Month: September 2020
Any chance for a tightening of rules controlling the sale of pension products looks lower than ever if the European Parliament in plenary session at Strasbourg, dealing with the Insurance Mediation Directive (IMD), is anything to go by.A report on the revised version of the IMD passed through, with the insurance industry’s pensions sector left out of its scope. If otherwise, moves to bring the occupational sector into line would be expected eventually – however far that ‘eventually’ might be down the timeline. The final text of the revised directive now has to be agreed, in trialogue, by the European Commission, member state national governments and Parliament. InsuranceEurope, the federation, expects that this will be after the end-of-May Parliamentary elections.Unsurprisingly, the federation writes that it is “pleased” with the Strasbourg outcome. It likes the fact the report confirms that various powers will remain in the hands of EU member states. In a press release, it writes that it is up to them to decide whether to prohibit or further restrict tight rules on, for instance, sales commissions, when selling insurance investment products. However, perhaps surprisingly, leaders of reformist groups in Brussels also welcome the Strasbourg development. This is despite the fact they are in a stag-like, head-to-head battle with much of the insurance and occupational pension based sector. For example, MEP Sven Giegold greets the Strasbourg development as a step forwards. He approves of the fact the majority of MEPs support the general principle of disclosure of commissions to brokers. The German Green Party clearly likes the idea of “More light shining on the existing high cost of insurance sales”. Likewise, support for Giegold’s position comes from Guillaume Prache, head of the European Federation of Financial Services Users. This body represents more than 4.5m individual pension savers. However, Prache’s warmth is tinged with the view that “We will still be facing the issue for non-insurance regulated pension products”. Closer to the firing line for tightening rules concerning sales of occupational pensions, but probably still far off, is the proposal for a regulation on packaged retail investment products (PRIPS). This would bring in a short-form, descriptive sales document – a new Key Information Document (KID) – to be supplied to purchasers of investment products at the point of sale. Here, a key contention is the inclusion of the KID regime for occupational pensions, which is strongly rejected by, among others, PensionsEurope.According to an official in the office of Giegold, the possibility of the scheduled clearance through trialogue of Prips before the election shutdown is now fading by the day. Discussions continue, he tells IPE, but national governments are holding up progress by seeking to reduce the scope of the requirement. This is despite the fact pensions are, for some time to come, excluded.
The initial order book was more than three-and-a-half times oversubscribed.JP Morgan and Morgan Stanley acted as joint lead managers of the issue, with Bank of America Merrill Lynch, Deutsche Bank and Goldman Sachs acting as co-managers.Wellcome spends more than £750m each year on its mission of improving human and animal health, largely through funding biomedical research and its translation into healthcare.The trust’s investments have returned a total of £7bn (57% cumulative, 9% annualised) in the five years to end-September 2013, recording positive returns in each of the five years.Annualised returns over 10 and 20 years have been 10%.Wellcome is currently rated Aaa (stable) by Moody’s, and AAA (stable) by Standard & Poor’s and said it was its policy to maintain these ratings.Wellcome issued two previous bonds, in 2006 and 2009, the first UK charity to do so.Danny Truell, CIO at Wellcome Trust, said: “We are delighted at the continued strong investor interest in us and the strength of our portfolio.“It has been our widely publicised strategy to regularly review market conditions and to access the bond markets when circumstances are appropriate.”He added: “We understand that not many issuers are granted the opportunity to borrow money for this long, particularly at the cost of funding we have secured.“It is testament to the strength of our financial position that we have seen such strong demand for this bond and are grateful to the many institutions who intend to entrust us with their money.” The Wellcome Trust – the UK’s largest charitable foundation, with an endowment of £16.5bn (€20.2bn) – has priced £400m worth of bonds with a maturity of 45 years, falling due in 2059.The issue is priced at a spread over Gilts of 58 basis points.Wellcome said it believed this was the tightest spread for a non-government related issuer in the sterling market since the financial crisis of 2008.It said it also believed the implied nominal coupon of 4% was the lowest for a non-government related issuer in the sterling market for a bond with a maturity in excess of 40 years.
