Five of the largest UK local authority funds have committed £152m (€190m) to social impact investing after a year-long manager search.The pension funds, which jointly have around £30bn in investible assets, joined forces in 2013 as a means to invest for both financial returns and positive economic impact.The funds said the seed investments showed that social impact investing and financing local initiatives could align with a pension fund’s fiduciary duty.Through the Local Authority Pension Fund Forum (LAPFF), the schemes founded their initiative from a white paper that identified challenges and opportunities in impact investing. After 28 asset managers responded to a request for submissions, the funds have now allocated funds accordingly.Greater Manchester Pension Fund committed one-third of the total allocation, half of which was placed in a property fund.The other pension funds – West Midlands, East Riding, West Yorkshire, Merseyside and South Yorkshire – also committed to the property fund but in varying amounts.All the investors, bar East Riding and West Midlands, also committed to an industrial lending fund.Other areas of social impact investing include social impact bonds and social sector investments.The funds’ joint group, Investing 4 Growth, said impact investing brought new risks that needed to be overcome, such as a lack of track record, liquidity, presence of other investors and inexperience.Issues were also raised regarding a conflict between the pension funds’ investments, and the activities of their sponsoring local councils.Councillor Kieran Quinn, who chairs Investors 4 Growth, said that while the process of setting up the investment group had been challenging, movement forward should demonstrate that fiduciary responsibility can be aligned with delivering positive outcomes for communities.“Impact investing for pension funds is a new area of activity, and I hope that, having established the investment potential, other funds will join us in seeking further opportunities,” he said. He said that, even though the investments represented unfamiliar territory, and new asset managers brought their own risks, those risks could be mitigated to meet a fund’s expectations.“As we gain experience and see successful opportunities mature, I am confident these factors can be effectively managed,” he said.
This latter option would be taken if the government adopted the pot-follows-member approach currently under discussion, whereby an individual’s pension savings would be automatically accumulated in one pension plan despite job changes.The Department for Work & Pensions (DWP) said a year ago it would lift the restrictions, but as NEST receives a loan from government to fund its running costs until it becomes self-sufficient, it required approval for the plan from the European Commission.The commission concluded earlier this year that the aid was still compatible with the internal market, in spite of the changed conditions. Webb said there would now be a short technical consultation on draft legislation this autumn to remove the annual contribution limit and the bulk transfer restrictions. Consultancy Barnett Waddingham reacted to the announcement, saying NEST should show it could pay back its debt to the government before the restrictions were lifted.“Before the removal of these restrictions we should remember that NEST is essentially an artificial provider created by government loans that we as taxpayers fund to the tune of £239 million plus,” said Damian Stancombe, head of workplace health and wealth at the firm,NEST had been allowed to exist as a non-competitive entity because it would otherwise distort the provider market, he said.“The removal of the contribution limit and transfer restrictions is a step towards making NEST more competitive and should therefore only be allowed if the repayment of NEST’s debt to the government is properly clarified,” Stancombe said.Meanwhile, Roger Urwin has joined the 300 Club, the 15th member of the group consisting of leading global investment professionals.Urwin is the global head of investment content at Towers Watson, where he has worked since 1989. He currently is a board member of the CFA Institute’s board of governors and an advisory director at MSCI.He said the 300 Club was committed to an “agenda for change” that he wholeheartedly supported.“I think ahead to an investment industry that can realize its full potential as one of society’s most-prized contributors for good.“It can do so by overcoming some material weaknesses, which I see as excessive costs; inconsistent governance; unpreparedness to take a long view; and control over the negative impacts it can inflict on the wider economy and society,” he added.The group’s chairman, Lars Dijkstra, CIO at Kempen Capital Management, added that he welcomed Urwin and looked forward to challenging “conventional investment thinking” with him.In other news, the Society of Pension Consultants (SPC) has announced it is changing its name to the Society of Pension Professionals (SPP) immediately, to reflect its broad membership base.It is launching a new website as part of the new branding exercise.The SPP said its members now included not only consultants and actuaries but also accounting firms, solicitors, insurance companies as well as investment houses, independent trustees and others.These members also work with most of the 500 largest pension funds in the UK, it added.Duncan Buchanan, SPP president, said the new brand better reflected the “broad church of our membership which is drawn from across the whole pension landscape.”In its first year, the newly-renamed society’s main priorities would be to work with government, regulators and other industry bodies developing and introducing the tax changes to defined contribution plans and the guidance guarantee announced in the last budget, he said. The UK government has confirmed it intends to lift the restrictions on the state-backed pensions provider, the National Employment Savings Trust (NEST), in April 2017, following approval of the plans from the European Commission.In a written statement to parliament, pensions minister Steve Webb said: “I am pleased to announce the government intends to remove the annual contribution limit and transfer restrictions on NEST.”He said this would ensure all businesses could be confident that the “low cost and easy to use scheme” was among the options they could choose to enrol their workforce.The current cap on annual contributions and limits on bulk transfers are to be scrapped on 1 April 2017, and the government is also keeping the option of removing restrictions on individual transfer restrictions from 1 October 2015.
