It was created under UK legislation and backed by a loan from the UK Department for Work & Pensions (DWP).Thoresen’s current insurer members operate in a direct rival capacity to NEST, with some offering contract-based defined contribution workplace savings vehicles for auto-enrolment.Churchill was appointed in 2010 and oversaw the beginning of auto-enrolment in 2012 that led to NEST housing more than 1.5m savers from more than 9,000 employers.Thoresen will be replaced by Huw Evans, current deputy director general at the ABI.Pensions minister Steve Webb and outgoing chair Churchill both highlighted the wealth of experience of Thoresen, who has held a number of senior roles at insurance companies and led a government review into generic financial advice in 2008.Webb said: “I would like to thank Lawrence for his dedication in making NEST a reality and for successfully steering it through its early years.“I am confident Otto’s appointment will ensure NEST continues to effectively support the introduction of automatic enrolment.”Churchill added: “I have relished my time at NEST, but, now my term is drawing to a close, I am absolutely delighted I will be handing over to somebody of this calibre.”Thoresen said he was delighted for the opportunity to work with the NEST trustee board.“NEST has a key role to play in the future of pension provision,” he said.“It has been a privilege to lead the ABI, and, while it will be a personal wrench to leave the organisation, this opportunity at a key stage in the delivery of pension reform was an opportunity I couldn’t pass by.”Thoresen said his chairmanship at NEST would also allow him focus more on his charitable work.The chairman will dedicate two and half days to NEST and is remunerated just over £90,000 (€113,000). The UK government is to appoint Otto Thoresen, acting director general of the Association of British Insurers (ABI), as chairman of the National Employment Savings Trust (NEST).Thoresen, who has led the UK’s insurance lobby group since 2005, was also chief executive at Aegon Group between 2005 and 2011.He replaces Lawrence Churchill, who steps down in February 2015 after five years in the role.NEST, the government-backed master trust, was created for the rollout of auto-enrolment, operating with a public-service duty to accept all employers regardless of size.
Pension funds must not depend on sponsor support to fulfil benefit promises, the chairman of the European Insurance and Occupational Pensions Authority (EIOPA) has warned, as the supervisor defended its plans to stress test the sector.Gabriel Bernardino told the PensionsEurope conference in Frankfurt it was important not to be diverted from the serious discussion of ensuring schemes were able to pay benefits, and warned against reliance or dependence on sponsor support to fund any promises.His warning comes weeks after the supervisor published a consultation on the holistic balance sheet (HBS), which saw it allow sponsor support as a balancing item to address any deficit, dependant on certain requirements being met.Asked by IPE, the chairman said he did not see a contradiction between using sponsor support as a balancing item and criticising over-reliance on the sponsor to meet obligations. “What we are saying, basically, is that, when you have a strong sponsor, then you can use it as a balancing item,” he said.“If that’s not the case, then, of course, you will need to go deeper and take into account […] what is happening in the company itself – the probability of generation of future cashflows.”He warned against distracting from the “serious discussion” of pension funds’ ability to fund all pension promises.“When we look at an evaluation of a pension commitment, and you see that 25-30% of the liabilities is covered by sponsor support, and when you then look to the real company, which is in there generating cashflows and able to create jobs, does this balance? Is it possible?”He reiterated that EIOPA’s intent was not to “kill” pension funds but rather to ensure the security of benefits.Meanwhile, Justin Wray, head of EIOPA’s policy unit, defended the authority’s plans to stress test the European pensions sector.Bernardino has previously said the stress tests would cover defined benefit, defined contribution and hybrid schemes, and determine whether funds were pro or counter-cyclical investors based on the last decade’s worth of investment data.For his part, Wray noted that the majority of the large IORP markets – 13 of 19 – already required pension funds to undergo stress tests.The chairman would also not be drawn on EIOPA’s view of the latest IORP II compromise draft, which saw member states agree to strip the European supervisor of responsibility for the risk-evaluation for pensions (REP) tool.Bernardino noted that EIOPA was obviously not party to any discussions occurring between member states at the Council of the EU.He said he would await the deliberations of both the council and the European Parliament.For more from Gabriel Bernardino, see IPE’s interview in the upcoming December issue of IPE magazine
“It is not a question of our holdings. Yes, we think it is possible we will have more of an impact if we announce our voting in advance, but it is still something we will see how it develops.”Slyngstad was speaking with IPE after a lecture at the Geneva Summit on Sustainable Finance, where he called for more rationality when debating sustainable investment decisions.He also dismissed the claim NBIM was interested in the acquisition of trophy real estate assets, saying that such a move was not part of the fund’s strategy.“But it’s right that we have a strategy to invest in core real estate – some of the better office buildings in some of the larger cities of the world,” Slyngstad added.For more from Yngve Slyngstad, chief executive of Norges Bank Investment Management, see the current issue of IPE Norway’s sovereign wealth fund will publish its voting intentions where it feels the intervention can help illustrate an important principle, rather than focusing on the companies in which it has the largest stakes, according to the head of Norges Bank Investment Management (NBIM).Yngve Slyngstad, chief executive at NBIM, said the decision to publicise voting intentions was reached independently from a move to double the number of firms in which the NOK6trn (€658bn) Government Pension Fund Global holds a stake larger than 5%.He said publishing intentions would only be done in certain situations and on a limited basis in 2015.“It will not be focused on whether we are small or large investors – it will be focused on whether it is a case that illustrates some important principle,” he said.
