Italy’s finance minister Pier Carlo Padoan has made a commitment to help create the conditions for “spontaneous” investment by pension funds in the Italian economy.Speaking at a conference hosted by government-backed pension think tank MEFOP in Rome, Padoan said the government wanted to act as “facilitator” to make sure institutional investors met the demand for finance from Italy’s corporate sector.Padoan, who is heading the EU finance ministers’ council Ecofin as Italy takes the EU presidency for the next six months, spoke of “market failure” in Italy as, he says, “there is no investment in assets with specific duration or in specific sectors or geographies – this is not a problem that only concerns Italy, as Australia, as head of the G20 in 2014, has also put it at the top of its agenda.”He added: “I will make sure the ministry I represent makes all the effort and provides all help needed to foster spontaneous investment by pension funds in the economy. Government action can facilitate the creation of new markets, in full respect of the autonomy of investors.” Mauro Maré, MEFOP chairman and professor of finance at Università della Tuscia, cited data from pension regulator Covip showing investment in Italian listed companies from pension funds amounted to 0.9% of overall assets in 2013.Total assets for the sector (including first-pillar casse di previdenza) topped €170bn at the end of last year.Maré proposed a solution where pension funds would set up by themselves a fund for investment in the real economy, with an ad-hoc governance structure.Other solutions being discussed is having state bank Cassa Depositi e Prestiti borrow money from pension funds and redistribute it to firms.Italy has also created ‘minibonds’ to facilitate the issuing of credit by SMEs, although the market has failed to grow.However, experts at the conference expressed conflicting opinions on whether Italian pension funds should be compelled to finance the domestic economy.Some are worried that, if the government dictates what assets pension funds invest in, it would be equivalent to nationalising them.The recent nationalisation of pension assets in Hungary and Poland were mentioned as examples of what could happen if pension funds were influenced too greatly by the government.Nicola Rossi, professor of economics at University of Rome Tor Vergata, said: “Forcing pension funds to invest in the real economy would be the same as taxing them, so the government may as well tax them. That is a lot easier.”Padoan added: “Expropriation, taxation, financial repression, obligation are words that I would never use to describe the relationship that politics wants to have with institutional investors.“The problem is how to favour a global environment for investors that incentivises investment in the long term, for instance, in infrastructure. As EU president, Italy is particularly concerned with this shortfall.“Therefore, it has asked that investors who are already investing for the long term are used better, and that a system of incentives and rules is created so that, ultimately, there is more spontaneous investment in these assets.”Padoan reiterated that the country’s debt was “sustainable” and praised the reforms of the first pillar undertaken by his predecessors.He said: “The Italian pension system has taken many steps forward in recent years with a series of reforms, which have been recognised internationally from institutions such as OCSE.“In terms of public debt, there are many indicators today showing that Italy, especially the sustainability of welfare expenditure in the long term, is among the best-performing countries.“The only way of keeping debt sustainable in the long term is growing because, without growth, we will fall back into a debt crisis. This is why Italy has pushed for growth to be a priority. All EU partners agree wholeheartedly, and this priority has been confirmed officially.”As his tenure at Ecofin began, Padoan’s goal has been to convince his peers to put economic growth at the top of the list of priorities for the Commission in the months to come.He said: “Growth has not been a priority for the past years, as the EU has focused on other issues.”Panellists at the MEFOP conference, which focused on the sustainability of the pension system and its role within the economy, warned that demographic and economic forces in Italy were making the old grow older and richer, while young people struggled to find economic stability and faced the prospect of not having a public pension.They said Italy should think about comprehensive welfare reform to avoid “intergenerational conflict”, which would include further changes in the first pillar system and stimulate growth in the second pillar.