He said EIOPA had a duty to conduct tests on both the insurance and pensions sectors, but stressed it would not copy the insurance model.“Our aim is to develop a stress test framework that is appropriate and suitable for pension funds,” he said.“For pension funds, there is no experience of running these stress tests for both defined benefit (DB) and defined contribution (DC), and no way of analysing the direct transmission channels between pension funds and financial markets.“We do not want to start the thinking with the opinion big pension funds are systemically important – this is not our starting point. We want to understand the market better and how the linkages are.”He said once the data collection had taken place, the stress test would begin in 2015 and run in parallel with a quantitative assessment of scheme solvency, part of the holistic balance sheet consultation.On Monday, EIOPA launched a consultation on six frameworks for the contentious holistic balance sheet.He said this was the first step on the journey towards the creation of a risk-based framework for pension funds, adding that the consultation was much broader than any work previously done by EIOPA on solvency models.There are three levels within the consultation, moving from solvency requirements, minimum funding levels and using the holistic balance sheet as a risk-management tool.However, Bernardino stressed that using it as a risk-management tool would not be an easy option and said it should come with clear published results so funding levels can be analysed and, if necessary, stimulate reform.“They should not be without consequence,” he told NAPF delegates.“If it is concluded that the pension fund is providing unsustainable pension promises, regulators should take action, of course, using a flexible approach.“We are not promoting a new ‘one-size-fits-all’ approach. The framework should have built-in flexibility to deal with the range of occupational pension schemes in different [EU] member states.” The European Insurance and Occupational Pensions Authority chairman has defended proposed stress tests on IORPs as he announced a data-collection exercise in the coming weeks.Data will be collected from IORPs in the EU’s largest pensions markets, analysing approximately 10 years of investment data, particularly investment and divestments.The chairman, Gabriel Bernardino, said this would cover times of financial stability and stress, in order to define whether IORPs were pro or anti-cyclical.Speaking at the UK National Association of Pension Funds (NAPF) Annual Conference in Liverpool, he rejected accusations that stress tests were unnecessary and a burden on schemes.
PME, the €40bn pension fund for the Dutch metal industry, has appointed Eric Uijen as chief executive.He is to succeed Hans van der Windt, who is to retire on 1 July. According to PME’s board, Uijen has “very broad experience” in management and governance in the pensions sector.Currently, Uijen is director of the notaries scheme SNPF, which is preparing a merger with the pension fund for notaries’ staff. At the same time, he is chairman at SBZ, the industry-wide scheme for care insurers.Uijen has been director of the pension fund of industrial conglomerate Stork, which joined PME in 2012.As a director at provider MN, he has been responsible for the introduction of an administration system for PME.Furthermore, Uijen has been director of the industry-wide pension fund for the hospitality sector, Horeca & Catering.Franswillen Briët, PME’s chairman, praised Uijen for his experience and contacts in the pensions sector.Under Van der Windt, PME has taken in more than 20 pension funds.The metal scheme provides pensions for almost 150,000 workers and a similar number of pensioners, affiliated with more than 1,200 companies in the metal and engineering industries.