River and Mercantile Group – James Barham has been appointed global head of distribution, while Jenny Yoe will be joining as managing director and head of UK institutional in April 2015. Yoe was most recently a director focusing on distribution to UK institutions for AMG in London. Meanwhile, Arabella Townshend, who joined R&M in 2010, has been appointed as head of consultant relations and will be responsible for developing relations with investment consultants in the UK.JP Morgan Asset Management – Jonathan Griggs has been appointed director of applied research for the Global Fixed Income, Currencies and Commodities Group. Griggs, who will be based in London, rejoins JPMAM after spending more than a year at Rogge Global Partners, where he served as senior portfolio manager. Before then, he spent 14 years at JPMAM, where he was most recently CIO for Currency Management.Buck Consultants at Xerox – William Parry has been appointed as an investment consultant, focusing on advising UK defined benefit and defined contribution clients. Parry has been advising companies and pension fund trustees on their investment strategies for more than five years, joining Buck Consultants from Lane, Clark and Peacock LLP.Duke Street – The private equity firm has appointed Stuart McMinnies as a partner. He joins from 3i, the international private equity, infrastructure and venture capital investor, where he was a senior partner.AXA Investment Managers – Monique Diaz has been appointed global head of compliance, based in Paris. She was previously AXA IM’s head of compliance in France.Invesco Perpetual – Asad Bhatti has been promoted to deputy fund manager on Invesco’s High Yield Fund. He joined the company in 2002 as a fixed interest credit analyst before progressing to senior analyst. Pensionskassen for Farmakonomer, Avida International, Capital Group, River and Mercantile Group, JP Morgan Asset Management, Buck Consultants at Xerox, Duke Street, AXA Investment Managers, Invesco PerpetualPensionskassen for Farmakonomer – Susanne Engstrøm is stepping down from her position as chairman of Denmark’s Pensionskassen for Farmakonomer, the pension fund for pharmaceuticals experts. She will be replaced by Jesper Hjetting, who, like Engstrøm, is a nominee from the industry association behind the pension fund – Farmakonomforeningen, the Danish Association of Pharmaconomists (pharmaceuticals experts). The pension fund said Engstrøm had decided to give up the role after many years of duty. Her term as chairman of the association ended last November, and her term as chairman of the pension fund was due to end this spring. Hjetting is already familiar with the pension fund, since he is currently a board member with insurance expertise, the association said. Avida International – Don Ezra is to join the advisory board. He recently retired as co-chair of global consulting for Russell Investments worldwide. Ezra is lecturer at the Board Effectiveness Program for Pension and Other Long-Horizon Investment Institutions of the Rotman International Centre for Pension Management. He is also a fellow of the American Savings Education Council and a member of advisory board of the World Pension Summit.Capital Group – Fabian Wallmeier has been appointed to the newly created position of institutional director for Switzerland. Based in Zurich, he will be responsible for institutional client relationship management and business development across the whole of the country. He joins from Fidelity, where he was a director and head of institutional business for Switzerland. Before then, he was responsible for DB Advisors’ institutional sales in the country.
