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Ireland to introduce replacement pensions levy

first_imgNoonan said the new 0.15% levy would only apply until the end of 2015, raising an estimated additional €135m next year.However, due to the overlap between the new levy and the existing charge, the stamp duty applied to pension fund assets would next year rise to 0.75%.Mercer and employer groups joined Jerry Moriarty, chief executive at the IAPF, in condemning the new levy.Moriarty told IPE the announcement was “fairly outrageous” and condemned the “disingenuous” way in which Noonan went about introducing the new charge in his speech.“It was announced in his speech that he was abolishing the levy, and, as from next year, he’ll be introducing a 0.15% charge,” he said.“But there wasn’t any reference to the fact it was actually going to be 0.75% next year. We’ve got a double whammy.”Questioning whether the government would not simply introduce a further levy next year, Moriarty added: “The minister himself talked last year about the need to restore confidence for pension savers – this does the exact opposite.”“The minister himself talked last year about the need to restore confidence for pension savers – this does the exact opposite.”Employer lobby group IBEC – which earlier this year said the government should “under no circumstances” extend the current levy or introduce a new measure – also made its displeasure with the announcement known.Its chief executive Danny McCoy said: “The retention of an unfair pension levy, which the government had promised to drop, is a major disappointment.”The increase to 0.75% comes despite the fact that the nearly €520m raised in 2013 from the current levy has exceeded the Department of Finance’s expectations.The department noted the “over-performance relative to expectation” from a number of taxes.In a document detailing Budget measures, it said: “In particular, the over-performance of the pension levy in 2013 relative to expectations is welcome and comes as a result of an appreciation of the capital value of pension funds.”Niall O’Callaghan, head of defined contribution at Mercer, was also highly critical of the move.“This announcement of a new levy is yet another attack on pensions and will deter people from saving for their future,” he said.According to an IAPF annual pension investment survey, assets held within defined benefit and defined contribution funds rose by 11%, to €80.5bn, over the course of 2012.Despite Noonan’s insistence that the new charge would help the government “make provision for potential state liabilities” stemming from a pending High Court ruling to interpret the ECJ judgement, he gave no indication the assets would be set aside in a standalone protection arrangement similar to the UK’s Pension Protection Fund, also funded by a levy.Martin Haugh of LCP previously suggested that it would be “very hard” for a protection fund to be set up in Ireland without the introduction of a statutory debt upon the employer requiring any existing deficit to be funded on insolvency. The Irish government has reneged on repeated promises to abolish the pensions levy on private sector pension funds and instead lowered it to 0.15% for 2015 in a move branded “outrageous” by the Irish Association of Pension Funds (IAPF).In his Budget speech, minister for finance Michael Noonan was keen to present the levy as a new charge meant to help the state prepare for any liabilities incurred as a result of the European Court of Justice ruling in the Waterford Crystal case, rather than a continuation of the 0.6% stamp duty introduced in 2011 that he last year pledged would end.He told the Dáil he wished to “confirm” that the 0.6% rate would be abolished from the end of next year.“I will, however, introduce an additional levy on pension funds at 0.15%,” he said. “I am doing this to continue to help fund the Jobs Initiative and to make provision for potential state liabilities that may emerge from pre-existing or future pension fund difficulties.”last_img read more

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Number of cross-border IORPs increases for first time since 2011

