He said: “The financial sector did not want to believe anything despite all the proof you gave them.”The audience also heard that the driver behind impact investing is often a personal one – whether it is being mauled by a lioness or being kidnapped.Peter Henderson, chairman of Gate Broadband, who managed to escape the lioness in the end, talked about the Mawingu Project, which – in collaboration with Microsoft and the Kenyan Ministry of Information and Communications – has brought low-cost wireless broadband access to rural Kenya, in particular schools, via solar-powered based stations together with TV white spaces.The impact on education and learning is clearly visible.However, one of the most contentious issues in impact investment remains the measurement of impact other than the financial kind.The second roundtable heard about the latest developments in impact measurement.There are various agencies and frameworks – such as the Global Impact Investing Rating System (GIIRS), Impact Reporting and Investment Standards (IRIS) – around now to help to assess ESG impacts.The impact measurement process, according to Anna-Marie Harling, senior research associate at the European Venture Philanthropy Association (EVPA) in Belgium, should have five steps:set objectivesanalyse stakeholdersmeasure resultsverify and value the impactmonitor ands report the dataLiving through a kidnapping ordeal has helped Christopher Wasserman, president and founder of the Zermatt Summit Foundation NGO and president of the Swiss Terolab Surface Group, see things in a different light.He stressed that, although business overall can seem impersonal, business leaders have the possibility to change things.He said: “Business is not just about profit but about creating progress in society.”One of his projects is now to create jobs in Europe.The Mawingu Project, meanwhile, also intends to help stop the migration of rural residents to cities by creating jobs away from cities.Keeping farmers happy – and in the countryside – is also a crucial part of the sustainable agriculture and food production business.While investors in the food space now have a bad reputation, so much that many institutional investors – worried about being accused of land grabbing or inflating the price of food commodities – avoid the space completely, impact investment models such as Urmatt, a cooperation of family farmers in Thailand, or agroforestry, which aims to build environmental and social resilience in land-use, show a different, social investable side. This year’s TBLI conference went beyond the environmental, social and governance (ESG) sphere by paying a lot of attention to impact investment.Robert Rubinstein, chief executive of the TBLI Conference, opened this year’s event in Zurich by saying institutions continue to believe impact investing is incredibly risky.He pointed out that one of the banks alleging this was one of the six US banks contributing to the $125bn (€92.6bn) in legal fees that have been paid out since the crisis.He told the audience it was again a ”proof versus belief” issue.
The UK government’s attempts to end excessive pension fund charges have been thrown off course after its own regulatory policy committee (RPC) branded a key government document “not fit for purpose”.The committee – which scrutinises government proposals before they become law – has given a “red” opinion on the impact assessment carried out by the Department for Work & Pensions (DWP) on proposed legislation to reduce pension fund charges.Impact assessments are normally carried out as part of the legislative process to estimate the likely costs and benefits, as well as associated risks, of proposed legislation that has an impact on business, civil society organisations, the public sector or individuals.The RPC then provides an opinion on the quality of analysis and evidence presented in the impact assessment, which will help determine whether the legislation goes ahead. The government’s pension charge proposals suggest three options: do nothing; improve disclosure of charges; and set a charge cap on the default fund for automatic enrolment.The RPC said: “The evidence presented does not adequately demonstrate why Option 3 is considered to have a zero net impact on the pensions industry.”According to the impact assessment, Option 2 – which requires an increased disclosure of information by pension providers – is expected to cost the industry £172m (€204m), whereas Option 3 – an industry-wide charge cap in qualifying pension schemes – is only expected to cost the industry £19m.But the RPC said: “It would appear some pension providers may be making excessive profits above the expected norm. If this is the case, then Option 3 will result in a profit reduction for many of these firms. The evidence as it is currently presented does not adequately demonstrate why Option 3 is considered to have a zero net impact on the pensions industry.”It added that certain other potential costs did not appear to have been identified – for instance, ongoing costs to pension providers for providing the required information on charges under Option 3.The RPC’s report also said that, given the fact most pension charges are currently no more than 1%, a possible effect of a charge cap would be that providers charging less than this cap would tend to increase their charges to the level of the cap without losing customers.