Swisscanto has set the average 2015 return for Swiss Pensionskassen at more than 1%, which is higher than estimates from earlier this year. It placed the average Pensionskassen return at 1.13% compared with the Swiss regulator’s (OAK) estimate of 0.8% and the pension fund association’s (ASIP) figure of 0.7%.While the OAK and ASIP make their estimates before annual reports have been written, Swisscanto bases its research on final reported figures.Complementa, which does something similar with its own risk update, also reported an average return of just over 1%, although it emphasised that it would be collecting more data until the end of June. It also pointed out that the 1.1% average return was an equally weighted average, with returns ranging from -1.3% to 3.3%, and that the capital-weighted average was around 30 basis points lower.Prevanto partner Stephen Wyss, commenting on Swisscanto’s figures, said: “The final audited returns from the hedge fund and real estate portfolios in particular seem to have been higher than the initial estimates.”Swisscanto’s survey, like Complementa’s, shows an increased appetite for alternatives among institutional investors.In the Swisscanto sample, average exposure to alternatives increased from 5.4% in 2014 to 6.1% in 2015, although Wyss acknowledged this was “partly the consequence of a recent law change that bond-like instruments must be qualified as alternatives”.In total, almost one-third of the surveyed Pensionskassen have increased investments in alternatives, and another 20% plan to do so over the next three years.Of those, half are looking into infrastructure, which at present accounts for just 0.2% of the average portfolio.Wyss said infrastructure investments were “slowly but steadily getting more significant”, due in particular to their “hopefully regular cashflows”, but he argued that their lack of liquidity remained a problem.Prevanto was created last year when Swisscanto sold its actuarial advisory business after it was fully taken over by the Zurich cantonal bank ZKB.Prevanto supports Swisscanto in drawing up its annual pension fund survey.
Birdeye Capital’s first fund, the Birdeye Timber Fund (BTF), is roughly €7m in size and has returned around 8% since launch at end-2013.LHV was an anchor investor in BTF, which marked its first investment in timberland.Around 15% of its €900m of assets are invested in Estonia, while forest investments make up on average 0.5% of its fund portfolios.Kristo Oidermaa, portfolio manager at LHV, said: “Our commitment to invest in BTF2 was driven by our previous good co-operation.“Timberland is a suitable investment vehicle for the pension fund due to the natural growth component, inflation protection and requirement for long-term good management standards.”Swedbank, a new investor with Birdeye Capital, said it was investing up to €10m in BTF2.Kristjan Tamla, head of Swedbank Investment Funds, said: “SEPF sees this as a long-term investment that primarily serves as a diversifier in our globally balanced portfolios.“The performance of timber assets is largely determined by the natural growth of forest and everyday forest management, such as cutting. We see that these components have little correlation with global equity and bond markets.”He added: “In addition, the ownership of Estonian forestland is still quite segregated, with private individuals owning small plots. Part of the Birdeye strategy is to consolidate smaller land plots and achieve efficiencies of scale in managing larger forest areas.”There is no fixed or formal target return for BTF2, but the performance fee is based on a 6% hurdle rate.The fund will continue to raise capital until October 2019, with an option to extend for a further 12 months. Estonia’s two biggest pension fund managers – Swedbank Estonia Pension Funds (SEPF) and LHV Pension Funds Estonia (LHV) – have become anchor investors in Birdeye Timber Fund 2 (BTF2), a real estate investment fund investing in Estonian forestland.The fund is run by Birdeye Capital, an asset manager owned and run by forestry and investment management professionals.Sander Pullerits, manager of BTF2, said: “Investing in Estonian forestland will help to hedge against inflation risk and presumably offers a more stable return than, for instance, investments in stock markets.”He added that the expected return would be made up mainly of biological timber growth and the increase in portfolio value as a result of its sustainable management.