first_imgThe market for cross-border Institutions for Occupational Retirement Provision (IORPs) has returned to expansion over the last 12 months, after two years of contraction or stagnation, according to official figures.The number of IORPs rose to 86 by 1 June this year, a report on cross-border IORP activity by the European Insurance and Occupational Pension Authority (EIOPA) showed.This compares with 82 IORPs reported to be authorised in last year’s report.The 2013 report showed cross-border IORP numbers had fallen to 82 from 84, with that decline coming on the back of the 2012 figures, where the quantity of workplace schemes remained unchanged from the year previous. In the 12 months to the beginning of June, there were eight new cross-border IORP authorisations and four withdrawals.However, EIOPA said two of the stated withdrawals were simply the result of an error in reporting the previous year, which suggested the growth in overall cross-border IORPs this year was even stronger, with a net increase of six IORPs.The latest report includes new data for the first time, which EIOPA says should give a more comprehensive and detailed overview of the European occupational pensions landscape as a whole.New information includes the total number of IORPs and related insurers in the EEA, an estimate of the assets they hold and data on the number of active cross-border IORPs as opposed to those simply registered as such.For the first time, the survey also gives an overview of the host countries to the active cross-border IORPs as well as an overview of which countries act as home and host countries.Most of the 86 authorised IORPs were from the UK, Ireland or Belgium, with these countries home to 29, 33 and 12 schemes, respectively.Of the 86 cross-border IORPs in the EEA, 75 were actively operating.All of the UK’s 29 authorised IORPs were active, compared with 25 of Ireland’s 33 IORPs and 11 of Belgium’s 12.last_img read more

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Printing industry fund PGB returns insufficient for indexation

first_imgThe scheme’s matching portfolio – consisting 50% of its assets, invested in high grade euro-denominated government bonds and credit – generated 5.1%, the pension fund said.It added that government paper had already yielded 20.3% during the first nine months, thanks to declining interest rates.PGB’s 30% equity portfolio produced a quarterly result of 4.4%, while its 20% alternatives holdings returned 3%. With a return of 8.3%, emerging market credit delivered the best result.Property, infrastructure and inflation-linked bonds returned 1.3%, 4.3% and 0.2% respectively, PGB reported.During the past three months, the pension fund saw its funding decrease by 1.8 percentage points to 104.8%.In this period, its assets rose by €600m as a result from returns on investments and €900m due to schemes joining PGB, which has branched out to pension plans from the sectors process industry, paper, rubber and financial services.Following the addition of 8 new contracts, PGB’s total number of participants and pensioners increased by 4,000 to 108,223 during the last quarter, the pension fund said. PGB will not be able to provide its members with indexation under the new financial assessment framework (FTK), as returns on its equity and government bond holdings are not sufficently boosting its coverage ratio, the €17.8bn fund has said. In a note on its third quarter results, it said that the interest rate on Dutch government bonds with a 10-year duration had slumped to 1.1% at September-end, while expected returns on equity were no more than 6%.The pension fund for the printing industry reported a net quarterly result of 3.8%, taking its year-to-date performance to 12.9%.However, it said that the combined effect of its currency risk hedge and the 50% hedge of interest rate risk had lowered quarterly returns by 0.7 percentage points.last_img read more

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IPE Views: Europe expands!