Cœuré said that because of the G20’s commitment to introduce clearing obligations in the wake of the global financial crisis, CCPs had become “super-systemically important”, and it was critical to make sure they were safe.On the subject of whether authorities should be doing more to address potential weaknesses in CCP risk management, he said that even though standards have been bolstered since the financial crisis, catastrophic losses beyond those already covered by the regulatory requirements could still happen.“Given the critical role of CCPs in financial markets, regulators need to think the unthinkable,” he said, citing the default of a clearing member at KRX, the South Korean CCP, which had caused it to tap its mutualised default fund.His warnings comes not long after Jonathan Hill, European commissioner for financial stability, urged the US to work with the EU on new regulation to avoid a “devastating” CCP collapse. The Commission is soon to publish a new resolution framework for CCPs. Cœuré said mandatory central clearing did allow risks to be pooled, monitored and managed, but that pushing more complex products towards mandatory central clearing made risk management more challenging.“Authorities may need to assess whether overly complex products should really be submitted to central clearing, so as to ensure CCPs can continue pooling risks in a safe and efficient way,” he said.There had been concerns recently about whether the level of risk management across the CCP landscape was consistent and adequate, he said.“New requirements may well prove necessary but the impact and coverage of the existing regulatory framework should first be comprehensively assessed,” Cœuré said.In order to illustrate how severe the consequences of a “stress event” at a major global CCP could be, he said that in September 2014, the gross notional outstanding amount of centrally cleared positions was estimated at $169trn (€139trn) for over the counter interest rate derivatives, and $14trn for credit derivatives — around ten times US or EU GDP. New regulations may have to be introduced to make sure central counterparties (CCPs) are robust enough to withstand events that could otherwise cause catastrophic losses within the financial market system, the European Central Bank (ECB) has said.Benoît Cœuré, member of the executive board of the European Central Bank (ECB), said: “Because of their growing systemic importance, CCPs need to be exceptionally robust, and that means being able to cope with even extreme losses.”Speaking at an event at the Federal Reserve Bank of Chicago, he said it may be necessary to increase their existing loss-absorbing capacity.“But what is less clear at the moment is whether this can be done by having CCPs observe the existing, tough international standards, which have been introduced only relatively recently […] or whether there is a need for new requirements that are more demanding or more specific,” he said.
BE said it would instruct lawyers to commence proceedings as soon as possible.Shareholders will seek to establish they are entitled to compensation for losses caused by VW’s alleged breaches of Germany’s Securities Trading Act, based on the company’s apparent failure to inform the market, over a long period of time, about its suspected practice of installing and using the “defeat device” software in a very significant number of vehicles it manufactured and sold into the US and other world car markets.The actions will claim this information constitutes inside information under the relevant German legislative provisions and should have been immediately released to the market.BE is inviting all current and former shareholders that acquired at least 10,000 VW shares on a German exchange during the period 1 January 2007 to 18 September 2015 inclusive, and that had not sold all of those securities before the market opening on 21 September 2015, to contact it to participate in the action.Jeremy Marshall, CIO at BE, said: “The apparent secret use of defeat devices by VW and the ensuing scandal that erupted upon disclosure of this practice has caused significant harm to Volkswagen’s reputation and financial position, as well as raised serious concerns as to the corporate governance regime within one of Germany’s blue-chip companies.”He added: “Shareholders are justifiably concerned VW has appeared to have allowed this practice to continue for what may have been a number of years, in the assumed knowledge that its disclosure to the market would be likely to cause them and their shareholders significant financial harm.“We expect a legal claim to reveal the true extent of the problem and allow shareholders to seek compensation for the undoubted harm that has been suffered.”Bentham Europe is a joint venture between IMF Bentham, a publicly listed company that funds litigation and arbitration claims in Australia and elsewhere, and subsidiary entities of funds managed by Elliott Management Corporation, a US-based advisory firm.Meanwhile, US lawyers Robbins Geller Rudman & Dowd have started a class action in the US District Court Eastern District of Virginia, alleging violations of the federal securities laws by Volkswagen AG and certain of its officers and/or directors.The action has been brought on behalf of purchasers of VW publicly traded ordinary and preferred American depositary receipts between 19 November 2010 and 21 September 2015. The first moves are being made to bring legal action against Volkswagen on behalf of investors who lost money following last month’s revelations that the car manufacturer used “defeat device” software on thousands of diesel vehicles sold in the US, enabling them to violate emissions standards.Around €25bn was wiped off the company’s market capitalisation on German exchanges in two days following revelations of the fraud by US environmental agencies, the share price plummeting from €160 to €100.Bentham Europe (BE), a third-party litigation funder, said it is now in discussions with institutional investors worldwide to fund a shareholder action in Germany against VW, alleging breaches of German securities law over an eight-year period from 2007 to 18 September 2015.It is intended to bring the actions – on behalf of investors who bought VW shares on German exchanges – in the German courts.