“The likelihood and impact of this outcome should be explored in more detail,” it said.It also questioned why a combination of Options 2 and 3 had not been discussed, given that they appear to result in different benefits – i.e. better transparency under Option 2, and a charge cap under Option 3.Darren Philp, head of policy at The People’s Pension, said: “The government’s charges impact assessment has been shown the red card by its own regulatory policy committee.“This was a consultation that lacked detail and was built on sand, and the government now needs to rethink and pick up the gauntlet thrown down by the recent Office of Fair Trading (OFT) report to improve transparency and comparability across pensions.”Alan Morahan, principal at Punter Southall, said: “The impact assessment states that, if a cap of 0.75% is introduced, 90,000 employers will no longer be able to use their existing pension scheme for auto-enrolment.“It goes on to state that the transitional cost of setting up alternative pension provision would be around £55m.“This implies an individual employer cost of around £611, which is a significant underestimate.”Morahan said the costs of successfully completing auto-enrolment for a smaller employer would be an order of magnitude greater, at around £5,000, with provider selection, negotiation and implementation costs of around £3,500.A more accurate cost estimate would therefore be £315m.“We would urge the DWP to give a clear indication that any of the proposed changes will not be implemented for at least 12 months,” Morahan said.“This would give employers and the pensions industry time to deal with the huge numbers reaching their auto-enrolment staging date in the first half of 2014.”
The Pension Protection Fund (PPF) has re-assessed its investment principles leading to a 12.5% allocation to “hybrid” assets that provide liability matching and outperformance.Historically, the UK’s lifeboat fund allocated 70% of its assets towards cash and bonds to match liabilities, with 30% in risk assets aiming for a LIBOR plus 1.8% outperformance target.However, in a re-jig of strategy, the fund will now invest in a wider range of assets previously deemed unsuitable for the silo nature of asset allocation.As a result, cash and bonds will now account for 58%, alternatives 22.5%, equities 7% and hybrid 12.5%. Meanwhile, the fund told IPE it has completed a £330m (€415m) real estate co-investment with insurer Prudential as its first significant hybrid asset allocation.It has also begun awarding risk-factor mandates over asset class mandates, giving external managers greater flexibility on asset selection.This includes private placements and loans as the fund completes the awarding of a mandate for direct lending.It will also finalise an emerging market debt tender that gives the manager freedom to invest across different emerging economies and credit qualities, with the fund solely looking at the absolute return target.Barry Kenneth, CIO at the lifeboat fund, said the previous silo allocation nature meant it could not use index-linked corporate bonds, as they would only fit in its risk-seeking portfolio, and not benefit from liability-matching characteristics.He also said the new hybrid investments allowed the fund to overcome regulatory challenges for its large liability-driven investments and derivatives book.The additional costs of continuing to run a large LDI strategy, underpinned by derivatives, is to increase substantially as the European Market Infrastructure Regulation (EMIR) takes hold, and Basel III decreases competition in the counterparty market.“These regulations mean, if we wanted to change our asset allocation in five years’ time, it would be a lot more troublesome to do so,” Kenneth said. “We can now have less reliance on the over-the-counter derivatives market.”The fund will now look at using new hybrid assets, such as corporate index-linked bonds, and allocate excess returns to the outperformance portfolio, and the liability characteristics to the LDI programme.A long-term lease, for example, will shift from alternatives to hybrid.“We’re not introducing new asset classes, but the assets by definition have more than one function,” Kenneth said.“A lot of the assets we currently invest in, we are just looking at them differently.”He said the PPF fit in somewhere between a pension fund and an insurance company, and that annuity providers often allocated to these assets.“I do not care what the asset is called, but rather what it gives us,” he added.With this, the PPF has awarded risk-factor mandates, which allows managers to invest across a range of assets but target illiquidity, excess return, inflation and duration.“In this kind of space, it is very important we do not constrain ourselves to particular asset classes,” Kenneth said.”This gives us the best chance to fill the 12.5% allocation, or around £3bn in three years.”The first significant asset was completed last week when it co-invested £330m in two commercial properties in Manchester with insurer Prudential.This provides the fund with a lease contract for 23.5 years, with an annual 3% uplift in rental income.Kenneth said the fund would continue to co-invest with insurers in real estate to ensure it moved into a higher-valued market away from the competitive lower-valued.
