However, the rise in long-term yields over the year had an adverse effect on the portfolio of investment-grade government and mortgage bonds, which returned -1.3%.Nevertheless, the fund said that, over the past five years, a typical member has received an accumulated return of more than 60% on their savings.Torben Möger Pedersen, chief executive at PensionDanmark, said: “Our goal is to ensure our members get attractive and stable returns on investment year after year.“For five years in a row, we have now delivered positive returns averaging approximately 10% p.a., and that’s very satisfactory.”He added: “Equities gave the best return in 2013. Our investments in infrastructure and property form the stable base of our portfolio, where our aim is to achieve more stable and reliable returns than we can achieve in the more volatile equity markets.”The fund said it planned to increase total assets in infrastructure and real estate from 15% to 20% of total assets over the next 1-2 years.In recent years, it has significantly expanded its investments in infrastructure, with new investments in wind farms, a biomass-fuelled power plant in the UK and gas infrastructure in the Netherlands.The real estate portfolio has also added new investments, including joint ownership of the Magasin department store building on Kongens Nytorv, and UN City, both in Copenhagen, the headquarters buildings for MT Højgaard and NCC in Greater Copenhagen, and housing in Aarhus, Vejle and Copenhagen.Membership of the fund had increased by 9,000 to 642,000 at end-December 2013.Total contributions remained static compared with last year, at DKK10.7bn.The return before pension yield tax to a 40-year-old member was 9.3%, down from 10.9% the previous year.For a 65-year-old member, the fall was sharper, from 9% in 2012 to 3.9% in 2013. PensionDanmark has announced pre-tax returns of DKK9.1bn (€1.2bn), or 7.1%, on its investment portfolio for calendar 2013.This compares with 10.2% for the year before.But PensionDanmark’s total assets had grown to DKK152.1bn by the end of 2013, an increase of 9.4% over the year before.Investments in global equities returned 20.4%, largely because of rising markets, but wind farms and real estate also boosted returns, returning 9.1% and 7%, respectively.
A DKK5bn (€670m) green investment fund to be launched by the Danish government has been welcomed by one of the country’s largest pension funds for granting institutions access to small-scale green projects.Torben Möger Pedersen, chief executive of the DKK152bn PensionDanmark, said he was prepared to invest if the projects offered an attractive risk/return profile.The government will initially offer loan guarantees totalling DKK2bn, although the guarantee could be expanded to up to DKK5bn, the Danish Ministry of Finance said.The fund will offer loans to private companies, non-profit housing associations and a limited number of government institutions that wish to address the energy consumption of production facilities and reduce the energy footprint of a building through changes to lighting, heating and ventilation systems. Additionally, loans will be available for resource-efficiency projects such as reduction of water use and the installation of heat pumps and wind turbines. Bjarne Corydon, finance minister and a member of prime minister Helle Thorning-Schmidt’s social democratic party, said the fund would give Denmark a “green injection”.“It will not only benefit the environment – it will also strengthen our industry leadership in environment and climate, and thus result in green jobs and new export opportunities,” he said.The government will supply an initial DKK80m to finance the start-up costs of the green investment fund until 2016.Möger Pedersen told IPE he welcomed the launch of the fund.“It gives us an opportunity to get invested in energy projects in smaller companies that can supplement our direct investments in large energy infrastructure assets,” he said.“So, if we can find the right balance between return and risk, we are ready to invest.”PensionDanmark has in the past been active in the renewables market, partially growing its infrastructure portfolio through the acquisition of stakes in wind farms.Last December, it acquired a 49% stake in a UK wind farm for £153m (€185m).It is not the first time the Danish government has offered loan guarantees to underwrite a fund aimed at pension investors.In 2011, the country’s export credit agency (EKF) launched a fund to lend to foreign companies placing orders with Danish businesses.At the time, PensionDamark committed €1.3bn to the fund.
