Pension funds are ignoring the risks posed by climate change and must become “major players” in combating its impact, a new campaign backed by NGOs and unions has said.Launching a report examining how funds can limit their exposure to climate risks, campaign group ShareAction noted that the “financial and wider macroeconomic risks of climate chance” would affect younger pension savers.“Fiduciary investors will wish to ensure they are looking after these savers’ long-term best interests,” the report adds.The campaign called on investors to examine their exposure to high-carbon companies either through engagement or stock selection, and noted how oil and gas firms were increasingly investing in exploration projects to find new resource fields on the assumption that prices would continue to increase. “Yet these assumptions may no longer hold,” the report says. “Some analysts are now forecasting the price of oil to be within the range of $80-90 (€58-65) per barrel by the end of the decade, with demand to peak by 2020.”It refers back to a previous ShareAction report noting that regulatory action on climate change might mean fossil fuels could no longer be burned to the current extent.“As prudent fiduciary investors, pension funds should request that their fund managers assess the ‘stranded asset’ risk in oil and gas companies’ project line-up,” the report says. “They should support calls for reduced capital allocation to high-cost/low-return projects in favour of returning money to shareholders or reallocation to less risky projects.”Catherine Howarth, chief executive at ShareAction said: “The pensions industry is burying its head in the sand -– just as it did in the run-up to the financial crisis.”She added that there was “compelling evidence” provided by the Intergovernmental Panel on Climate Change that the planet was warming, and that this demanded “a thoughtful response by trustees and investment professionals”.Howarth’s counterpart at WWF UK, David Nussbaum, seconded the calls for action by investors.“Investors need to play their part, recognising that continuing to invest in high-carbon assets stores up huge financial, economic and social risks,” he said.“The successful businesses of the future will be the ones that value, manage and restore natural assets and limit their exposure to risks such as those presented by a changing climate.”,WebsitesWe are not responsible for the content of external sitesShareAction’s Green Light Report
ABP saw its assets increase to €300bn, following a return of 2.4% over the last quarter.As a result, its coverage ratio increased to 105.9%, 1.7 percentage points above the required minimum.Based on the funding at year-end, ABP said it would reverse the 0.5% rights cut of last year.However, because of the early stage of the recovery, ABP has decided against indexation, and to maintain the recovery levy of 3 percentage points in the contribution of 21.6% of the pensionable salary, according to Henk Brouwer, the scheme’s chairman.ABP reported a 1% profit on its combined nominal fixed income investments, but added that it lost 4.1% and 2.7%, respectively, on its inflation-linked bonds and alternative inflation.Developed country equities generated no less than 22.1% last year, while emerging market equities lost 6.1%.With an annual result of 17.5%, private equity was the best performing part of its 25% alternatives portfolio.Property and hedge funds returned 1.3% and 1.8%, respectively.In contrast, the scheme’s 4% holdings of commodities lost 3.9%. The large Dutch civil service scheme ABP attributed its annual return of 6.2% in part to deliberately holding on to its investments in government bonds of Southern European countries.While several other large pension funds reported considerable losses on their government bond portfolios, ABP’s annual figures showed a 2% return on a 15.4% allocation to government paper.An ABP spokesman said: “In contrast to the situation Northern Europa, the interest on government bonds of Spain, Italy and France has decreased. Our investments in these countries totalled approximately €34bn at the end of 2012.”Other large pension funds have largely divested their holdings in periferal government bonds and focused on AAA, euro-denominated government paper instead.
The government now plans to set up a working group of political parties, economists, employers, trade unions and other stakeholders to devise a transfer plan.Marksová stated that, while no fund member would lose their savings, her preference would be for the monies to return to the state system.This would be legally controversial.In contrast to the dismantled Hungarian system, and the partially dismantled Polish second pillar, which were both funded entirely by contributions diverted from the first pillar, the Czech second pillar has been funded by diverting 3% of the 28% first-pillar social contribution, with members adding a further 2% from their wages.Due to the additional 2% funding, as well as the CSSD’s long-standing threat to close the system when in opposition, the second pillar never gained momentum.At the end of 2013, only 83,960 members had signed up, with none of the six pension companies yet meeting the 50,000 legal threshold required by the end of this year to retain their licence.By comparison, the third pillar had some 5m members.Assets totalled an estimated CZK350m (€12.7m), while last year’s returns averaged a sub-inflationary 1.8%. The Czech Republic’s new government has lost little time in sounding the end for the short-lived second-pillar pensions system.The closure of the second pillar was a long-standing objective of the Social Democrats (CSSD) and its leader Bohuslav Sobotka, the new Czech prime minister, with the policy forming part of an agreement with the CSSD’s coalition partners, ANO 2011 and the Christian Democratic Party (KDU-CSL).On 30 January, a day after the government’s swearing in, the CSSD’s Michaela Marksová, the new minister of Labour and Social Affairs, told the press the government aimed to close the system as of 2016.The coalition agreement currently states that the funds accumulated in second-pillar accounts would be merged with those in the long-established third pillar, without clarifying what would happen to the accounts of members without third-pillar schemes.