At the MPK, this category mainly includes loans granted to non-listed companies, infrastructure and some real estate investments with leverage beyond the 50% mark.Ryter said the new definition increased not only the size of alternative allocations in some portfolios but also their costs.The Swiss government, introducing full transparency on asset management costs and mandatory total expense ratio reports for all Pensionskassen investments, is now considering whether to cap the share of costs for alternative assets.Meanwhile, the CHF10bn Vita Sammelstiftung already has exceeded the 15% limit – this is permitted as long as the fund provides an explanation of its risk strategy to the regulator.On a panel at this year’s Swiss Pensions Conference, the multi-employer plan’s managing director, Samuel Lisse, said: “Because we do not have a say in target returns like the legal minimum interest rate (Mindestzins), we must allocate a higher percentage of our portfolio to alternative asset classes to achieve a better diversification and ultimately a better performance.” Vita’s alternatives exposure is mainly to senior secured loans and hedge funds, while the fund has almost completely divested from commodities.According to some pension fund experts, Swiss Pensionskassen are currently “not using all the freedom they are given” under the investment guidelines.In an ad hoc survey among the delegates at the conference, the vast majority indicated they believed alternative assets would be the best-performing asset class over the next three years on a risk-adjusted basis – Swiss bonds were expected to be the worst performers.But Roman Denkinger, head of asset management at Swisscom’s CHF9.5bn pension fund comPlan, stressed that alternatives had to be viewed as “a heterogeneous asset class with very different investment possibilities”.One of his pension fund’s alternative strategies is financing small and medium-sized enterprises directly, which, according to Denkinger, “requires a lot of in-depth due diligence and time”. The share of alternative assets in some Swiss pension fund portfolios has surged in the 2014 due to a new definition of the category.In summer 2014, revised investment regulation BVV2 for Pensionskassen widened the definition of ‘alternative assets’ to include ‘non-traditional’ bonds, including asset-backed securities, debt issued by non-listed companies, real estate investments with more than 50% leverage and infrastructure.Following the change, the CHF21bn (€20bn) Migros Pensionskasse (MPK) saw its share of alternative assets increase from 3.5% to just over 11% year on year – almost solely because of the new regulations.Managing director Christoph Ryter noted this was “still well below” the 15% cap for alternatives set down in the BVV2 regulations.
It had also been called on to put in place new environmental and social practices to allay concerns over its activities in Virunga National Park, where it was involved in exploratory activity.Last year, NGO Global Witness alleged Soco “paid off” rebel forces while benefiting from the “fear and violence fostered by government security forces in eastern Congo”.The Church of England was called on in the NGO’s report as one of several investors that should push Soco to rule out any activity in the Congolese national park.Adam Matthews, secretary of the EIAG, said he was “deeply concerned” by Soco’s failure to engage with the Church Commissioners’ concerns.Edward Mason, head of responsible investment at the Commissioners, added that it had “called time” on its holding in Soco.“In this instance Soco, has not responded positively or sincerely to the concerns we have raised,” he said. “The lack of appropriate corporate governance was clear at the AGM and left us nowhere to go but full divestment.”The Church Commissioners administer the Church of England’s endowment used, in part, to pay retired workers.The Church of England Pensions Board separately administers the £1.5bn pension fund, which is also advised by the EIAG. The £6.7bn (€9.4bn) Church Commissioners for England has divested an oil exploration company following allegations of human rights abuses and corruption.The full divestment of the endowment’s £1.6m stake in Soco International comes after “extensive and sustained” engagement with the firm, listed on the London Stock Exchange, and follows the Church’s Ethical Investment Advisory Group (EIAG) calling for the sale of its stake.In a statement, the Commissioners noted that the EIAG had begun engagement over a number of allegations regarding bribery, corruption and Soco’s human rights records in the Democratic Republic of Congo.The Commissioners said the company had been urged to launch a “wide-ranging and transparent” independent enquiry addressing all the allegations.