The lawmaker also questioned whether this reflected a “level playing field”.Wiebes pointed out that Belgium had a wider interpretation for VAT exemption for the management of a joint investment fund, with the dispensation being applicable to defined contribution (DC) and defined benefit pension funds.The Belgian statute book for VAT stipulates that all OFP pension vehicles are exempt from VAT, without distinction between pension plans.By contrast, in the Netherlands, only DC arrangements qualify for VAT exemption. Wiebes said it would be “undesirable” for Dutch pension funds to move to Belgium simply for VAT benefits.He added that he did not expect this to become a trend, as many Dutch pension funds were showing interest in joining the APF ‘general’ pension fund.The APF, which allows pension funds to co-operate within a single vehicle while ring-fencing assets, is scheduled to come into force from 1 January 2016.Wiebes said he would keep an eye on any developments in the market and brief the Dutch Parliament about a possible “follow-up” if he noticed “certain pension funds planning cross-border moves for VAT reasons”. The Dutch government has said it see no reason to ease value-added tax (VAT) rules for pension funds by equalising them with those found in Belgium.Responding to a query from Pieter Omtzigt, MP for the Christian Democrats (CDA), Eric Wiebes, state secretary for the Treasury, pointed out that the current Dutch rules matched European jurisprudence on VAT.He said the possibility of easing tax rules for pension funds was therefore “not up for discussion”.His comments come after Omtzigt noted that Dutch pension funds relocating to Belgium paid no VAT.
The LPP, set up by the two LGPS, so far only has assets under management of £11bn (€13.8bn), well short of DCLG’s £25bn target for asset pools.While Berkshire’s decision to join LPP formally, set to be ratified by its pensions committee today, will boost the £2bn venture, the fund will still not help it reach the £25bn asset target.Berkshire drew up a list of issues it wished to finalise before formally joining the LPP, including the ability to direct a certain percentage of its assets without needing to reach a consensus with the LPP’s two other shareholders.According to documents prepared for the 11 July meeting, Berkshire wishes to retain control of up to 10% of assets – equivalent to £200m – to direct in local investments “for the sole benefit” of the fund.Despite the ringfencing of assets, the minutes concede that these could still be managed by the LPP, even if the other shareholders would not stand to gain from any generated returns.Joining the LPP, the second asset pool to become operational, would have further benefits for Berkshire, as it would not be required to contribute towards the £1.5m cost of launching the LPP, nor would it be required to contribute towards regulatory and working capital required for the venture – which the report prepared by Greenwood said stood at £17.5m.While Berkshire has been weighing up its pooling options for a number of months and signed a letter of intent to join the venture in June, its pensions committee deferred a final decision to formally join the LPP during a committee meeting last month.If Berkshire’s pension committee decides to join, it will also be a signatory to the venture’s pooling submission, due to be sent to DCLG by 15 July.A draft submission presented to the committee estimated it would cost the pool £2.5m in transition management costs to consolidate its equity holdings alone, citing an estimate by transition manager Macquarie.The submission further estimated the LPP would employ the equivalent of 34.5 full-time employees, with the majority of these roles, a total of 23, within investment management and oversight. The Berkshire Pension Fund is set to join the Local Pensions Partnership (LPP), the asset pool established by the London Pensions Fund Authority and Lancashire County Pension Fund.Nick Greenwood, pension fund manager at the Royal Borough of Windsor and Maidenhead, said in documents prepared for the 11 July pensions committee meeting that joining the LPP was the “best option available”, while accepting that immediate cost savings would be “negligible”.Greenwood came out against joining one of the seven other asset pools – which includes the already operational London CIV – as it would be difficult to exert any influence on pooling arrangements because his fund was a “latecomer to the party”.Weighing up the consequences of ignoring Department for Communities and Local Government (DCLG) requests to join a local government pension scheme (LGPS) asset pool, Greenwood said: “At the very least, the borough would incur the wrath of DCLG and adverse publicity.”