The UK government has not ruled out launching a national infrastructure platform for local authority asset pools in England and Wales, despite the ongoing efforts of a number of schemes to develop real-asset vehicles.Marcus Jones, minister for local government, said his Department for Communities and Local Government (DCLG) was committed to establishing a national infrastructure platform to serve local government pension schemes (LGPS), which are working on proposals to launch as many as eight asset pools.Speaking at the Pensions and Lifetime Savings Association’s local authority conference, Jones said he was “absolutely happy” to develop “either a new or existing platform to meet the needs of the LGPS”.Asked whether the government would consider using the existing infrastructure vehicles owned by UK pension funds – such as the £500m (€654m) joint venture between the Greater Manchester Pension Fund and the London Pensions Fund Authority (LPFA), or the Pensions Infrastructure Platform (PiP) – Jones said he was “well aware” there were a number of existing investment vehicles. A single infrastructure vehicle was also proposed by Project Pool, a report submitted to the DCLG that saw responses from two dozen local authorities, while Greater Manchester suggested its joint venture with the LPFA could become a clearinghouse for infrastructure projects. “We are looking at that very carefully in the context of what we’re trying to achieve,” Jones told delegates.“But, at the moment, we are not ruling out looking at a completely new investment platform for all of the pools, as we are certainly as well not ruling out using, or adapting, one of the existing infrastructure platforms we have.”Addressing concerns the government would encourage the sector to invest in domestic infrastructure, Jones said there was space for investments to take place overseas, as some markets had more advanced infrastructure markets from which the UK could learn.His comments largely echoed the wording of a letter sent in late March to all English and Welsh LGPS in the wake of the first pooling consultation, which concluded in mid-February and asked for potential pools to outline how their collaboration could work.Pooling vehiclesIn the letter, Jones emphasised that he would prefer funds to pool assets into vehicles registered with the Financial Conduct Authority (FCA), a point he reiterated in his speech at the conference.“Looking back at the initial proposals submitted in February,” he told delegates at the PLSA event, “it will be no great surprise to any of you I have significant concerns about structures that are not FCA regulated, as appropriate for pooled investors – particularly in regards to tax treatment by other governments.”Jones said the emerging pools also needed to be alive to the risk of “unwittingly” launching unauthorised collective investment funds, which he noted was a criminal offense.The minister suggested he could not rule out future changes to accrual within the LGPS, only two years after the funds in England and Wales switched to a career-average system.He also emphasised the importance of preserving the value for money of the LGPS for local taxpayers, later noting that, if the scheme were unable to stay within the budget negotiated in 2013 and no other savings measures were agreed, accrual changes would begin as a matter of default.This contrasts with the previous government’s stance when reforms were announced, at which point assurances were made that the changes would be for at least 25 years.
The UK’s tax authority, HMRC, has announced another 12-month extension to a transitional period that effectively frees defined benefit (DB) pension schemes from paying value-added tax (VAT) on investment and administration services for their assets.This adds to the one-year transition period already granted and allows scheme sponsors to deduct the VAT charged on these services from their tax bills until 31 December 2017.The background to the announcement is a ruling by the European Court of Justice three years ago that the investment management fees Dutch employer PPG paid on behalf of its DB schemes should be tax exempt.Explaining why it was extending the transitional period again rather than making any more permanent change to rules, HMRC said: “It’s taking longer than expected to reconcile the court decision with pension and financial service regulations, accounting rules and emerging case law.” It said taxpayers could continue to use the VAT treatment outlined in ‘VAT Notice 700/17: Funded Pension Schemes’ until the end of December 2017.“Towards the end of this period, we’ll review this position and consider the need for a further extension if necessary,” HMRC said.Ian Bell, head of pensions at consultancy RSM, said trustees of pension schemes and sponsoring employers had been anxious for further clarification from the tax authority on its policy regarding VAT recovery conditions of employers and trustees of DB pension schemes.“When you consider that the European Court of Justice decision in PPG Holdings dates back to 18 July 2013,” he said, “it beggars belief we still do not have any definitive guidance that takes account of not only the VAT position but also contractual, regulatory, independence, accounting and direct tax issues.“Surely it’s not beyond the wit of the Treasury and HMRC to facilitate a joined-up solution, although there could, of course, be a further underlying objective that, following the Brexit vote, delaying any decision may mean the case law never has to be implemented at all.”Given the issues HMRC will now have to reconcile, Bell said it was unlikely any more guidance on VAT recovery of pension costs would be provided until at least autumn 2017.“Or perhaps it is now in the long grass, never to be seen again,” he said.