DIP, the pension fund for Danish engineers, has said the merger of its administration activities with those of JØP, the pension fund for lawyers and economists, would incur one-off costs this year but lead to savings from 2016 onwards.Reporting financial results for the first half of this year, the fund said in its interim report: “The amalgamation of the the two pension funds’ administration has resulted in several overlapping jobs … having been cut, which will lead to a one-off cost in 2015, but there will be cost savings in 2016 and thereafter.”It said it already reaped cost benefits from having a joint investment department with JØP.The two pension funds merged their investment operations two years ago. This had brought more than DKK10m (€1.34m) in annual investment management cost savings between the two funds, it said.DIP’s investment returns in the first half were boosted by equities but bonds made a loss.The overall investment return rose to 4.9% between January and June, up from the 4.5% reported for the same period last year, with equities returning 9.8%.The bond asset class – which, for DIP, consists of government and mortgage bonds – ended the six-month period with a 0.9% loss, mainly because of price falls as a result of yield rises in the second quarter of the year.Contributions rose by 4.2% to DKK419m in the reporting period, and total assets climbed to DKK37bn at the end of June from DKK36bn at the end of 2014.Meanwhile, JØP reported an investment return for the first half of 3.1% overall, or DKK2bn in absolute terms.Equities generated a 10% return, but bonds made a loss of 1.7% because of yield rises over the period, it said.
An undisclosed European institutional investor has tendered a €100m long-term global equity mandate using IPE Quest.The client is seeking a fundamental long-term investment style, stressing that the approach should be “truly” long term, whereby the asset manager has a “deep knowledge of the companies invested in and has a long-term view, low turnover and active engagement with the management of the companies invested in”.The mandate is for €100m.According to search QN-2149, applicants should have at least €500m in total assets under management and €500m in long-term equities. Performance is to be measured against the MSCI World, although the client does not have maximum or minimum tracking-error expectations.Applicants should state performance to 31 December, gross of fees.Interested parties should have at least a three-year track record, although five years is preferred.The deadline for applications is 5 February.IPE Quest’s latest mandate takes to nearly €1bn the total tendered through the service since the beginning of the new year, split across five mandates. Two recent searches were for US-dollar bond mandates – global emerging markets and government bonds, separately – while another two were for Asian small-cap equities. The IPE news team is unable to answer any further questions about IPE Quest tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email [email protected]
“And one of the things I’m particularly concerned about – because of this impact on members if these schemes go down – is [the introduction of] some sort of living will.”Both TPR and the UK government have stepped up their rhetoric around master trust regulation, with Warwick-Thompson telling IPE in January that the regulator needed to “think very hard about how we prevent more master trusts coming into the market”.His comments came shortly before Harriett Baldwin, economic secretary to the Treasury, said new regulation of the market would be introduced “as soon as practically possible”. Warwick-Thompson told the TISA event that the absence of thorough checks of business plans for master trust providers, or examinations of their capitalisation, were “anomalous” when compared with the scrutiny other pension product providers were placed under prior to launch.Market consolidationNigel Waterson, chair of trustees at Now Pensions, which previously backed the idea of licensing providers eligible for auto-enrolment contributions, echoed Warwick-Thompson’s remarks by saying the master trust market was “ludicrously active”. Waterson, shadow pensions minister at the time the launch of auto-enrolment and the National Employment Savings Trust (NEST) was legislated for, said the feared market failure that led to the creation of NEST had not occurred.Instead, the large number of master trusts – more than 100 are known to the regulator, of which 73 are active – will need to come down, with Waterson suggesting the regulator act as a “marriage broker” in the coming years.Waterson also seemed to accept the need for capital adequacy requirements but insisted that, if such steps were taken, then NEST could not be exempt from the regulation. The UK Pensions Regulator (TPR) has raised the possibility of a new licensing regime for master trusts, as it believes mandating the use of the master trust assurance framework will fail to address the “key problem” facing the market.Andrew Warwick-Thompson, executive director for regulatory policy at TPR, said the idea of making the voluntary framework mandatory would not go far enough in regulating the market, or address the regulator’s key concerns about low barriers of entry into the market.He stressed that any regulatory change was a matter for Parliament to decide, noting that calls for TPR to make the framework mandatory were falling on deaf ears because it did not have the requisite powers to introduce such a change.Discussing the options for the stricter regulation of master trusts, Warwick-Thompson said at an event organised by the Tax-incentivised Savings Association: “The options will possibly be some sort of licensing, possibly some sort of enhanced supervision, possibly some sort of capital adequacy.
