium in their discounted cash flow valuations of corporate bonds, resulting in overstated values.Another centred on investment properties. While the independent external reviewers used the market approach, the pension companies’ own valuers used either income, or a combination of income and market, or did not use comparable properties for valuation.In the case of investment in related parties, the reviewers concluded that there were none as defined by Bulgaria’s Social Insurance Code (SIC). However, they recommended that the SIC be expanded to include those parties defined in IAS (International Accounting Standard) 24. These include close family members of key management staff.Some pension companies should implement procedures to identify close family members of the board of directors of the pension companies and their parent bodies, the reviewers added.While no concerns came up concerning excessive credit, interest rate, liquidity, or foreign exchange risk exposure, the review noted that some companies have invested close to the investment limits laid down in the SIC, making them vulnerable to small changes in prices, and recommended bigger buffersThe review was initiated following recommendations by the European Commission’s “Country Report for Bulgaria” in February 2015. It was overseen by a steering committee that included representatives from the finance ministry, the central bank, FSC, European Commission, and the European Insurance and Occupational Pensions Authority (EIOPA).The scope of the exercise, carried out by three independent external reviewers, was to verify the existence of the assets under management, value them, and assess whether the valuation methodologies and other principles used complied with the legal framework.The review threw up some issues specific to Bulgaria, including the differences between the FSC’s Ordinance 9 rules for valuing pension assets and liabilities, and the international standard, IFRS 13, regarding fair-value measurement.The definitions of “active” and “inactive” markets also proved problematic given the thin trading and small number of active investors on the Bulgarian Stock Exchange.The FSC has told pension funds to adjust their net asset valuations as of, and since, 30 June 2016. The funds must confirm this by audit in accordance with IFRS principles, and reflect the changes in their financial statements. Bulgaria’s pension fund asset review, finally published by the Financial Supervision Commission (FSC) after months of delay, has given the sector a relatively clean bill of health but has forced a downward readjustment of some funds’ asset values.The review covered all 18 supplementary obligatory (universal and professional) pension funds and all nine supplementary voluntary funds, while excluding the voluntary occupational scheme.The asset valuation required a total downward adjustment of BGN33m (€16.9m), equivalent to 0.3% of the total asset value across all schemes in the review as of end-June 2016.Overall, the system was judged sustainable, with no issues identified regarding the location of assets, which were kept in custodian banks as required by law. Corporate governance was deemed appropriate, but the review identified some accounting and IT deficiencies.
Claus Wiinblad, ATP“We have a heritage as the largest Danish institutional investor, and we have always had very good relationships with the different companies that we invest in and have been building on that over a long period of time,” Wiinblad says. “I think the basis of the strategy is to combine the traditional research-driven bottom-up approach of looking at the individual companies and getting to know them, with being an active owner.”Active ownership is an increasingly important aspect of being an institutional investor. ATP has a variety of methods of getting involved in the companies it owns, Wiinblad says, including voting at annual general meetings (AGMs), bilateral meetings with management, and even through the press.“If we can actually move the companies to take what we think is the right approach, then that’s fantastic, but in the process we also get to know the companies better and can use that knowledge,” he adds.As an investor that is closely involved with many companies on its relatively small patch of home turf, does ATP’s knowledge of a company ever tip over into insider information?“It’s something we have to consider every time we meet up with people at a company – is there any knowledge we have gained here that crosses the line?” he says.There are numerous occasions when that knowledge does indeed cross the line. ATP’s compliance team has to keep a list of companies where that is the case, Wiinblad explains, and all staff are then forbidden from trading in those securities.“There are mostly one or two names on that list on an ongoing basis where we have become an insider,” he says.Even when possession of insider information is not at issue, could there be a danger of excessive loyalty to companies or their staff inhibiting ATP from acting as an independent investor?Wiinblad is clear: “Our first priority is the return to our members.”“That being said, we are fully aware and conscious that our investment strategy is different from that of a hedge fund, which might do a raid on a company and then be out three months later,” he says. “They don’t have a problem if they are in bad standing with the company, but we do take into account that we are long-term shareholders, and if there is a conflict, then we have to manage that conflict.”ATP announced a new policy of active ownership and voting on all listed equities in its latest annual report. It also updated its long-term policy and laid down certain principles and processes. In a new initiative in 2016, the pension fund said it voted at general meetings in all companies globally in which it holds listed equities.The fund’s presence and comments at AGMs in Denmark earlier this year were reported several times in the local media, but Wiinblad says the pension fund has not become more active as an owner.