In addition, members will receive back payments dating back to March 2016 when BHS filed for bankruptcy.The £363m (€424m) includes £343m in funding for the new scheme and a separate £20m to cover expenses and implementation costs.TPR chief executive Lesley Titcomb said: “The agreement we have reached with Sir Philip Green represents a strong outcome for the members of the BHS pension schemes. It takes account of the interests of both pensioners and the PPF, and brings a welcome level of certainty to present and future pensioners.“Throughout our discussions with Sir Philip and his team, we have always been clear that we were determined to achieve the right outcome for members of the schemes both in terms of the amount and the structure of the settlement.”Setting up the new scheme “is likely to take a number of months”, TPR said in a document outlining the BHS settlement.Alan Rubenstein, chief executive of the PPF, said the arrangement “relieves the PPF’s levy payers of the cost of meeting the initially reported shortfall. The Pensions Regulator will be monitoring the new scheme and members will be protected by the PPF”. The BHS pension saga became a flagship case for defined benefit (DB) scheme reform last year. The Work and Pensions Committee, a group of members of the UK lower house of parliament, last summer published a damning report into the chain’s collapse.The committee – chaired by Frank Field – said at the time that Sir Philip “gave insufficient priority to the BHS pension scheme over an extended period” and “contributed substantially to the demise of BHS”. During the inquiry by the committee, Sir Philip had promised to help fix the BHS schemes, which were both in deficit.BHS was also cited in the government’s recent consultation on corporate governance reform , with the Work and Pensions Committee calling for trustees of large pension funds to be subject to the UK’s corporate governance code.TPR is still investigating the roles of Retail Acquisitions Limited, which bought BHS from Arcadia, and its director Dominic Chappell. The former owner of British Home Stores (BHS) is to pay “up to £363m” (€425m) to the bankrupt chain’s two pension funds, the UK’s Pensions Regulator (TPR) has announced.The arrangement will mean members of the two schemes who are yet to retire will not have to transfer to the Pension Protection Fund (PPF), avoiding a 10% cut to their benefits. TPR has ended its enforcement action against Sir Philip Green, whose Arcadia Group sold BHS in 2015. BHS declared bankruptcy last year.TPR has set up a new pension scheme, to be overseen by three independent trustees, and the existing schemes’ 19,000 members will be given the option to transfer in. The regulator said benefit payments in the new arrangement would be “on average” closer to those from the existing BHS schemes, and better than the payments available from the PPF.Pensions built up prior to April 1997 will increase at 1.8% a year, the regulator said. The PPF does not apply increases for pensions accrued before April 1997. Some members will have the option of a lump sum transfer, and members will be permitted to transfer to the PPF if they prefer.