“We need to relentlessly pursue that vision,” Segars said.“We need to advocate policies that take us toward that vision and challenge those that distract us.“[A commission] would create that long-term view of the retirement savings system, build consensus around it and hold the government to account for delivering it.“[It] will help to ensure we can put the long-term interests of savers, not the short-term interests of politicians, at the heart of pensions policy.”The NAPF said its envisaged commission would be a “small group” with expertise to represent the interests of savers, employers, the industry and the wider economy.It would undertake detailed research and report to the government and Parliament annually, providing an assessment of the market with recommendations for change where necessary.The independent Turner Commission first suggested the policy of auto-enrolment after being set up in 2002 by the then Labour government.The NAPF, which is calling for a permanent commission, said Turner’s success was built on shared policy building and vision on what needed to change.“[The Turner Commission’s] process of decision making – thoughtful, evidence-based and inclusive – laid the foundations for a consensus that has delivered one of the most far-reaching public policy interventions in recent decades,” Segars said.In March, the Parliamentary body charged with scrutinising pensions policy called for a new commission to review several aspects of policy, including changes to the defined contribution (DC) market and auto-enrolment.However, it fell short of calling for a permanent stature.Outgoing pensions minister Steve Webb has admitted the structure of government was ill-suited for pensions policy but outlined a wider idea of creating a new government department focused on pensions and the ageing society.Webb faces re-election as a Liberal Democrat MP on 7 May with the outcome of whether he will remain in his seat, or his party in government, difficult to call.At an event in March hosted by the Society of Pensions Professionals, Webb said he disagreed with the notion an independent commission could remove “the politics from pensions”.While praising the work of the Turner Commission, Webb said removing politics from pensions was unattainable given the sensitivities around pensions policy and retirement ages.Any independent commission would only provide recommendations to government departments, leaving MPs to agree or disagree with implementation.Last year, the Danish government said the country’s pension system needed to be analysed and was considering the creation of a pensions commission to look at tax and insufficient coverage. The UK should create a permanent independent commission to create a long-term view of the pensions system and help build consensus around government policy and scrutiny over its delivery, a report has said.The report, published by the National Association of Pension Funds (NAPF), said the commission was not about taking decisions away from politicians but moving away from short-term opportunistic decision making.The call for an independent commission has been made many times; however, the new report has received backing from a wide spectrum of organisations the Association of British Insures (ABI), the Trades Union Congress (TUC), the Federation of Small Businesses, pension schemes and providers and the International Longevity Centre (ILC).Joanne Segars, chief executive of the NAPF, said the industry needed collectivism to agree on definitions for “good retirement outcomes”, ensuring savers reached targets and deciding what role pensions play and how much intervention into people’s decision making should be made.
“Pension funds really want to invest in infrastructure, and there’s no shortage of capital if the projects are structured in the right way with the right risk/return characteristics,” he told IPE.“[Wylfa Newydd] is a large project, relatively early in planning. The Thames Tideway is a pretty good model, so why not think about something similar?”The government has granted some guarantees to Thames Tideway investors, and it began paying backers a yield as soon as construction started.Weston added: “Thames Tideway was quite a success in accessing pension fund capital. It is an option that was proven to work. I’m not saying it would be exactly the same – it’s very different building a nuclear power station to digging a tunnel underneath London – but it’s a big construction project that will take a number of years to get built. It makes sense to look at Thames Tideway and see if those basic building blocks can be applied.”In July last year, Dalmore Capital – which manages money on behalf of the PiP – formed part of the Bazalgette Consortium that will finance the £4.2bn (€5bn) Thames Tideway Tunnel.In addition to Dalmore, the group included Allianz Capital Partners, Amber Infrastructure Group, DIF and Swiss Life Asset Managers.Last week, the PiP announced its first co-investment arrangement with founding investor Railpen.The £21bn pension fund invested alongside the platform to provide £20.3m of funds to refinance debt linked to a portfolio of nearly 2,000 rooftop solar panels. The UK government should utilise pension scheme demand for infrastructure to help fund a new nuclear power plant in North Wales, according to the chief executive of the Pensions Infrastructure Platform (PiP).Mike Weston, who has led the PiP since its formation in 2014, said the government should consider a similar funding structure to that employed in 2015 when securing institutional backing for the Thames Tideway Tunnel, a project to modernise London’s sewers.The site for the nuclear power station in Wylfa Newydd on the island of Anglesey is owned by Hitachi.The company is reportedly in talks with the Japanese government to secure funding for its construction, but Weston argued that it could be an ideal investment for UK pension funds.
A Swedish parliamentary group is seeking to address the huge difference between the pension men and women receive in retirement.The group — Pensionsgruppen — has published an action plan to equalise pensions between men and women, including the introduction of a simplified application process for the transfer of premium pension rights between spouses and registered partners.Annika Strandhäll, Sweden’s minister for social insurance, said: “We know that many pensioners have a hard time and 80% of those with a guaranteed pension are women.”The guaranteed pension is part of the Swedish state pension and provides basic protection for those who had little or no earnings during their working lives. Strandhäll said an important part of the ongoing work was therefore to see — as a matter of urgency — how the basic protection of the pension system could be strengthened.“There has been no comprehensive review of the basic protection offered in the pension system since the system was introduced almost 20 years ago, and it is high time that one was undertaken,” she said.The group said that pensions reflected income earned during a working life, and although Sweden was a relatively equal country, the lifetime earnings gap between the sexes meant that womens’ pensions were on average 30% lower than those of men.This was the prompt for the working group on pensions — which consists of representatives from six political parties — to tackle the issue of gender equality, the group said.Back in June, the group presented a big compilation of knowledge in the field, and the action plan was a continuation of that work, it said.As well as calling for a simplification of the transfer process for premium pension rights between partners, the group’s action plan also calls for a review of the basic protection in the pension system.“Because the pension is affected by global factors around it, the group will continue by monitoring developments in society such as the development of part-time employment for women and men, labour-market equality, the design of parental insurance, and occupational pensions,” it said.