first_imgInvesting in European equities is much more complex than it may appear at first glance, warns Joseph MariathasanWhen my children were in nursery school, they always used to get confused between Austria and Australia. I had to explain that one was a small country in Europe with lots of mountains and the other a large country on the other side of the world with no mountains. Luckily, they have grown up a bit since then, as I would have a hard time explaining to them why Australia is now an entrant in the Eurovision Song Contest this year (yes, it’s true), hosted, appropriately enough, in Vienna in May. Perhaps Melbourne may have been an alternative option given Australia’s participation, particularly since it is reputed to be the second-largest Greek city after Athens. And if Greece’s largest export continues to be its young people, it may end being the largest!Investors face the same issue – what exactly does Europe mean? Investing in European equities may seem a straightforward decision, but deciding what constitutes Europe, unlike the US, is not so clear. Football association UEFA includes Kazakhstan, whilst Israel has won the Eurovision Song contest three times and hosted it twice. Neither country, however, would usually be seen as part of a European equity mandate.The euro-zone may be a clearly defined concept, but it would exclude major investment destinations such as the UK and Switzerland, which would be an odd choice, particularly for non-European investors. But even euro-denominated investors would then face the issue of how best to incorporate exposures to countries with major stock markets such as the UK, Switzerland and Sweden.   What such examples indicate is that making arbitrary groupings of countries based on geographical proximity alone inevitably leads to debate as to what is appropriate. Does it matter? For active mandates with managers that are producing focused portfolios, probably not. But for investors seeking to gain a broad exposure to European equities, deciding what that could mean does have implications on where their exposures will lie.Whilst much of the variation in economic exposures within any European stock market can be accounted for by stock-specific factors, some can also be attributed to the legacy of history. The UK and the Netherlands, for example, have many international companies built up from the days of their colonial empires that spanned the globe with a high exposure to emerging markets. This has produced some interesting comparisons between British and Dutch companies and their US direct competitors. The US companies have not had to compete overseas quite as much as the Europeans, as they have had a very large domestic market of their own and never had the contacts and distribution network overseas the Europeans gained through their empires. Unilever grew under the Dutch empire, and managers tell me Procter & Gamble could not compete as well as Unilever in Indonesia, for example.It is not just the UK and Dutch stock markets that have benefited from the days of empire. Austria has a high exposure to countries in Eastern Europe, many of which it had historical ties with from the days of the Austro-Hungarian empire, whilst parts of Southern and Eastern Europe have long-standing religious and cultural ties with Greece dating back to the Byzantine empire. In contrast, Portugal, despite its imperial history, has the highest domestic exposure of any country in Europe, and Spain again has not been able to emulate the UK and the Netherlands in terms of incubating global companies during its colonial past.Less surprising are the smaller countries such as Switzerland, Finland, Ireland and Sweden, which have some very large international companies domiciled in their jurisdictions, but whose local markets provide an insignificant share of their revenues. Schindler Group in Switzerland and Kone in Finland are two of the four companies dominating global sales in elevators. Needless to say, the home market was not what they built their businesses on.Investing in European equities is a much more complex idea than it may appear at first glance. Individual countries are too small to be considered as separate investment destinations except by domestic institutions that still cling onto an unjustified home bias. But what constitutes a natural collection of countries to define an investment strategy is not straightforward in a region whose political boundaries have been rearranged countless times and whose companies often reflect empires that once spanned the globe. The only thing everyone can agree on, apart from perhaps some of the residents of Melbourne, is that Australia is not part of Europe!Joseph Mariathasan is contributing editor at IPElast_img read more

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​Swedish government urges ‘ambitious’ sustainability agenda

first_imgHe also offered the country’s continued growth – despite legislating for the highest carbon price worldwide – as a way to “debunk the unfortunate misunderstanding” of a conflict between sustainability and profit.He argued that Sweden was moving in the right direction, but that “much more” needed to be done.“We, at the moment, are looking at the legislation that is governing the pension funds in Sweden – both looking at how they are structured, but also looking at the sustainability agenda and trying to raise the bar and making a more ambitious agenda for sustainably when it comes to pension fund investments.”Bolund, who was named deputy finance minister in 2014, repeatedly praised the work done by his country’s AP funds in measuring their carbon footprint, but also highlighted that the Norwegian Government Pension Fund Global had gone further after being instructed to divest its holdings in coal.“So, we see this as a process going on in many countries and in many pension funds around the world, and I think we have the opportunity to be a big part of that and also lead the way for others,” he said.AP4 has previously led efforts to lower its carbon emissions by working with Amundi on a low-carbon equity index, with the endeavor supported by Fonds de Réserve pour les Retraites. Sweden’s government is looking to raise the bar of sustainable investment among pension funds, according to its deputy finance minister, who insisted there was no conflict between profit and sustainability.Per Bolund, a member of Sweden’s Green Party and minister for financial markets, said the Swedish government would be examining how matters of sustainability could be better integrated into pension fund decision-making.Speaking at the RI Europe conference in London, the MP urged investors to leave behind the perceived conflict between sustainability and profit.“We have to see that we are in a new world where, actually, sustainability and profits are combinable – and also, if you don’t take sustainability into [consideration] when you do the investment decision, you will lose out on profits in the future.”last_img read more