“It’s typical that we will try to express our opinion on remuneration, governance and strategic matters, and we have a list of topics on which we will express our views on an ongoing basis,” he says.“It also sends a signal to other companies that we are explicit about our position.“But our level of dialogue varies according to a particular company’s behaviour and results,” he says, concluding: “We don’t have to be active just for the sake of it.” Occupying a unique position as an investor in its domestic equities market, Denmark’s giant pension fund ATP – the fourth largest in Europe with DKK753bn (€101bn) of assets – has had to carve its own path as a return-seeking owner of local businesses.Its strategy has generated returns of more than 30% a year on average since 2013 from listed Danish shares, which made up roughly 13% of the fund’s investment portfolio at the end of June. In the first half of 2017 this allocation was the best performer in the portfolio, generating DKK4.1bn – more than a quarter of ATP’s H1 2017 investment return.Claus Wiinblad, the pension fund’s domestic equities chief, attributes this success to ATP’s deep knowledge of the companies in which it invests, coupled with its active ownership stance.Wiinblad describes ATP’s approach as “an old-fashioned long-only stock-picking fundamental strategy”. While it is an actively managed portfolio, some stocks have been in the portfolio “for more or less the entire lifetime of ATP”, Wiinblad tells IPE.“I don’t recall a time when we didn’t have Novo Nordisk stocks, but even though the size of the position has varied significantly over time, it is a long-term portfolio so the turnover is not as high as it might be,” he says.It should be noted that because ATP’s reported returns are based on its DKK100bn investment portfolio — which is only around a seventh of its total assets – there is a certain leveraging effect which makes these returns hard to compare with those produced by other pension funds.Nevertheless, the recent contribution from the domestic allocation is remarkable.
All in all, the FCA had come up with “a strong package of measures that will reduce harm and increase public value”, she added.Last week, the Competition and Markets Authority set out the initial framework for its competition inquiry into the investment consulting and fiduciary management sectors, one of the main aspects of the market study.Butler also said the regulator was going to launch an authorisation “hub” for asset managers, aimed at supporting new entrants to the market.On MiFID II, she set out the FCA’s expectations but also reassured asset managers that it would be taking “a sensible and proportionate approach” to the legislation, which comes into effect on 1 January. The UK’s financial services regulator has outlined plans to consult on transparency-related activity in the asset management industry in a further follow-up to its market study on the sector earlier this year.The Financial Conduct Authority (FCA) will prepare a second consultation “on transparency-related points like benchmarking, performance reporting and, if needed, objectives and the all-in fee”, according to Megan Butler, executive director of supervision for wholesale and specialist investment at the FCA.These are aspects the FCA has already been consulting on in connection with its asset management market study.In a speech at an investment conference today, Butler said the regulator was in the process of reviewing responses to the consultation it launched when it presented its final report on the study in June.
UBS is to pay up to CHF720m (€612m) into its Swiss pension fund over three years to mitigate the effect of cutting its conversion rate for future pensions, it announced today.In addition to lowering the conversion rate, the employer and the pension fund agreed that the regular retirement age and employee contributions would be increased and savings contributions start earlier, UBS said in its fourth-quarter report.The conversion rate is used to calculate pensions from accrued assets. UBS did not indicate what the reduction would be.The measures would take effect from the beginning of next year “to support the long-term financial stability of the pension fund”, UBS said. The measures were being taken as a result of the effects of continuing low or even negative interest rates, diminished investment return expectations and increasing life expectancy, it said.The measures would have no effect on current UBS pensioners.Together with UBS’ payment of up to CHF720m, the measures would reduce the pension obligation the company must report under International Financial Reporting Standards, resulting in a pre-tax gain of CHF225m in the first quarter of 2018.The company said the payment would be made in three instalments in 2020, 2021 and 2022.UBS is far from being alone among Swiss pension funds in lowering its conversion rate. Cuts to the technical interest rate, which feeds through to conversion rates, have been going on for several years as the country’s Pensionskassen try to get their funding positions on a sustainable footing. The pension fund of UBS’ peer Credit Suisse cut its conversion rate more than two years ago.Willis Towers Watson recently found that the conversion rates for the non-mandatory portion of active members’ accumulated assets ranged between 4.7% and 6.4% at Swiss corporate pension schemes. The average conversion rate upon retirement at the age of 65 had continuously dropped over the past few years, with only 17.4% of all companies in the Swiss Leaders Index still using a conversion rate of more than 6%.