The GPFG has doubled in size in the past five years as a result of the country’s revenue from its petroleum activities and investment returns. At the end of 2012 it had NOK3.8trn under management.Gjedrem said the two activities – central banking and investment management – differed in nature, and the scope of the tasks involved was substantial. “With two separate entities, the professional competence and the governing bodies can more easily be tailored to the task at hand,” he said.In the report it has presented to the ministry, the commission proposed that NBIM be set up as a separate statutory entity along the lines of the Folketrygdfondet, the manager of the GPFG’s smaller counterpart, the Government Pension Fund Norway (GPFN), which invests only in the Nordic region.The new entity should have a government-appointed board, the commission said. The Ministry of Finance would continue to define the fund’s investment mandate, and parliament would still approve important changes to that mandate.Gjedrem emphasised that the proposed separation had to be carried out “in a sound manner and must not in any other respect affect the framework for the fund”.Fund split ruled outThe commission cautioned against dividing GPFG into several entities, arguing this would entail extra costs and management challenges.The ministry said: “It is not meaningful in this case to create competition between government-controlled investment entities.”In neighbouring Sweden, the separation of the country’s national pensions buffer capital into several funds – the AP funds – has often been a matter of public debate.“The commission would also caution against using the fund as an instrument of foreign policy, business policy, regional policy, or environmental policy,” the ministry added.The commission also warned against the fund becoming “a government budget number two” for purposes not prioritised in the annual budget process.In order to safeguard the fund’s role in overall economic policy, however, the commission proposed that the fund’s goal was defined in the Government Pension Fund Act in a way that emphasised its function as a source of financing of the welfare state across generations. “The requirement of the highest possible return at an acceptable and carefully weighed risk level is thus of particular importance,” the commission said.The GPFG had to be a responsible investor, and its current practice of investing abroad should be established by law, it added. Gjedrem said: “This would reflect the fund’s role as a pillar for financing the welfare state and its role as a savings fund for the nation.”The GPFG is the third-largest institutional investor in the world, according to IPE’s Top 1000 Pension Funds report for 2016. Norway’s NOK8.1trn (€855bn) oil fund should be managed separately from the country’s central bank now that it has grown so big, a government commission has proposed.The Ministry of Finance announced last week that a commission set up to review Norges Bank and the Norwegian monetary system had recommended that the oil fund be managed by a separate statutory entity.Currently the Government Pension Fund Global (GPFG) – Europe’s largest sovereign wealth fund – is managed by Norges Bank Investment Management (NBIM), which is part of Norges Bank.Svein Gjedrem, chair of the commission, said: “Both central banking and investment management place greater demands on the board, senior management, and the organisation than earlier.”
The closed Dutch pension fund for dentists and dentist consultants (SPT) and its occupational pensions association (BPVT) are to sound out the interest among members for a new mandatory pension plan.The initiative is a result of negotiations between both organisations after a dispute about the composition of SPT’s board had led to the pension fund starting court proceedings about the BPVT’s role last summer.Meilof Snijder, the scheme’s temporary chairman, said that SPT, BPVT and the occupational associations for dentists and dentist consultants “wanted to take their responsibility for pension arrangements for the occupation”.“We have received signs that younger colleagues hardly save for their pension,” said Snijder. He estimated that currently 6,000-7,000 dentists were not participating in the pension fund and depended on individual arrangements. If a new and mandatory scheme for dentists were to be established, it would be “something alongside SPT”, according to the chairman.He added that re-opening SPT would not be likely. “Approximately 70% of our participants are pensioners and our investment policy has been tuned to this situation accordingly,” Snijder said.Following a provisionary agreement in the wake of the court proceedings, the BPVT reconfirmed that it would not come up with proposals for interim board changes.The occupational pensions association has also abandoned its initial objections against SPT’s plan to increase the annual fixed indexation from 0.85% to 1.15%.The parties have also agreed that Han Bakker – an orthodontist – will take over as chair from Snijder as of 1 January.Currently, Bakker is completing the necessary courses for getting his pensions expertise up to scratch, and has reached the level for the required assessment by supervisor DNB, Snijder explained.SPT, for its turn, said it would help BPVT’s new chairman, Ward van Dijk, increase his pensions expertise.Last summer, Van Dijk succeeded Peter Czaikowsky after the latter had stepped down as chair of the occupational pensions association.Part of the new agreement involves the pension fund providing BPTV with a fixed budget, based on its agreed tasks. In the past, the BPVT often significantly overspent its budget, according to Snijder.He said that the air between the pension fund and BPVT’s new board has been cleared and calm has returned following the new and “workable” agreement.SPT, which manages €1.9bn of assets for 2,850 participants and 4,125 pensioners, was closed to new entrants in 1997.