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Legal & General enters European de-risking market with €200m deal

first_imgThe UK’s Legal & General has entered the European pension de-risking market, reinsuring €200m of Dutch pension obligations.Taking on risk from ASR Nederland was a “significant milestone”, Legal & General Re chief executive Manfred Maske said in a statement.It is the first deal executed through L&G Re, set up in 2014.Such transactions have largely been limited to UK, US and Canadian pension funds as a means of de-risking, although there has been limited activity in Ireland, such as manufacturer Analog completing a buyout of its Irish scheme in August. James Mullins, head of risk transfer at UK consultancy Hymans Robertson, said the ASR deal confirmed there was now a global market for risk transfer.“With more choice of markets,” Mullins added, “reinsurers that are taking on longevity risk may look to increase pricing over the longer term.“But that goes against the trend we have seen for some time now of reinsurers keeping prices low.“Strong competition, intense interest in the sector and appetite for deals has kept it that way.”Kerrigan Procter, managing director at Legal & General Retirement, added: “The pension risk transfer business has become a global business for Legal & General.“The potential market for pension risk transfer in the US, UK and Europe is huge and will play out over many decades.”Prudential, active in the de-risking market both in North America and the UK, has long predicted de-risking would spread across Continental Europe.Its head of longevity insurance, Amy Kessler, recently said growth was “inevitable”.Speaking at the International Longevity Risk and Capital Markets Solutions in Lyon in September, she said: “Globalisation is just beginning, with activity spreading quickly from the US, the UK, Canada and the Netherlands to France, Germany, Switzerland, the Nordics, Australia and beyond.”last_img read more

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Trustees must be willing to tackle ‘big, difficult decisions’ – 300 Club

first_imgSource: IPESally Bridgeland speaking at the IPE Awards in Noordwijk. European pension funds need to make a “fundamental” behavioural and cultural shift to close “a yawning gap between the rhetoric of governance improvements of recent years and their reality on the ground”, according to a paper from The 300 Club, a group of investment professionals seeking to challenge mainstream investment practice and thinking.Written by Sally Bridgeland (pictured), senior adviser at governance consultancy Avida International and former chief executive of BP Pension Trustees, and Amin Rajan, chief executive at Create-Research, the paper argues that while European pension funds have made some notable improvements with respect to investment and risk management in recent years, the changes do not go far enough.“In many cases, trustees have adhered to the traditional model of managing the easy things that don’t matter and avoiding the harder things that do,” said Bridgeland. “Many of the changes so far have focused on low-hanging fruit – targeting specific areas that are easy to define and tackle without reinventing operational or governance capabilities.”Rajan said improvements in the “less tangible” aspects of pension business models had been lagging, and that a behavioural and cultural shift was needed “to create fundamental and meaningful change”.The paper describes how “the backdrop for making decisions has become scarier” as defined benefit pension schemes are increasingly seen as a burden rather than an incentive in employee remuneration.As a result, trustees face greater scrutiny from an increasingly critical sponsoring employer for the decisions they make, according to the paper.Against this backdrop, said Rajan, “loss and risk aversion take over”.“The risks are increasingly emphasised, and the problem becomes framed in terms of avoiding failure,” he said. “As the fight-or-flight instinct kicks in, the brain is screaming ‘run way’ (from the difficult decision).”A behavioural shift on behalf of trustees is needed to create the willingness to tackle big, difficult decisions, according to Rajan and Bridgeland.“It also requires an environment and culture in which trustees feel comfortable making decisions about which risks the pension fund should take and, most importantly, how it should take them,” they write.The paper sets out six steps for pension funds to achieve these goals.Although there is no right answer, the “right governance”, according to the paper, “can reduce discomfort and build appropriate confidence at an appropriate cost”.The six steps include “opening a different kind of dialogue with the sponsoring employer”, developing a strategy “for how the pension fund will succeed and deliver its financial mission of paying everyone the right pension”, and taking control of meeting agendas and priorities.last_img read more