Citing European Insurance and Occupational Pensions Authority (EIOPA) data for that year, the government noted that the asset share of PPEs accounted for just 0.1% of GDP. Across the EU, pension assets account for 24% of GDP on average. Polish prime minister Mateusz MorawieckiSource: Office of the Prime Minister According to the draft legislation, enrolled employees will pay a minimum 2% in contributions, with the option of up to a further 2% in voluntary contributions. The rates for employers will be 1.5% minimum and 2.5% additional voluntary contributions.The new PPKs will be obligatory for employers, except those companies that have an existing PPE with a minimum basic contribution of 3.5%. The PPKs will be voluntary for employees.However, workers aged 55 years and younger will have three months to opt out of the proposed auto-enrolment system, while older workers, of up to 70 years, will have to opt in.The government will co-finance each pension pot with an annual PLN240 (€58), along with a one-off welcome bonus of PLN250 after three months of enrolment, until the end of 2020.The programme will be implemented in six-month stages, starting in January 2019. The first stage will involve companies with more than 250 employees – accounting for roughly 3.3m people.The final stage, scheduled for July 2020, will cover companies with between one and 19 workers, as well as budget-financed entities such as state schools. This last category accounts for around 5.1m of the total projected 11m uptake.Investment managementAsset management will be restricted to Polish investment fund companies (TFIs) registered for at least three years, and co-ordinated by the Polish Development Fund.One of the roles of the Fund, which also runs a TFI, is to administer the PPK portal.To keep costs down, the draft limits annual management fees to a maximum 0.5% of net assets, with a further 0.1% allowed as a performance fee.To avoid market concentration, any any investment fund company (including the company’s subsidiaries) with PPK assets exceeding 15% of the market total will not receive any fees on the excess.From the finance industry’s perspective the most controversial aspect is the exclusion of other asset managers, such as insurance companies and banks, as well as Polish pension fund companies (PTEs), which manage second-pillar pension funds (OFEs).Back in 2016 Morawiecki’s proposals covered not only PPKs but the dissolution of the OFEs, with 75% of the assets slated to move into new third-pillar accounts. Nothing concerning the OFEs has happened since then, other than assurances that all will be sorted before the next election – due by November 2019.Industry sees pros and consChamber of Pension Funds president Małgorzata Rusewicz welcomed the legislative start of the PPKs as a significant step in pensions reforms, but criticised both the lack of movement on the OFEs and the exclusion of pension fund companies.“The introduction of broader market competition, including PTEs, to the management of funds accumulated in PPK from the beginning of their creation means greater benefits, including profits, for customers,” she said.“What is more, the option of choosing an asset management entity is an expression of ownership of the savings collected and gives employees a sense of influence in shaping their pension security and taking responsibility for them.“The inclusion of PTEs in the management of PPKs is supported by their unique know-how on the Polish market, many years of experience in managing long-term pension savings, guaranteeing the safety of collected assets and generating outstanding rates of returns by Polish investment standards.”Note: This article has been amended to correct the rates employers and employees will pay in the PPK system. Poland’s government yesterday finally released its ambitious employee pension plan (PPK) programme legislative draft for consultation.The move comes two years after the then-economic development minister Mateusz Morawiecki announced his Responsible Development Strategy, which included a radical overhaul of the pensions system. Morawiecki became prime minister last December.The PPK plan aims to bring up to 75% of the country’s employed population into occupational pension schemes through auto-enrolment.Poland’s existing occupational schemes, the employee pension programmes (PPEs), covered fewer than 400,000 as of the end of 2016, compared to Poland’s population of roughly 38m.
For decades, pension funds have had to continually increase provisions because of improvements in life expectancy.Kleinloog said that in particular the mortality of elderly women had increased significantly since January, with death rates of those aged over 80 20% higher than expected. Statistics Netherlands (CBS) has suggested that higher mortality was linked to a flu epidemic last winter.The consultant said that, if the high first-quarter figures were to continue for the rest of the year, it was plausible that mortality rates could exceed the predictions for the entire year by 3.5%.The mortality rates not only affect pension funds’ liabilities, but also the retirement age for the Dutch state pension (AOW). If life expectancy improvements slow down, the AOW age will not be raised from its current level of 67 years and three months.Kleinloog said that the AOW age could not go down if longevity were to decrease.In September, the Dutch Actuarial Society (AG) will issue new mortality tables for the next two years, based on the figures up to 2018.Kleinloog said: “If their calculation method is to remain unchanged, the rise of life expectancy will be lower than in previous prognoses.”Recently, data from the UK’s Continuous Mortality Investigation (CMI) showed that improvements in mortality rates had been close to zero since 2011, after improving 2.6% annually between 2000 and 2010.In January, a report from consultancy LCP said that liability risk transfer deals, such as buyouts, in the UK were becoming more affordable in part because of stalling improvements in life expectancy.Last year, consultancy group Libera indicated that applying the CMI’s data could slice between 2.5% and 3.5% off liabilities in Swiss Pensionskassen.Contrary to the model used by the federal statistical office, the CMI incorporates regular adjustments to the increase of longevity. The standard tables, used by all Swiss pension funds, project an unbroken upward trend. Liabilities of Dutch pension funds could decrease as a result of rising mortality, consultancy Sprenkels & Verschuren has said.The trend of higher mortality in the Netherlands had continued during the first quarter of 2018, the company said, following mortality figures from the previous few years that were also higher than predicted.The trend has also been observed elsewhere in Europe.According to Daan Kleinloog, partner at the consultancy, pension funds’ coverage ratios could rise by 0.5 percentage points.