A cross-party group of MPs has raised concerns with the Department for Work & Pensions (DWP) about its momentum in bringing through new risk-sharing legislation.The UK government launched a consultation on bringing in new risk-sharing pensions, placed in between traditional defined benefit (DB) and defined contribution (DC), in November 2013.But it has yet to publish its planned legislation.The risk-sharing – named ‘defined ambition’ – is set to look at reduced DB options and enhanced DC options, as well as Collective DC (CDC). However, a report from a cross-party working bench accused the government of losing momentum over the proposals.It also raised concerns over delays with the government’s planned cap on charges for those being auto-enrolled into DC schemes, after it was postponed by at least a year until April 2015.The DWP responded and said it was committed to bringing in a charge cap within this Parliament, which ends in May 2015.It also said it would publish its defined ambition plans shortly.In other news, the Pensions Bill, which is being debated for the final time before being enshrined into law, has seen opposition amendments shot down by the government.In a debate yesterday evening, the Liberal Democrat pensions minister Steve Webb called for the rejection of certain Labour amendments on charge disclosure and employment law.The amendments referred to changes to the Bill regarding contributions to National Insurance for low-paid workers, and for the government, instead of the financial regulator, to force pension providers to disclose charges to members.Webb said the amendment to employment law did not fit in with what the average worker experienced over their working lives.He also said the amendment to the government’s own proposition, calling for government action over the financial regulator, did not fit in with the current system.The Bill passed, rejecting two amendments, and will now move forward to Royal Ascent.Lastly, research from consultancy LCP showed 2013 to be a record-breaking year for bulk annuity deals and longevity swaps.The market showed healthy growth due to favourable economic conditions, with written bulk annuity business up by 69% from 2012 alone.There was more than £16bn (€19bn) of liabilities hedged with insurance companies during the year, with £7.4bn in bulk annuities and £8.9bn in longevity swaps.The bulk annuity market was dominated by Pension Insurance Corporation (PIC), which accounted for 47% of all business.Its nearest rival, Rothesay Life, wrote 22%.The two, together with Legal & General, accounted for more than 90% of transactions in the year.Emma Watkins, partner at LCP, said average transaction size increased by more than 30% in 2013, and predicted that 2014 bulk annuity deals could exceed £10bn.“We have every reason to expect that 2014 volumes will continue the positive momentum from last year,” she said.
Belgian pension funds, with more than €20bn in assets under management, have returned 5.7% on average over the first half of this year, according to the Belgian Association of Pension Institutions (BAPI).Addressing a press briefing in Brussels to cover the funds’ performance over the period, BAPI president Philip Neyt described the returns as “good” but expressed concern over the low rate of return on government bonds.Belgian pension funds’ performance could suffer in future, he said, if Gilts continue to bring in only around 1.5%. Neyt acknowledged that investments made in corporate bonds “might bring in 3-3.5%”, but he added: “I’m not sure you’re properly compensated for any risk involved.” According to BAPI, Belgian schemes returned just over 6.7% on average over the first half of last year, and 12.1% over the same period in 2012.Meanwhile, the association said the average pension fund allocated 48% of its portfolio to bonds, 30% to equities, 11% in ‘other’ investments including private equity and infrastructure and 8% in real estate, with the remainder in cash. The bonds are mainly placed within the euro-zone, Neyt told IPE, while equity investments are generally global. The real estate holdings are mainly within Belgium itself.All sectors of investment fared well over the period, Neyt said, citing the benefit of a low rate of inflation.However, Neyt declined to answer questions on what measures the government might be taking to encourage longer working careers in Belgium.The proposed prolongation of working lives is a sensitive issue in the country. Many Belgians cease working when they reach 60.Neyt spoke in favour of a working life of 45 years for most categories of employees.The task of BAPI, established in 1975, is to represent all non-profit organisations that administer or provide occupational pension schemes outside the Belgian state social security system.The organisation works on a sector basis, with each sector covering a different industry.