The parliamentary committee is made up of 11 MPs from across the three main parties.In other news, the Merchant Navy Officers Pension Fund (MNOPF) has rolled out a new payroll service that incorporates members’ other pension sources into one, ensuring members only receive one simplified payment.The system was introduced after the scheme formally wound up its Old Section of the defined benefit scheme with a £25m insurance buy-in. The £1.3bn Old Section is now fully insured with Rothesay Life and Legal & General.MNOPF said, as a result of the insurance buy-ins and buyout, some members will have had three separate insurance policies, leading to the new payroll system’s rollout.Lastly, the pension scheme for the British Medical Association (BMA) has appointed Buck Consultants to provide investment consultancy servies.The trustees of the BMA Staff Pension Scheme has around £300m in assets, servicing roughly 1,300 members.Buck is expected to provide the fund with investment advice, fund manager research and manager selection. The UK’s parliamentary backbench policy-scrutinising committee is to hold an inquiry into the progress of auto-enrolment. The Work & Pensions Select Committee, chaired by Labour MP Dame Anne Begg, will gather information and industry views on the progress of the policy.The committee’s last inquiry was in 2012, as the policy was rolled out among the UK’s largest employers.This latest inquiry will look into the lessons learned, issues for smaller employers, progress with automatic transfers, improving governance and administration and the implications of tax changes and introducing defined ambition.
The German government has presented a revised proposal to introduce “Dutch-style” pension plans covering whole industries that are part of collective agreements.Under the new draft law, companies would be allowed to “rid themselves” of pensions liabilities.However, minimum guarantees would have to be offered by the pension plan, which, in turn, would be protected under the existing pension protection scheme – the Pensionssicherungsverein (PSV).Presently, the banking, metal and building industries are some of the few in Germany covered by single industry-wide schemes. In the autumn of 2014, the government published its first proposal, but the local pensions industry, wary of the inclusion of yet another vehicle in the second pillar, was openly critical. The government’s most recent proposal states that any new vehicle to cover entire industries must be set up as either a Pensionskasse or a Pensionsfonds.As an exception, companies that are part of collective-bargaining agreements will be allowed to offer defined contribution plans. However, in this case, the pension provider will then have to offer minimum guarantees.To ensure these guarantees, the new vehicles – be they Pensionsfonds or Pensionskassen – must be covered by the PSV lifeboat scheme.Currently, companies setting up a Pensionskasse do not have to make contributions to the PSV, as Pensionskassen are considered insurance-like organisations.Pensionskassen set up as collective industry-wide vehicles, however, would not have to pay as much into the PSV as Pensionsfonds, the government said. With the new pension plan, the government aims to increase the introduction of occupational pension plans in Germany, particularly among smaller companies that have so far been unable to take on additional liabilities.The government has also mooted the possibility of allowing companies that are not part of collective-bargaining agreements to join such industry-wide pension plans. It added that industry-wide pension plans would also “mostly solve the persisting problem of portability” in the German job market.To get more of a sense of the state of the German second pillar, read German government to ‘strengthen’ occupational pensions sector