The active funds increased their share of bonds and bond funds to 52%, from 48% in the first quarter, while decreasing the share of bank deposits by 2 percentage points to 5% because of historically low interest rates.The balanced funds likewise raised their bond share, by 5 percentage points to 75%, while cutting their equity and equity fund exposure, from 17% to 14%.The conservative plans remained relatively unchanged, with bonds and bond funds accounting for 78%, and deposits 7%. Like the active funds, they have also kept a sizeable share, of 15%, in cash.Brexit had little direct effect because the Latvian funds have relatively little investment in the UK, instead focusing increasingly on the home market.Latvia accounted for 42% of invested assets, followed by Eastern Europe (23%), and global and international securities (12%).More than 92% of investments went into euro-denominated assets, followed some way behind by the US dollar (6%).Assets accumulated in the 15-year-old second-pillar system breached the €2.5bn mark at the end of June, a year-on-year growth rate of 14.4%, with net investment income accounting for almost €400m.In the voluntary third pillar, the 12-month average fell to 0.52%, from 3.47% in June 2015, with the four balanced funds returning 1.1%, the 10 active plans minus 0.38% and the First Closed Pension Fund 0.75%.The wide range of returns from the active plans partly reflected currency developments over the period, with the two US dollar funds returning 1.23%, while the eight euro-denominated funds averaged minus 0.45%.Over the last three months, the active plans raised their share in equity and equity funds by 4 percentage points to 37%, while the balanced ones increased their bond holdings from 64% to 69%, in both cases at the expense of their cash holdings.Assets grew by 11.3% year on year to €340m and membership by 7.2% to 261,925. Latvia’s mandatory second-pillar pension funds’ 12-month weighted average return to 30 June 30 fell to minus 0.16%, from 2.71% a year earlier, according to the Association of Commercial Banks of Latvia (LKA).The best results, of 1.53%, were generated by the eight bond-weighted conservative funds, followed by the four balanced funds at minus 0.47%, and the eight active, equity-weighted funds at minus 1.54%.However, a market recovery in the second quarter was reflected in the funds’ improved three-month performance, with the active funds returning 0.37% (compared with minus 0.75% in the first quarter), and the balanced funds 0.48% (against minus 0.07%), while the conservative funds’ result was unchanged at 0.57%.The funds’ asset allocation strategies became increasingly more risk averse throughout this year.
NOW: Pensions, Danish FSA, Local Pensions Partnership, Lancashire, LPFA, Maple Financial Group, NN Investment Partners, PGGM, CBRE Global Investors, Syntrus Achmea Real Estate and Finance, Goldman Sachs Asset Management, AMFNOW: Pensions – Henrik Ramlau-Hansen has been appointed non-executive chairman of the commercial board of NOW: Pensions, the UK auto-enrolment subsidiary of Denmark’s ATP. He is replacing ATP’s chief executive Carsten Stendevad in the role. The independent trustee board of NOW: Pensions remains unchanged. Ramlau-Hansen was CFO at Danske Bank between 2011 and 2016, and before that, was chief executive of Danica, a Danske Bank subsidiary and the second-largest commercial pension fund in Denmark, from 2000 to 2010. In September 2016, Ramlau-Hansen was appointed chairman of the Danish FSA.Local Pensions Partnership – Tom Richardson has been appointed chief risk officer of the Local Pensions Partnership (LPP), a collaboration between the Lancashire County Pension Fund and the London Pensions Fund Authority. He will oversee all aspects of LPP’s financial, investment and operational risk management, and sit on the partnership’s main board, as well as the LPP Investments Board. Richardson is replacing Angela Smith, who was filling the role temporarily. He has previously worked for the privately owned financial firm Maple Financial Group.NN Investment Partners – Gabriella Kinder has been appointed manager of NN IP’s €14bn alternative credit boutique. She is to boost the existing team, following the internal promotion of Bart Bakx and Lennart van Mierlo, who have become head of residential real estate and head of commercial real estate lending, respectively. Kinder will be responsible for all illiquid strategies, including residential property, project financing, corporate loans and commercial property loans. She had more than 20 years’ experience in