Four FOMC members seemed willing to place at least a modest bet that “Trumponomics” would justify three hikes instead of two in 2017, he said.Nick Gartside, international CIO for fixed income at JP Morgan Asset Management, said the Fed’s rate increase was a welcome move to policy normalisation.“Perhaps more importantly, the Fed also acknowledged the new reality of fiscal policy in the driving seat by edging up its positive assessment of the labour market and the economy,” he said. He predicted the market would price in at least four rate hikes for next year – from currently expecting two hikes – and a 10-year US Treasury yield of 3.5% by the end of next year.Neil Williams, group chief economist at Hermes Investment Management, said the move yesterday confirmed the Fed would remain the test case for whether any central bank could normalise rates.“We expect it to try, but fail, with the funds target peaking out in 2017 at just 1% – way lower than the near 3% in the Fed’s own ‘dot plot’ rate assumptions,” he said.Loose fiscal policy will come on top of – not instead of – a loose monetary stance, he said.“First, it could be a year of two halves,” Williams said. “The likely short-term growth stimulus from Mr Trump’s sizeable fiscal expansion could then be muted by the threat of widespread protectionist policies – at first locally, then spreading internationally.”Rick Rieder, CIO of fundamental fixed income at BlackRock and co-manager of fixed income global opportunities, said the quarter-point rate hike, although priced in, reflected a broader global policy evolution, and that there was a modestly hawkish tilt to Committee member rate projections for the years ahead.“Overall, the hallmarks of this new policy and market regime are clearly reflation, inflation and greater optimism that a more productive balance between growing fiscal and receding monetary policy stimulus can be found,” he said.Thanos Bardas, head of interest rates and sovereigns, global investment-grade fixed income, at Neuberger Berman, described the rate increase as a “happy hike”, coming as it did against the backdrop of strong economic data and record market highs – as opposed to the rate hike in 2015, when the background was “grim”.“The Fed is pleased about economic progress, the potential for rate normalisation and a narrowing of its expectations gap with the market,” he said.Bardas said that, despite the modest acceleration in pacing, the Fed was likely to take a gradual approach over the next few quarters.“There’s been a lot of talk about fiscal stimulus – which some board members took into account in raising rate expectations – but nothing has actually happened yet, and resulting growth could be more stingy than investors expect,” he said.Ken Taubes, head of US investment management at Pioneer Investments, said he found it interesting that FOMC economic projections did not reflect any big changes from their September levels – apart from one extra rate hike in 2017.“The projections were largely unchanged despite the dramatic post-Trump election rally in equity markets, and sharp increases in Treasury yields, inflation expectations and the US dollar,” he said.“While the Fed will not change its forecast until it sees the impact of Trump’s policies, there is a high likelihood that Trump’s policies will deliver stronger economic growth, accompanied by higher inflation and, potentially, higher deficits.”Larry Hatheway, GAM chief economist and head of GAM Investment Solutions, agreed the overall message from the Fed was more hawkish than expected but found it notable that its official statement had not mentioned the widely expected US fiscal expansion or economic deregulation.“As a consequence, should those factors materialise, the Fed may have to further lift its assessments for US growth, inflation and the likely path of interest rates,” he said. Yesterday’s rate hike by the US Federal Reserve was entirely expected by the markets, but the monetary policymakers did signal that their action would take a more hawkish tone from now on, according to economists and strategists.But whether the 12 members of the reserve’s Federal Open Market Committee (FOMC) will be able to carry out their intended normalisation of monetary policy all depends on how the economic policies of Donald Trump materialise once his term as US president begins next year, many agreed.Richard Clarida, global strategic adviser at PIMCO, said: “While the Fed did hike its target for the federal funds rate to a range of 0.5% to 0.75%, the real message was delivered by the ‘dot plot,’ which moved unmistakably in the hawkish direction for 2017.The dot plot is part of the FOMC’s summary of economic projections and shows how each meeting participant thinks the fed funds rate should develop.