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Dutch pension-fund ‘herding’ threatens financial stability, DNB warns

first_imgDutch pension funds exhibit herding behaviour in their investment policies, which could pose a danger for financial stability, according to research conducted by regulator DNB.The Dutch financial news daily Het Financieele Dagblad, quoting from a survey to be published in ESB, a magazine for economists, said “aping behaviour” was the most obvious example of herding.Four DNB researchers, who analysed the monthly trading data of 39 pension funds between 2009 and 2016, found several signs that the schemes had emulated similar-sized schemes or the three largest Dutch pension funds – ABP (€359bn), PFZW (€172bn) and PMT (€63bn).They said this was a problem, “as pension funds ignored their own data, which leads to markets working inefficiently”. They also noted that pension funds responded in a similar ways to changes in legislation, said Het Financieele Dagblad.For example, the researchers found that Dutch schemes began hedging the interest risk on their liabilities through interest swaps after legislation changed in 2007 and the pensions system became increasingly susceptible to interest-rate movements.Further, pension funds tended to re-balance their investment portfolios in a similar way in the wake of market movements.Dutch pension funds in general use quite narrow bandwidths in their strategic investment policies, which requires them to re-balance continuously.If they achieve a significant return on their equity holdings, for example, they need to divest stock to prevent an overweighting in their asset mix.In the opinion of the DNB’s researchers, however, this kind of herd behaviour is actually positive “because it increases stability, as it counters cyclical price movements”.Dutch pension funds, with combined assets of more than €1.3trn, comprise a substantial part of global pension assets worth more than €26trn.Because they have evolved to become major players on the financial markets, the focus on their investment behaviour has grown.Dutch schemes investing or selling the same assets at the same time could exacerbate market volatility, according to the DNB’s researchers.last_img read more

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German ‘Mittelstand’ face decisions over pension-funding gaps – study

first_imgMany German “Mittelstand” companies are unprepared to deal with their pension liabilities and will need to turn to contractual trust arrangements (CTAs) or Pensionsfonds to meet their obligations, according to an academic study.The Fachhochscule des Mittelstands, a polytechnic institute specialising in the medium-sized company sector, carried out the study in conjunction with Commerzbank.It found that half of the surveyed firms had pension liabilities and that these amounted to more than €5m at almost 10% of the companies, with the others having lower obligations.Of those companies with pension promises, half of their liabilities were not funded or insufficiently funded. Only 45% of the companies have a coverage ratio of more than 75%, with 21% in the 50-75% range, 16% less than half-funded and 18% having a coverage ratio of less than 20%.It noted that the discount rate was due to fall from around 4% per annum to 2% over the next five years, and that – all else being equal – this would have the effect of lowering the coverage ratio to an average of 35%.The majority of the surveyed companies would like to increase coverage of their pension liabilities, according to the study, with a bit more than half targeting a ratio of 75-100%.At the same time, however, weak cashflows and low interest rates are necessitating coverage cuts, according to the study.The situation means many companies are faced with challenges, the academics said.Only higher contributions in appropriate financing instruments will help address the deficits, according to the study, which added that employers would need to analyse the current funding situation and then decide how to plug the funding gap.“This calls for intelligent investment management and choosing the suitable solution,” the academics said, pointing in the direction of CTAs or transferring the pensions debt to a Pensionsfonds.These are alternatives to what is still the most predominant way of offering occupational pensions in Germany – the Direktzusage, or direct promise, approach, whereby an employer funds benefit promises either from pension reserves or from cash flow.In the 2000s, there was a wave of German companies, large and small, removing their pension liabilities from their balance sheets by turning to CTAs as a way of funding the obligations.last_img read more

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