banking and asset management, having worked at MeesPierson and BNP Paribas. PGGM – Maarten Jennen has replaced Maarten van der Spek as director of strategy for private real estate. Jennen joins from CBRE Global Investors, where he was director of investment solutions. He previously worked for ING Real Estate Investment Management (now CBRE GI). Van der Spek recently left PGGM to join the Abu Dhabi Investment Authority as a senior strategist in the UAE. He joined the Dutch investor in 2009.Syntrus Achmea Real Estate & Finance — Morella Hessels has been appointed business development manager, responsible for getting new real estate and mortgage mandates from international institutional investors. She has previously worked for Goldman Sachs Asset Management, Northern Trust Global Investments and Tobam.AMF – Fredrik Ronvall, transaction and analysis manager at AMF Fastigheter, the real estate arm of the Swedish pension provider AMF, has been appointed manager and investment manager of unlisted real estate companies in Sweden and abroad at AMF’s asset management business. He will take on the role in addition to his current position.
German companies with “Direktzusage” pension funds held directly on their balance sheets are gaining better recognition from rating agencies, delegates at the Handelsblatt conference on occupational pensions heard this week.However, accounting problems are still an issue for companies running such arrangements.Stefan Brenk, global pensions expert at German metal company ThyssenKrupp, told the conference: “A few years ago it was difficult to explain our balance sheet to rating agencies, but now some are trying to understand it. Some are even considering whether to determine our on-book pension reserves as something similar to capital.”In Germany, the Direktzusage has a long tradition, allowing companies to make pension promises – either in a defined benefit or defined contribution (DC) format – without having to fund them fully. More than 80% of companies paying into the insolvency protection fund PSVaG have a Direktzusage, and around half of all the pension reserves in Germany remain on company balance sheets.According to the latest data collected by Willis Towers Watson and Mercer the average funding level of Direktzusagen run by DAX-listed companies stood at 63% at the end of 2016. However, individual funding levels ranged from 97% at Deutsche Bank to 4% at real estate company Vonovia.ThyssenKrupp is 22% funded, but the company aims to fully fund its new retirement provision plan. Last year, the company introduced a matching contribution plan for higher incomes only and with capital withdrawal at retirement, rather than a life-long pension.Problematic discount ratesOne domestic problem German companies continue to struggle with is the discrepancy between the tax-related discount rate on pension reserves and the rate they can apply under the domestic accounting standard HGB.Martin Schloemer, head of accounting principles and policies at pharmaceutical company Bayer, said at the conference: “Under IFRS the volatility in the applied discount rates can lead to strong movements in a company’s capital, which in turn is sometimes reflected in [credit] ratings – in this case companies have to approach rating agencies with an explanation.”Currently a company might have to apply a 4% discount rate (“Rechnungszins”) on its liabilities under HGB, but for tax purposes it can only report liabilities discounted at a 6% rate – and Mercer has forecasted the HGB rate to drop to just over 3% by 2018.Tobias Hentze, economist at Institut der deutschen Wirtschaft, presented calculations showing that funding requirements would decrease by 14-18% if the HGB rate was cut by 100 basis points.“And as the current discrepancy between the two rates is 200 basis points this means €24-30bn less liquidity for companies,” he said.Georg Geberth, director of global tax policy at Siemens, said companies needed “controlled” flexiblity for the tax-related discount rate. He also called for it to be linked to the HGB rate, but with a buffer to prevent it from falling as far.In a live ballot among the 300 delegates at the Handelsblatt conference, the majority voted in favour of introducing a flexible rather than a fixed rate for tax purposes.Despite all the technical difficulties and challenges, there was a wide consensus at the conference that the German Direktzusage structure was here to stay.Heribert Karch, chairman of the pension fund association aba, said Direktzusage had been “ignored” in the government’s most recent reform talks.