The International Accounting Standards Board (IASB) has approved proposals from its interpretations committee to make two amendments to International Accounting Standard 19, Employee Benefits (IAS 19).The move came during a 22 January meeting of the board in London.Board members also voted to issue the two amendments for public comment as a single exposure draft.The amendments cover: the effect of actions by the trustees of a defined benefit (DB) pension scheme to limit a sponsor’s ability to recognise a plan surplus in its accounts; andhow a plan sponsor calculates current service cost and net interest costs following remeasurement of its net DB liability following a plan amendment or curtailment.The impact of the plan surplus amendment could be most keenly felt in the UK, staff acknowledged in a meeting paper presented to the board.Staff acknowledged that the amendment could be of interest in the UK, where trustees can enjoy “unilateral powers to buy annuities (without changing a pension promise)”.The accounting rules for DB pension obligations under International Financial Reporting Standards (IFRS) are set out in IAS 19.The first of the two amendments discussed by the IASB on 22 January concerns a document known as IFRIC 14, a guidance document that explains how DB sponsors should apply the so-called asset-ceiling under IAS 19.The document was originally published in 2007 by the IFRS Interpretations Committee’s predecessor, the International Financial Reporting Interpretations Committee, or IFRIC.At issue is paragraph 58 of IAS 19, which limits the measurement of a DB asset to the “present value of economic benefits available in the form” of refunds from the plan or reductions in future contributions to the plan.Interacting with this requirement in IAS 19, IFRIC 14 deals with the interaction between a minimum funding requirement and the restriction in paragraph 58 on the measurement of the DB asset or liability.When a DB plan sponsor applies IAS 19, it must first measure the DB obligation using the projected unit credit method, on the one hand, and fair value any plan assets on the other.This calculation will produce either a DB asset or liability at the balance sheet date.Where a plan is in surplus, the sponsor recognises the lower of any surplus and the IAS 19 asset ceiling – that is, the economic benefits available to the sponsoring entity from the surplus.However, a constituent has asked the committee to consider whether preparers should take account of events that might disrupt the plan unfolding in line with the IAS 19 assumptions when they apply IFRIC 14.An example would be the trustees of a DB scheme whose future actions could reduce the ability of a sponsor to recognise an asset.For example, the trustees of a plan might have the power to augment members’ benefits or wind up the plan and purchase annuities.The committee previously discussed the issue during its March, May, July and September meetings last year.As for the impact of the proposed amendment, staff noted in their meeting paper that if a plan is closed to accrual of future benefits, “the impact of this issue could be significant”.This is because, staff continued, the “economic benefits from reductions in future contributions are not available (i.e. economic benefits are available only from a refund of a surplus)”.Outreach conducted by staff on the likely impact of the changes has “implied that this issue could have significant impacts on some cases and that diversity in practice exists”.Separately during the meeting, the IASB also tentatively agreed with the recommendation from the IFRS IC to amend IAS 19 to clarify the treatment of plan amendments, curtailments and settlements.The board confirmed DB sponsors should determine current service cost and the net interest for the remaining period after a plan remeasurement has occurred using the assumptions arising in the remeasurement.In addition, the board agreed that a sponsor should base the calculation of the net interest charge for the rest of the reporting period on the remeasured net defined benefit liability or asset.It also clarified the treatment of current service cost arising either before or after a remeasurement.The board said service cost arising in the current reporting period before a plan remeasurement occurs remains a component of current service cost and not past service cost.Service cost under IAS 19 is the cost borne by an employer of providing a retirement plan.The net interest charge is calculated by multiplying the net DB asset or liability by the sponsor’s chosen discount rate.Subject to confirming that the board and the IFRS IC have complied with formal due process requirements, the board will issue the proposed amendments in a combined exposure draft for public comment.