The €256m Dutch pension fund of Co-op supermarkets is to liquidate and place its pension arrangements with Levensmiddelen, the €5.1bn sector scheme for the foodstuffs sector.As funding of the Co-op scheme is much higher than that of Levensmiddelen, its participants will get financially compensated during the coming years, according to a document on the supermarket group’s website.It explained that the collective labour agreement (CAO) between employer and workers for the supermarket chain prescribed the pension fund to join the industry-wide scheme in case of liquidation.The Co-op scheme closed the year 2016 with a funding of 112.4%, whereas the much larger sector pension fund’s coverage stood at 95.9% at year-end. The participants of the Co-op pension fund will get compensated for the difference through an indexation in arrears of 1.45% over 2016, as well as an annual indexation of 3% as long as the transition surplus exists.In addition, their annual pensions accrual will be increased from 1.64% of their salary to the tax-facilitated maximum of 1.875%, according to the pension fund.However, as part of the transition, the maximum salary subject to pensions accrual at Levensmiddelen is to be reduced from the legal maximum of €101,519 to €53,701.In 2015, the Co-op pension fund placed its pensions provision with Syntrus Achmea, which is also the provider for Levensmiddelen.The latter scheme, however, has indicated that it wanted to switch to AZL – part of NN Group – following Syntrus Achmea’s announcement last year that it would stop serving industry-wide pension funds within two years.The Co-op pension fund has 7,000 participants in total.
However, many smaller companies have not joined such agreements because they fear some of the minimum standards would decrease their competitiveness.In another poll of the delegates, 46% of providers and 42% of employers and pension funds said they would like to open up the new pension model to all companies.However, Yasmin Fahimi, undersecretary at the German ministry of labour BMAS, told delegates the government would not change its position.“The new pure defined contribution model in which employers can rid themselves of all liabilities cannot be allowed to be negotiated within individual companies because worker representatives might be put under pressure by the employer,” Fahimi said.Only a collective bargaining agreement could “ensure trust” for the new model, she added.Fahimi also took a strong stand on the scrapping of guarantees in the new plans: “This is the right way because in the current low-interest rate environment there is no other answer – any guarantee would decrease the chance to use market opportunities.”Meanwhile, employer representatives from the chemical and metal industry already signalled they were working on a way around this limitation in the new law.Rainer Dulger, president of the employer association for the metal industry, said: “We would allow companies to only partially join our collective bargaining agreement to be able to make use of the new pension model. Why should they buy a cow if they only want a glass of milk?”He added that offering pension plans would become more important for companies if they wanted to stay competitive, but especially as SMEs often could not afford to set aside buffers for liabilities.Klaus-Peter Stiller, managing director of the federal employer association in the chemical industry, agreed in part: “For some parts of the collective bargaining agreements I would require companies to ‘buy the whole cow’ as it were. But in the case of the new pension model I would rather see companies agree to this part rather than not to pay into a pension plan at all.”However, Peter Hausmann, board member at the union for the mining, chemical, and electrical industries, said he was “vehemently opposed” to cherry-picking pension plan features.The new framework will also allow auto-enrolment. Employer representatives at the conference seemed more opposed than unions, as they fear all companies would have to offer a pension plan.Both workers’ and employer representatives agreed that the legal framework should leave them sufficient leeway for negotiating the new pension plans. The current German pension reform draft will not help to increase SME participation in occupational pensions, according to delegates at an industry conference.This was the overwhelming consensus from a live ballot of around 300 delegates – including pension providers, employer representatives, and pension funds – at this year’s occupational pensions conference organised by German financial newspaper Handelsblatt.Over 70% of the providers and more than 40% of the employers and pension funds agreed that restricting the new defined contribution (DC) model to collective bargaining agreements between employers and employees would mean the pension arrangements would not reach small and medium-sized businesses.Under the current reform draft, known as the “Betriebsrentenstärkungsgesetz” (BRSG), only companies that have signed a collective bargaining agreement would be allowed to introduce new pension plans without any guarantees regarding retirement benefits. The draft still has to be approved by parliament.