The DB plan assets cover the accrued benefits for around 6,000 beneficiaries.SEB said the “total costs” for the outsourcing were SEK891m (€85.9m).Prior to this outsourcing, BVV was already responsible for the administration of SEB’s German DB plans.“By taking on the pension liabilities we will take care of all administrative tasks and the pension assets,” said Helmut Aden, board member at BVV, in a press release.He explained that outsourcing pension plans had become more common over the past few years as “the difficult interest rate environment had increased the pressure on internally financed models”.Aden added that the increasing regulatory requirements was placing a growing administrative burden on companies with Direktzusagen, which are DB plans with benefits paid direct from company balance sheets.In July, Standard Chartered transferred its German pension plans to BVV. The Pensionsfonds is only one of the pension vehicles the BVV offers, the largest being its Pensionskasse.In total, the BVV group runs roughly €28bn in assets for companies from Germany’s financial and banking sector.For SEB, the transfer formed part of a restructuring of its German business. The Swedish banking group dissolved SEB AG in Germany in January 2018 and turned the operations into a branch of the SEB Group.In its annual report SEB said: “The purpose of the change is to simplify the reporting and administration of the German operations. The non-core business that was not transferred to the branch from SEB AG will be dismantled over time.” Swedish banking group SEB has outsourced its German defined benefit (DB) pension assets to the pension provider for the German financial sector, BVV.The transfer brings the BVV Pensionsfonds’ assets to almost €1bn, the company noted in a press release.The volume of the pension asset transfer was not disclosed but at the end of 2017 assets in the BVV Pensionsfonds stood at around €357m.BVV confirmed to IPE that it was “correct to assume the assets had almost doubled” since the transfer of SEB’s German pension plan.
The organisation said that no coherent analysis had been carried out into how occupational pensions in Sweden would be affected by the new rules, despite the fact that the government had had a long time to investigate, and said entities in the insurance industry needed more clarity on how these would affect their operations.PTK urged the government to move forward with the proposal changes more quickly as the EU was now initiating proceedings against Sweden for its lack of implementation of IORP II.One of PTK’s main tasks is managing the ITP occupational pension scheme, which covers 80% of salaried employees in Sweden.Separately, the Swedish financial regulator Finansinspektionen (FI) yesterday published its proposal for new regulations on occupational pension business, which implement part of IORP II and complete the regulation with national supplements.The draft regulation contains rules on how companies should calculate their technical provisions and risk-sensitive capital requirements, as well as provisions on pension companies’ capital bases; systems for corporate governance and investments, and the information that companies must provide to customers, FI said.The authority is also putting forward new draft regulations and general advice on reporting and accounting.It said that as a consequence of the new regulations, is it proposing that certain changes are also dealt with within existing regulations on information and reporting that apply to insurance companies.The new rules are set to enter into force on 1 December 2019. The consultation period on the proposal is to run until 13 September. Swedish trade union organisation PTK has urged the government to suspend the IORP II implementation rules it submitted to the Law Council on 16 May, saying the changes made since the original proposal do not go far enough.PTK, the council for negotiation and cooperation — a joint organisation of 27 member unions representing 880,000 private-sector employees — published a letter it wrote to the government at the end of June, calling for more work on the proposal and criticising the Swedish legislative process itself.In the letter, signed by the organisation’s pensions expert Dan Wallberg and lawyer Tomas Bern, PTK said that although the IORP II directive had been developed to take account of labour market conditions in each individual member state, in its bill the Swedish government had not taken advantage of this possibility.“The proposal poses a threat to the Swedish (collective pensions) model, and the parties’ opportunities to negotiate occupational pensions within the framework of the system they have built up and financed,” the pair wrote.