The German government has offered tacit support for the introduction of auto-enrolment, weeks after an independent report proposed its use within industry-wide bargaining agreements.Michael Meister, junior minister at the federal finance ministry (BMF), told the annual conference of German pension fund association aba that a recent state-level proposal for an auto-enrolment-based pension reform was “constructive”.Speaking in Berlin, he also argued that additional retirement savings could either be accrued in third-pillar Riester-accounts, or through improved participation in occupational pensions (bAV).Meister’s support of auto-enrolment was echoed by Yasmin Fahimi, state secretary at the federal social affairs ministry (BMAS), who said auto-enrolment should be seen as part of an additional level of obligation imposed on the employers. The comments come weeks after BMAS published an independent report on the role of industry-wide collective bargaining agreements in boosting participation rates, one that proposed the use of auto-enrolment, offering an indication of the government’s future plans.But they are also noteworthy for signalling long-awaited cross-party agreement on pension reform, as Meister is a member of chancellor Angela Merkel’s Christian Democrat party (CDU), while Fahimi works in a ministry controlled by the CDU’s junior coalition partner, the Social Democrat party (SPD).Meister offered his support for the use of tax incentives to encourage low-income workers to save for retirement, and praised auto-enrolment when discussing a recent proposal put forward by the state government of Hesse.The Deutschland-Rente proposal suggested the use of auto-enrolment, with workers compelled to save into individual defined contribution (DC) accounts – the latter a suggestion heavily criticised by aba chairman Heribert Karch.Meister said the auto-enrolment element complemented talks at the federal level.“The one part where there is a connection,” he said, “is over the question of how far we go in offering an occupational pension I do not have to join but which I have to leave if I don’t wish to be in them.”Opening the conference, Karch called on the federal government to act on pension reform.He said that, unlike the association’s previous criticism of earlier BMAS proposals, which would have mandated the use of IORP II-compliant pension funds to the detriment of many existing German occupational arrangements, the system envisaged by the academic report was one “going in the direction that could lead to a successful reform”.He urged swift action, with a draft proposal published before this summer’s parliamentary recess, and the end of the year seeing “an occupational pension reform worthy of the name”.For her part, Fahimi called for a wide-ranging debate on the interplay between the state pension, occupational savings and voluntary savings into third-pillar arrangements, and a discussion with society at large.“But – and I want to be clear on this – we do not want to indefinitely postpone any decision on reform,” she said.“We want to make a decision. We want to, before the end of the current Parliament [in 2017], table reform proposals.”
The submission highlights a number of potential improvements from TPR’s point of view, including developing the regulator’s way of working so that it focuses more intensively on those pension schemes posing the greatest risk.It also proposes introducing mandatory clearance “in a targeted set of circumstances where corporate activity may pose a material risk to a scheme”, it said.As things stand, there is no obligation on a company to apply for clearance from TPR for any transaction, or other relevant situation, the regulator said.The regulator went on to propose enhancing its information-gathering and investigatory powers.On the subject of pension scheme funding, TPR proposed that greater flexibility be introduced over the valuation periods used, and said more regular valuations should be required for higher-risk schemes.The regulator’s scheme funding powers should also be clarified so that it can specify an appropriate level of funding and contributions, it said.TPR qualified its proposals, saying: “It will be a matter for government and parliament to decide what is a proportionate response to the challenges within the DB landscape.”It also emphasised that it did not see evidence of a systemic problem with affordability in UK DB pensions.“Most employers will be able to support their schemes making use of the flexibility within the funding framework established by the 2004 Act,” it said.Earlier this year, the Work and Pensions Committee heard evidence about the collapse of the BHS retail chain, which left the company’s pension scheme with a £571m (€634m) shortfall and forced it to be rescued by the PPF.In its recent written submission to the inquiry, the PPF backed the regulator’s call for greater powers.The PPF said it believed deficits on a PPF basis were a real risk to members of those schemes, as well as its levy payers, since if the employer became insolvent, poorly funded schemes would pass to the lifeboat fund.“In our view, more could be done to ensure schemes are sufficiently funded, and employers continue to stand behind their promises,” it said.To help this happen, it said, “targeted improvements to the powers available to the Pensions Regulator” may be needed. It added: “We recognise, however, there are a number of schemes and employers where promises may now be unaffordable and that a specific regime, with suitable safeguards, would be appropriate.”The deadline for written submissions to the committee closed last month, and oral evidence sessions are set to begin soon, continuing to around the end of November.The committee is expected to publish its recommendations in January 2017. The UK’s Pensions Regulator (TPR) has detailed a number of ways it believes its powers should be expanded to protect pension scheme members, including being given the ability to refuse clearance for certain proposed corporate actions.In its written submission to the parliament’s Work and Pensions Committee, which is conducting a broadened inquiry into the Pension Protection Fund (PPF) and TPR, the regulator highlighted several potential improvements to pensions regulation as it now stands. A spokesperson for TPR said: “Our submission to the Work and Pensions Select Committee sets out a number of ways where we feel the regulatory framework could be strengthened in areas such as clearance on corporate actions and information gathering.”“We look forward to giving evidence to the inquiry to elaborate on these proposals in more detail in the coming weeks.”