Nausicaa Delfas, executive director of international, FCAThe UK is scheduled to end its EU membership on 29 March 2019. Although it has yet to be formally agreed, a transition period has been proposed, lasting through to the end of 2020, during which time UK laws will remain in harmony with those of the EU.The FCA expected UK and EU markets to “remain highly integrated whatever the outcome of Brexit”, Delfas said.“We think working to promote common global standards, alongside our work to onshore a rulebook that is equivalent to the EU on day one, provides a solid basis for cross-border business to take place,” she added.Firm expectationsMany of the 58,000 companies regulated by the FCA were making good progress with their contingency planning, Delfas said. However, she urged providers to consider a variety of measures to “ensure a successful transition”.In particular, Delfas said companies shifting operations out of the UK and into Europe should ensure that the UK entity still had sufficient senior staff and were able to meet regulatory standards.“We expect you to continue to service your customers as fully and fairly as the law permits, and to communicate with affected customers, in the UK and elsewhere, in a clear and timely fashion, including, for example, what regulatory protections will apply for your customers,” she said.Temporary permissionsThe regulator yesterday published a statement outlining the areas it wanted UK firms with European clients to consider, as well as a proposed “temporary permissions regime” for providers based in the European Economic Area (EEA) and serving UK-based clients.Such a regime would, if used, allow EEA companies to keep operating in the UK “for a period of time after the exit day”, the FCA said.Companies would still need to seek full authorisation for longer-term operations, but there was no need to apply for this yet, the regulator said.The FCA has also been analysing the EU financial rulebook in anticipation of regulatory divergence over time, Delfas said. The authority has reviewed in detail roughly 50 pieces of EU financial services legislation, and 185 technical standards and will consult on changes in the next few months.The UK has already agreed to implement a regulatory equivalence approach from 29 March next year, meaning there would be no immediate changes to rules for firms operating into or out of the UK.“Neither the UK nor the EU wants to see a significant misalignment in regulatory standards – nor indeed ‘a race to the bottom’ in regulatory standards,” Delfas said. “But it is likely that after our exit from the EU, our regulatory frameworks may evolve. So we need to find a way to ensure that despite such evolution, frameworks allow delivery of common outcomes.”In a white paper last week outlining its approach to Brexit, the UK government set out its intention to run rules in parallel on an “outcomes basis” – essentially meaning rules may differ but the objective would be the same.Delfas said: “What matters more is not what road we take, but what that final destination is – and as long as the UK and the EU maintain a commitment to protecting consumers and to strong, open markets, there is no reason this cannot work in practice.“This is a clearly achievable aim. Not least because it is overwhelmingly in the interests of both the UK and EU: it is in the interests of UK and EU consumers; it is in the interests of UK and EU firms; it is in the interests of UK and EU markets.“We hope that we can see progress on this in the very near future.” Delfas said a “bilateral solution” in cooperation with the EU “would be preferable”. The FCA was taking part in a group set up by the Bank of England and the European Central Bank to discuss risks related to Brexit, including contract continuity, she added. The UK’s financial regulator has called for action from its European counterparts to help avoid significant detriment to markets and consumers as the UK leaves the European Union.As much as £26trn (€29trn) worth of derivatives contracts could be negatively affected by Brexit, according to Nausicaa Delfas, the Financial Conduct Authority’s (FCA) executive director of international. Such disruption could hurt insurers and pension funds employing liability-driven investment strategies.Speaking at a Bloomberg event in London yesterday, Delfas called for cooperation between EU and UK regulators to allow such assets to continue trading.“If this is not achieved, there is a risk that some of these contracts could not be appropriately serviced,” she said. “In concrete terms, insurers may not be permitted to pay out claims on policies, and derivatives users may not be able to manage the risks of their positions.”