PwC will apply its expertise in reducing and financing deficits, and modernising pension plan design and member options, as well as asset liability strategy.The two companies said that, as concerns over conflicts of interest in the investment consultancy process continued to intensify, they believed an end-to-end independent advisory proposition was imperative.Robert Gardner, co-chief executive officer at Redington, said: “We are committed to help clients repair their deficits and protect their funding levels. “An integrated solution, leveraging the breadth, depth and skills of both firms, is the best way to tackle the needs of our clients.” PwC has joined forces with investment consultancy Redington to provide a new integrated service for pension fund trustees and sponsors.This is intended to provide independent advice on managing pensions risk, improving funding levels and eliminating deficits. The strategic alliance seeks to harness Redington’s investment advisory business alongside PwC’s multi-disciplinary pensions practice.Redington will seek to add value to the asset side of the equation by helping to drive returns, improve funding levels and reduce downside risk.
“The information is published in the AP funds reports – for example, in the annual reports and on our websites,” they said.The funds said they shared the view that transparency and cost efficiency were crucial for any management.“The AP funds in general have among the lowest cost levels in the industry, even in an international comparison,” they said.They said the AP funds’ operations and the audit of these activities were partly regulated by law, and that external auditors reviewed their operations and accounts every year.They were critical of the ISF’s report and methods.“The ISF has neither been in contact with us regarding its perceived difficulties finding information nor has it had any contact with us to verify its ‘findings’ regarding the AP funds, when writing the report,” the funds said.They said the report contained a number of misunderstandings and failed to provide a correct presentation of how the AP fund system worked.AP funds 1-4 also said that, for a fund manager in general, and a global pension fund in particular, determining an appropriate cost level was a complex process. “Calculating costs in isolation gives an all too simplistic picture,” they said.The level of costs should form part of the broad canvas, instead of being seen as the primary criterion of valuation, they said. “This means adopting a holistic view, involving an assessment of revenue and risks, as well as costs,” they said.They said it was cost-efficiency that needed to be put in the spotlight but that this was not presented in the ISF report.Meanwhile, a spokesman for AP6 – the Swedish pensions buffer fund that invests exclusively in unlisted companies – said all costs regarding the fund’s asset management, among other things, were disclosed in its annual report and easy to follow year from year.“The owner, the Ministry of Finance, makes an audit of our financial activities each year, which is reported to the Swedish parliament,” he said.Separately, a spokesman for AP7, the default premium pension provider, said the pension fund was very transparent about its fees, as the current management fee could always be found on its website.The ISF report referred primarily to the transparency of the buffer funds, he said, which AP7 is not. Sweden’s AP pension buffer funds have refuted a finding in an official report that there was a lack of clarity in their administrative costs, insisting they are transparent in reporting returns, risks and costs.A report released at the end of last month by the Swedish Social Insurance Inspectorate (Inspektionen för socialförsäkringen or ISF) on administrative costs in the country’s pension system found that some of the administrative costs for the AP funds and the premium pension providers – for example, transaction costs and other fees associated with transactions – were difficult to estimate.In a joint reply to questions from IPE, AP funds 1-4 said: “We are transparent in our reporting concerning returns, risks and costs.”The four funds said they reported according to the IFRS standard and were transparent regarding expenses, including commission expenses.
In 2014, it spent €286 for each worker and pensioner.The pension fund said it was also facing the expensive renewal of its insured pension arrangements with Aegon at the end of this year.The accrued pension rights remain with Aegon, which has guaranteed the nominal rights but will not grant any indexation.Last year, the scheme was able to grant its participants an inflation compensation of 0.1%.In a letter to its pensioners, the board of Kunststof & Rubber said the liquidation decision had been taken after the unions and sponsors failed to reach an agreement on a proposal to continue as an independent scheme, an option favoured by employees.As of next year, new employers can join the sector arrangements at PGB, which was initially the scheme for the graphics and printing industry.Over the past five years, however, it has expanded into other industries, including the chemical, cardboard and pharmaceutical sectors – and it has even taken the maritime fishing industry on board.At the moment, it implements pension arrangements for 2,300 companies with 66,000 staff in a total in 14 sectors. The €230m pension fund for the Dutch plastics and rubber industry is to join €21bn multi-sector scheme PGB after it failed to attract a sufficient number of participating companies.The social partners at the non-mandatory Pensioenfonds Kunststof & Rubberindustrie and PGB signed a declaration of intent that will see the smaller scheme join PGB next year.The pension fund Kunststof & Rubber has 7,240 participants in total, of whom 2,300 are workers, affiliated with 60 companies.As a consequence of its small scale, its costs for pensions provision were three times as high as those for large sector funds, it said.