A spokeswoman for the European Commission told IPE that it took on board the outcome of the TTYPE project’s work in deciding to pursue the cross-border ETS.Although the commission is offering initial support to those wishing to set up an ETS, it is not taking responsibility for its implementation or running, according to the spokeswoman.The funding is to help stakeholders with implementing the pilot stage of the ETS only. The call for proposals is therefore aimed at stakeholders “who would take full ownership of the ETS and have a long-term strategy for its full roll-out”.Only one proposal will receive a financial grant from the EU. This is not allowed to exceed 80% of the total “eligible costs of the action”, with applicants needing to guarantee financing the remainder from other sources.The total budget earmarked for the EU’s contribution is estimated at €2.5m. Funding can be for activities such as “actions aiming at the creation and improving of networks”, digital infrastructure development, conferences and seminars, and/or analytical studies, according to the commission’s document.The TTYPE consortium had calculated that, after deducting membership fees of €3m, around €17m would be needed in the first five years to cover the costs of developing, connecting, and running the ETS.Case for ETS ‘reinforced’The European Commission proposed the establishment of an ETS for pensions in a white paper in 2012. In its call for proposals document it said that developments since then, such as the IORP II Directive, had “reinforced” the case for cross-border tracking services.According to the document, the pilot stage of the ETS should cover at least five EU member states or other countries deemed eligible, and “offer functionality that allows users to find their former supplementary pension funds in the participating countries”.It should be designed in a way that would allow it to be subsequently rolled out to more countries and with more functionality, and the strategy should focus on making the ETS financially self-sustainable after full roll-out.Where possible, the ETS should include information on statutory and/or personal pensions, although the main focus should be on occupational pensions, the commission said.Information provided by the ETS should be compatible with the pension information provisions of the Supplementary Pension Rights Directives and the IORP II Directive “and offer pension providers a cost-effective tool for fulfilling their information duties”.The call for proposals can be found here. The European Commission is taking applications for providers interested in setting up a European tracking service for pensions.Launched last month, the call for proposals delivers on a commitment made by the Commission last year to offer initial support to stakeholders looking to set up a European Tracking Service (ETS).Applications can be submitted until the end of May.In June last year a consortium of European pension providers presented a business plan for a cross-border ETS, called Track and Trace Your Pension in Europe (TTYPE). The providers said such a service would take six years to break even and so would initially be reliant on grants from the commission.
Sir David added: “It is a very difficult balance to strike in the midst of continuing low interest rates and uncertainty surrounding Brexit, tuition fees and university funding, and the global economy. These factors make both past benefits and the benefits being earned today more expensive to fund. The UK’s largest pension fund has reported an estimated shortfall of £5.7bn (€6.4bn), despite reaching assets under management of £68bn.In its annual report for the 12 months to 31 March 2019, the Universities Superannuation Scheme (USS) said it was 92% funded, using estimates and assumptions based on its controversial 2017 valuation.The scheme’s employer organisation and workers’ union are still attempting to reach an agreement over future contribution levels, after a threat to close USS’ defined benefit section triggered nationwide strikes last year.In his introduction to the annual report, published today, chair of trustees Sir David Eastwood acknowledged that there were “no easy answers” to the scheme’s funding problems “but we are committed to working with our stakeholders to find a way forward that protects all that is good about USS”. Sir David Eastwood, USS“While we might reasonably assume that conditions will be better in the future, we also need to weigh in the potential consequences of being overly optimistic in this regard, which could be severe.“We acknowledge the challenges in levying higher contributions and have worked hard to find ways in which these can be escalated gradually, or made contingent on events.”He also highlighted the performance of USS’ in-house investment team. Despite underperforming its internal benchmark by 1.6 percentage points during the year, over five years the scheme has added £389m of value.It also maintained its cost base at 34 basis points for investment management costs, the same figure as last year. Bringing staff in-house over the past five years helped reduce costs from 47bps to 34bps, USS said. Credit: Warwick University UCU branchUCU members striking at Warwick University over USS proposalsElsewhere in its annual report, USS said it would seek to improve its member communications in the months and years ahead. The pension fund has been criticised by some of its members for a lack of communication, particularly regarding the ongoing dispute around the calculation of liabilities.Bill Galvin, USS’ chief executive, said he was “proud” of the pension fund’s work during the year, but added: “Nonetheless, it is clear that some members feel that we have not handled or communicated the complex issues we are grappling with as well as we might.”USS’ latest “member perception” survey found that just 31% of members reported having a positive relationship with their pension fund, down from 38% a year earlier. Just under a quarter (23%) said they held a negative view of USS.The pension fund said the valuation process and USS’ handling of it were “clearly… strong drivers of the outcome”.In a bid to address these issues, USS said it would overhaul its website and member online portal, expand its direct interactions with members, and provide “enhanced support” to members about retirement options.This article has been amended to correct the deficit figure – USS reported a shortfall of £5.7bn, not £7.3bn as previously stated.