Nearly 400,000 employees in the Netherlands had accrued a pension through one of the country’s specialist low-cost defined contribution (DC) vehicles by the end of Q2 this year, which is 21% more than a year before.The capital invested through the vehicles, known as PPIs, grew by 35% in the same period to €7.5bn.The figures can be deduced from data released by pensions regulator DNB, which has been publishing data on PPI members since the second quarter of 2017.As at the end of June this year, there were 391,000 PPI members, as opposed to 324,000 the year before. The number of deferred members grew by 43% in the same period, from 181,000 to 259,000 members. By comparison, pension funds in the Netherlands have more than 5 million active members and 9.5 million deferred members in total. These numbers are from the end of 2016, with the 2017 data expected to be published by DNB later this month. The number of members of a pension fund shows a downward trend, in contrast to the number of members in a PPI.Capital invested through PPIs is also growing, even though this is now levelling off: from 173% in 2014 and 156% in 2015 to 35% in 2018, via 118% in 2016 and 52% in 2017. These figures relate to the capital invested at members’ risk in Q2, compared with the year before.PPI growth slower than APFsIn research published earlier this week Dutch banking group Rabobank noted that PPIs were growing more slowly than the newer general pension fund vehicle, known as an APF.According to the bank this reflected the fact that PPIs almost exclusively derive their growth from new contracts. The premium for DC contracts is generally lower than for defined benefit contracts.Rabobank said it expected that three or four of the current seven low-cost DC vehicles would eventually disappear.One reason was a constant pressure to keep costs low, according to author’s findings. The bank expected that smaller providers would ultimately lose this battle and stop their activities.Another reason for the decrease in the number of PPIs, according to the research, was the consolidation among insurers, such as via the merger of NN and Delta Lloyd. The PPIs of both insurers have (legally) fused, while the bank presumed a possible takeover of Vivat could lead to further consolidation.The research cited competition with pension funds as a third explanation, as they increasingly also entered the DC market.The predictions by Rabobank are much more optimistic – and according to the PPIs much more realistic – than those of research agency GfK, which predicted a few months ago that PPIs would have disappeared entirely by 2025.
The Netherlands’ three main unions have agreed to resume negotiations over pension system reforms from next week.IPE’s sister publication Pensioen Pro reported this morning that Wouter Koolmees, the secretary of state for social affairs in the Netherlands, had involved opposition parties in talks about a possible new pension agreement, according to sources close to the government.In the coming days, the government will continue discussions with unions and employers in an attempt to reach an agreement on work and state pension reforms. This afternoon it emerged that unions FNV, CNV and VCP had all agreed to resume negotiations, which came to a crashing halt last November.It follows two days of strike action across the Netherlands, with thousands of people protesting against plans to increase the state pension age, among other reforms. In a letter to the Dutch Labour Foundation and the Social and Economic Council, Koolmees hinted that there was room for “further agreements about less stringent linking of the state pension to life expectancy”, as well as sustainable employability and physically demanding jobs. Wouter Koolmees, the Dutch government’s social affairs ministerCredit: FNV FNV members on strikeHowever, he did not make any concrete commitments in the letter, and did not mention the idea of freezing the state pension age.Unions FNV, CNV and VCP have been asking the minister for months for a public response to their demands: freezing the state pension age for five years, cutting the link between an increase in pension age and life expectancy, an early retirement scheme for people in physically demanding professions, indexation of pensions and the ability for the self-employed, flexible workers and temporary workers to accrue pension rights.FNV negotiator Tuur Elzinga earlier this week promised striking workers that any deal would be presented to them first. “Even if there will be no agreement, we will get back to you,” Elzinga said. “But only in order to prepare new protests with you.”Union representatives told Pensioen Pro that they saw Koolmees’ offer as a signal that this week’s strike action had worked.