The British Steel Pension Scheme (BSPS) could see its deficit hit £1bn-£2bn if its sponsor, Tata Steel, cuts all funding links, the scheme’s trustees have warned.BSPS’ investment team successfully eroded almost its entire estimated shortfall over the course of last summer, but the trustees today warned that the deficit would widen again if they were not permitted to adjust benefits.The £15bn (€17.6bn) scheme’s trustee board today wrote to members explaining its case for entering a “regulated apportionment arrangement” (RAA), allowing benefits to be “modified” to make them more affordable.The trustees said they were “pressing” the Pensions Regulator and the Pension Protection Fund (PPF) for permission to establish a RAA. Allan Johnston, chair of trustees, wrote in the letter: “Separation [from Tata Steel] through an agreed RAA, with members and pensioners able to have modified benefits in a new scheme, would be a better outcome than if Tata Steel became insolvent and the whole of the BSPS went into the PPF. That is why the trustees are actively exploring a potential RAA with Tata Steel, the Pensions Regulator, and the Pension Protection Fund.”Johnston emphasised that the trustees would not agree to the RAA until it was satisfied that entry into the PPF was otherwise inevitable.The RAA would involve the creation of a new pension fund. Members would then be given the choice of following the existing scheme into the PPF – which the trustees maintain is not necessary – or transferring to the new standalone fund.The decision would most crucial for BSPS’ more than 31,000 deferred members, who would face cuts of 10% to their promised pension payouts in the PPF. Members who have already retired would be paid in full.The BSPS trustees have previously proposed adjusting the scheme’s indexation rules to reduce its liabilities, but they have so far not made public any concrete proposals for what a RAA would look like.Deficit dilemmaCrucial to the agreement of a RAA is the UK government’s review of defined benefit regulation, expected this year.The Work and Pensions Committee – an influential group of politicians – published a report late last year calling for the RAA to be made more accessible for situations such as BSPS.In its letter to scheme members, the BSPS trustees said its next actuarial valuation, to be calculated as of 31 March 2017, would have to take into account a change to a lower-risk investment policy and “build in additional prudence” if Tata Steel is successful in its bid to cut its ties to the scheme.“Although the final position will not be known for some time after [31 March], recent funding updates show that the scheme would currently have a modest deficit if liabilities are valued using the same actuarial assumptions as were used for the 2014 valuation (adjusting for current market conditions),” the trustees said.But the loss of its employer covenant would mean a deficit of “between £1bn and £2bn”. This would require annual employer contributions of between £100m and £200m a year for 15 years, the trustees claimed, which Tata Steel says it cannot afford.Unions support scheme closureBefore any changes can be made to BSPS, it must be closed to future accrual. A consultation is currently underway regarding this proposal, and workers’ unions today recommended their members accept the closure.The Unite, GMB, and Community unions said in a joint communication to members: “It is our collective view, supported by our independent experts, that this is the only credible and viable way to secure the future”.Tata Steel’s proposal also included introducing a defined contribution (DC) scheme with an employer contribution of 10% of workers’ pay.Hugh Nolan, president of the Society of Pension Professionals and director of Spence & Partners, said this replacement DC arrangement “still compares favourably to the typical scheme offered to employees in many other industries across the UK”.“A decent pension scheme with sustainable employment does seem like a better outcome for members than a fantastic pension scheme that leaves them jobless,” he said. “Having negotiated the improved offer, I think the unions are doing the right thing recommending this deal to their members.”Negotiations between BSPS, the Pensions Regulator, and the PPF are ongoing.