The market for 1e plans – individual pension plans for high earners – is becoming significant in Switzerland, according to a study carried out by PwC.The consultancy surveyed 11 leading 1e providers and found they had CHF3.8bn (€3.5bn) in total assets under management at the start of 2019 and were “ambitious and optimistic about future growth”.The surveyed providers expected their assets under management to grow to CHF12.7bn over the next five years – around 27% annual growth.Roger Ehrensberger, senior manager at PwC Switzerland, said their expectations were realistic because the already established plans were relatively young and there was increased interest from employers in setting up new ones. Source: PwC Roger Ehrensberger, PwCThe plans have been possible for a while but only really started being taken up after a legal change in 2017 clarified that providers would not have to guarantee a minimum pension. This meant that companies reporting under IFRS accounting rules could treat them as defined contribution plans, and Ehrensberger said many of these companies were “at least thinking about implementing a 1e plan”.The growth figures cited by the providers varied depending on the market they targeted, but all were significant, he added.As of the beginning of this year, the providers’ 1e plans had 16,175 members, up 41% since the end of 2017. More than 1,900 companies are affiliated, however, so the average number of members per company is eight.PwC’s survey found that “buy-ins” in 1e plans – additional voluntary contributions made by employees – exceeded regular contributions by a factor of 1.5, a significantly higher ratio than in traditional collective pension funds.The consultancy said this finding supported the view that 1e plans were attractive vehicles for individuals to make additional savings for their retirement, although the market’s youth and the nature of plan design could also be factors.“As by definition 1e investors are higher earners, these individuals often have more volatile income and earnings available to invest,” the consultancy noted.The most surprising finding, according to PwC, was that 1e plans currently had a higher average allocation to cash and bonds than more traditional collective pension funds.Ehrensberger said 1e plans were sometimes seen as “only plans for the rich people”.“From a certain political perspective there’s a challenge that these plans are high-risk investment opportunities exclusively for higher earners, but the asset allocation contradicts that,” he added.One explanation, according to PwC, is that real estate is less common in 1e pension plan providers than in collective pension funds. Many individuals may also be following default strategies that are often based on cash and bond allocations.1e plans allow individual employees earning more than CHF128,000 to choose from a range of investment strategies for the portion of their salary above that threshold.All the providers surveyed by PwC were multi-employer foundations. Typically only very large employers implement their own plans and Ehrensberger said the consultancy wanted to see how the 1e offering was faring in the general employer market.Development of assets “With the additional voluntary contributions people are making and regular contributions there’s growth already in the existing membership,” he told IPE.