According to LGPS documents for the year ending 31 March 2017, Pictet ran money for three LGPS funds (West Midlands, Leicestershire and Lancashire).Loomis Sayles ran money for Cumbria and Wiltshire, while Amundi had a mandate with the Merseyside Pension Fund.However, the LGPS funds have begun pooling their assets into larger mandates as part of the UK government’s pooling project. Seven of the eight pools were operational at the start of this month, with the eighth due to open its doors in the summer.As the pools have begun to launch mandates and hunt for managers, the LGPS cost code has become a set requirement for those seeking to be providers to the pools, according to industry insiders.The code – which consists of a template designed for asset managers to disclose dozens of types of fees and costs – is currently only available for listed equity and bond strategies.However, some managers outside these asset classes have signed up ahead of the expected introduction of a version suitable for private equity, real estate and other alternative investments. In addition, an industry group set up by the UK regulator – known as the Institutional Disclosure Working Group – is expected to soon announce a set of cost disclosure templates building on the LGPS model.See also: LGPS asset pools (almost) ready for action – from IPE’s April issue Amundi, Europe’s biggest asset manager, has signed up to the cost transparency code used by UK’s Local Government Pension Scheme (LGPS).The €1.4trn manager is one of five to have added their names to those pledging to be fully transparent about all their investment management costs and charges.Swiss group Pictet Asset Management, US firm Loomis Sayles, UK-based Artemis and quantitative specialist MAN Numeric have also signed up.There are now 58 managers backing the code, accounting for the vast majority of the LGPS’ £261bn (€300bn) of assets.
In a joint statement this week, the AMNT and the TTF said the disclosure templates had “the potential to be a significant step forward, but whether that potential is realised will depend on how the CTI deals with five key questions”.On the issue of the FCA’s potential role, they said: “Given the importance of consumer protection to the FCA’s statutory remit we believe the regulator should be an active driver of the agenda and not a mere onlooker.”The FCA took part in the Institutional Disclosure Working Group as on observer as representatives of asset owners and asset managers agreed the design of the cost disclosure templates. This work was in turn a direct result of the FCA’s in-depth review of the asset management industry.The AMNT and the TTF also challenged whether the CTI would be unduly influenced by sell-side industry interests and motives, urging other pension fund and investor representatives to support the CTI’s chair Mel Duffield, pensions strategy executive at the Universities Superannuation Scheme.“While it is encouraging to know the CTI will be chaired by a distinguished representative of asset owners, she will need strong buy-side support on her steering group if the CTI is not to be seen as vulnerable to pressure to favour the commercial interests of its sponsors’ members,” the organisations said.Other questions posed concerned whether the templates would become mandatory, whether the data would be spot-checked by the FCA or the Pensions Regulator, and whether the disclosure regime would “properly contextualise cost in relation to performance and risk”.The AMNT and the TTF said trustees were required by TPR to act as “challenging customers”, adding: “Unless the five issues identified are dealt with properly it is difficult to see how trustees can carry out their duties effectively or efficiently; they will not be able to play their full part as a driving force in caring for the interests of pension scheme members.” UK pension trustees have called for the Financial Conduct Authority (FCA) to take an active role in the country’s new investment cost disclosure initiative to ensure its success.The Association of Member Nominated Trustees (AMNT) and campaign group the Transparency Task Force (TTF) made the call as they welcomed the Cost Transparency Initiative (CTI), aimed at defining and measuring the full cost of investing. They also warned that the initiative’s success depended on a meeting a number of other requirements.Earlier this month, the CTI was launched by the UK trade bodies for asset managers (Investment Association) and pension funds (PLSA), alongside the Local Government Pension Scheme (LGPS) Advisory Board.It involved the creation of a series of cost disclosure templates for UK institutional investors.