“A more open China heralds a more beautiful spring,” declared the Chinese ambassador to the UK, Liu Xiaoming, last week at a lecture in the new Bloomberg offices in London.What was most fascinating about his talk was what he did not mention, rather than what he did. The elephant in the room, and the name that dare not be mentioned: US president Donald Trump.In the topsy-turvy world in which we now live, China is opening its economy to free trade and globalisation, while the US has shifted to a narrower ‘America First’ policy, defined by a simplistic, mercantilist view of international trade.“A single flower does not make a spring,” Liu said. “It requires different flowers blooming together. The beauty of the world requires different countries blooming together.” That China is willing to publicly affirm that belief shows the confidence of a nation that knows its future is going to be better than its past, and that its rising prosperity can also be an enabler for increasing the prosperity of its trading partners. Wealth creation in the world is not a zero-sum game, as America’s mercantilists may believe.For China, 2018 represents the 40th anniversary of the start of its reform process and the opening up of the Chinese economy. In 1997, its GDP represented 2% of the global economy. In 2017, at $12trn (€10trn), it represents 15% of the global economy and is already the second largest economy on the planet. It is on course to become the largest within the next generation by a factor of two or three.China may be run by a Communist leadership but, as anyone who has been to China can vouch, its economy has embraced free markets with gusto. The Chinese call it “a path of socialism with Chinese characteristics”. Four decades of reform allows a certain perspective to be had on that process.The ambassador listed three lessons to be learned. Firstly, to advance the reform process, China had to follow the trends of the times. There was no clear textbook on what should be done; they had to “cross the river by feeling the stones”. The high-speed growth of the first few decades was being abandoned in favour of high-quality growth.The low hanging fruits have all been plucked, and it is the more difficult issues of what to do with state owned assets, environmental pollution and similar issues that require more resources.Secondly, to develop further reforms, Liu argued that China needed to find out what had gone wrong in the past, and adopt a solution-led reform process.Thirdly, the success of the reform process should be judged by its impact on the population, in terms of metrics such as poverty alleviation, urbanisation and the environment, he said.At the last Party Congress it was made clear that China intended to continue its policy of opening up its economy. The ambassador said this would be done through increasing market access in financial and manufacturing sectors. China would then create a more favourable environment for investment, with more protection for intellectual capital and the break-up of monopolies.Lastly, it would focus on increasing imports, Liu said. This is clearly an area of great sensitivity for the rest of the world, particularly in the US. China will be cutting tariffs on cars and other products, but it also wants to see a relaxation of rules on technology exports – again a sensitive area for both the US and the EU.While critics complain that China has not been effectively adhering to World Trade Organisation rules, Trump’s rhetoric has put pressure on China and what we are seeing could be interpreted as a response to such criticisms.For the UK, China represents its most important trading partner in a post-Brexit world. Germany leads the EU in terms of trade with China, particularly in manufactured goods, and it is hard to see that changing any time soon.The UK does not have anything to bring out of its cupboard that is going to supplant the demand for BMWs and Mercedes. What the UK does have is a vocal and high-profile consensus with China on upholding globalisation and a multi-lateral global trading system. The US is now adopting a narrow populist and anti-China stance – with Britain at least, China can see the ability to have a very stable long-term partner, and the UK government is anxious to exploit this.Last week, the UK’s minister for trade and export promotion Rona Fairhead opened the UK’s national pavilion at the Silk Road International Expo (SRIE) in Xi’an. The UK’s largest ever trade delegation to north-west China was in attendance, promoting key sectors where the UK has strengths, particularly advanced manufacturing.China has encouraged investment in its trade routes, such as the ‘One Belt and One Road’ initiative – this event was an opportunity for UK companies to showcase their prospects for cooperation.The ambassador made reference to the “golden era” of China-UK relations that opened up after president Xi Jinping’s visit to the UK in 2015. He also suggested that Britain pay attention to China taking a number of major steps to further open up its financial sector this year.The UK cannot compete with Germany in selling cars to China, but the ambassador did proclaim that Britain had always been at the cutting edge in finance.For Britain, can it take the lead in the new opportunities that China’s reforms will bring? Post-Brexit, developing more trade with China will be a necessity, not just a daydream.