The Pension Protection Fund (PPF), the body that protects members of UK defined benefit pension schemes, has reached its 1,000th scheme milestone as the retirement benefits of almost 4,000 members of the Carillion Rail (GTRM) Pension Scheme have been secured following its transfer to the lifeboat scheme.Members that were over the scheme’s normal pension age at the time of insolvency will receive 100% of what was in payment at that time, and those under that age will receive 90% subject to a cap.Without the PPF, members of the scheme would have received a share of the assets following the insolvency of the sponsoring employer amounting to 55% of their promised pension.The PPF now manages £32bn €37.6bn) of assets for close to 260,000 members located across the UK and globally.Currently, PPF membership is split between almost 155,000 already receiving their pensions and close to 105,000 members who will start their payments in futureCambridge Associates hires investment directorBen Alves Walters has been appointed an investment director within the pensions practice at Cambridge Associates. Based in London, he will work primarily with European pension funds helping clients invest, manage and monitor their global private investment allocations.He joined Cambridge Associates this month after more than two and a half years in the manager research investment team at Willis Towers Watson (WTW). Prior to WTW, he trained as a chartered accountant at PwC, before moving internally into the transaction services division. The National Grid UK Pension Scheme (NGUKPS) has selected Octopus Renewables, the specialist clean energy investor and part of Octopus Group, to manage a new UK corporate pension mandate to invest £185m (€217m) in UK solar and onshore wind assets.The funds will be invested through the Renewable Energy Income Partnership III (REIP III), the third fund in Octopus Renewables’ institutional investor income partnership strategy.Octopus has discretion in managing the 25-year mandate, which benefits from its attractive pipeline of opportunities and proven origination capability. Octopus Renewables is the largest commercial scale solar energy investor in Europe and has more than £3.2bn of energy assets under management.PPF reaches 1,000th scheme milestone
“Complexity can also have an inherent risk and this summer we made a decision that VIA was one of the areas where it made good sense for us to simplify”Bo Foged, CEO at ATPThe parties to the deal said that after the transactions closed, VIA Equity would continue operating from its base in the northern Copenhagen suburb of Hellerup.A spokesman for PFA said the pension fund had no comments on the sale.Explaining why ATP was making the shift in strategy, Foged went on to say: “Complexity can also have an inherent risk and this summer we made a decision that VIA was one of the areas where it made good sense for us to simplify.”But he said the decision to sell should not be perceived as dissatisfaction with the investment in VIA.“We will continue to participate in this part of the financial food chain, but we will be more selective with when we add complexity to the business,” Foged said.According to ATP’s 2019 report, the pension fund had a 99.8% stake and DKK194m of equity in VIA Equity Fund I at the end of last year, having made a DKK48m loss in 2019 on the investment in the year.VIA Equity Fund II, meanwhile, is also listed in the 2019 accounts as being 99.8% owned, but with DKK393m of capital, and having returned DKK33m during the year.In the 2019 annual report of ATP’s private equity subsidiary ATP PEP, the investment in VIA Equity Fund III is shown as being worth DKK499m at the end of that year.PFA’s 2019 list of unlisted shareholdings shows it had a DKK409m investment in Via Equity Fund III.VIA Equity was launched at the beginning of 2006 as Via Venture Partners, but changed its name in 2016. “However, it is time for a strategic change,” he said.“We want to simplify our organisation and participate in the broader Danish financial ecosystem to a greater extent using the experience we have gathered over the years in future partnerships with other players in Denmark,” said Foged, who took the lead at ATP officially in June, having been interim CEO since November 2018.ATP has agreed to sell its stake in VIA Equity Fund II to the Rothschild & Co private equity and private debt investment arm Five Arrows Managers and Oslo and Stockholm-based private-equity specialist Cubera.Another agreement sees ATP and PFA – Denmark’s largest commercial pension provider – selling their ownership stakes in VIA Equity Fund III to Five Arrows Managers and entities advised by Switzerland-headquartered alternatives firm LGT Capital Partners.The transactions are subject to certain conditions, including approval by the Danish Financial Supervisory Auhtority, and are expected to be completed in the first or second quarter of this year.Following the deals, ATP said it expected to wind up VIA Equity Fund I, which it said had reached the end of its lifetime. ATP and PFA, the two biggest pension funds in Denmark, have announced the sale of all their stakes in private equity funds run by Copenhagen-based VIA Equity – a manager set up with investment capital from ATP back in 2006.Buyers of the funds are Five Arrows Managers, Cubera and funds advised by LGT Capital Partners. The parties involved did not disclose the value of the deals, but figures on the pension funds’ websites suggest around DKK1.3bn (€174m) of assets were involved.ATP, which manages the DKK886bn Danish labour-market supplementary pension fund, said its decision to dispose of the investments made through VIA Equity were part of a broader strategy it had now adopted.ATP chief executive officer Bo Foged said the sales process proved VIA Equity had high international standards and that ATP was proud to have participated in founding a private equity fund that had performed well.