One of the UK’s leading auto-enrolment pension funds and several Swiss pension schemes are part of a $1.8trn (€1.5trn) institutional coalition calling on banks to supply more robust and relevant information about climate-related risks and opportunities.The investors are writing to the chief executive officers of 60 of the world’s largest banks.The letter was coordinated by responsible investment campaign group ShareAction and Boston Common Asset Management.It comes amid a growing desire among asset owners and asset managers for more robust climate-related disclosures and risk management from multiple industries. This is in part fuelled by the recent publication of recommendations by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).As the TCFD’s framework is voluntary, “progress depends on investors pressing for action”, said a statement about the investor campaign.European asset owners putting their names to the letters include the £2bn (€2.2bn) National Employment Savings Trust (NEST) and the £3.8bn Environment Agency Pension Fund in the UK, and Swiss multi-employer funds Caisse Inter-Entreprises de Prévoyance Professionnelle and Nest Sammelstiftung, with €5.5bn and €2.1bn assets under management, respectively. Finland’s €22bn Elo Mutual Pension Insurance and Swedish pensions and insurance firm Folksam are other European asset owners in the coalition. Asset managers supporting the campaign include Aegon, Candriam, and Storebrand.Roland Bosch, associate director for engagement at Hermes EOS, the stewardship arm of Hermes Investment Management, said: “We believe that the banking sector can do more to expand its disclosure of how climate risks and opportunities are being assessed and managed.”Isabelle Cabie, global head of responsible development at Candriam Investors Group, said: “As a result of climate change and the low-carbon transition, banks now face risks and opportunities that are real, wide-ranging, and material to investors.“As long-term investors, better disclosure of climate risk allows us to judge how specific banks are performing compared to their peers, and so we ask that banks pay heed to this important call from the investor community.”The letter calls for more robust and relevant climate-related disclosure in four key areas: strategy and implementation, risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration with other actors on climate change.Banks are exposed to climate change-related risks and opportunities through their lending and other financial intermediary activities as well as through their own operations. Setting out its reporting guidance for banks, the TCFD said that that “investors, lenders, insurance underwriters, and other stakeholders need to be able to distinguish among banks’ exposures and risk profiles so that they can make informed financial decisions”.In June the Bank of England announced it was extending its work on climate-related risks to the regulated UK banking sector, having initially focussed on the insurance sector.
Miles Celic, TheCityUK“We urge the government and MPs to carefully consider the options without delay and put forward an economically sensible way ahead. A ‘no deal’ outcome is not in the best interests of customers in the UK or the EU.” Chris Cummings, chief executive of asset management trade body the Investment Association, described the continued uncertainty as “extremely disappointing”.“It is critical that every effort is made to avoid a ‘no deal’ exit from the EU, and the potential cliff-edge effects that this could bring,” Cummings said.“While asset managers have been working on ‘no deal’ contingency plans for a long time and are prepared for this scenario, it still remains the least desirable option for our industry, and for the millions of people who entrust us with their pensions and savings.“It is imperative that the regulatory co-operation agreements are finalised so that firms can plan with certainty and the savings of millions of people in Europe can continue to be invested wisely and managed across borders.“Given the uncertainty that today’s result brings, firms will continue to keep their no-deal contingency plans under review.”Business confidence fallsOutside of financial services, other organisations also expressed frustration. Carolyn Fairbairn, CBICarolyn Fairbairn, director-general of the Confederation of British Industry, called for the government to present a new plan “immediately”.“This is now a time for our politicians to make history as leaders,” she said. “All MPs need to reflect on the need for compromise and to act at speed to protect the UK’s economy.”The Federation of Small Businesses (FSB) said a withdrawal agreement and a transition period was “vital” for smaller companies to be able to plan, adding that the political uncertainty had already hampered many firms.FSB chairman Mike Cherry said: “Small business confidence has plummeted to its lowest point since the wake of the financial crash. Four in 10 expect performance to worsen over this quarter, two thirds are not planning to increase capital investment, and a third see lack of the right skills as a barrier to growth.“That’s what political uncertainty does to business: it makes it impossible to plan, innovate and expand.”Tina McKenzie, the FSB’s policy chair for Northern Ireland, added that leaving the EU without an agreement “is something which we simply cannot countenance”. May vows to fight onIn a statement following last night’s vote, Theresa May said she intended to discuss the withdrawal agreement with “senior parliamentarians from across the house” in an effort to address concerns. Any ideas or amendments resulting from meetings with other politicians would then be put to the EU. Miles Celic, CEO of TheCityUK, which represents the financial services sector, said: “The outcome of [the] vote prolongs uncertainty and will continue to depress business confidence. The lack of clarity on the path to an orderly Brexit risks disruption and financial instability on both sides of the Channel. Theresa May speaks during discussions with the EU in November 2018“Every day that passes without this issue being resolved means more uncertainty, more bitterness and more rancour,” May concluded. “The government has heard what [parliament] has said tonight, but I ask members on all sides… to listen to the British people, who want this issue settled, and to work with the government to do just that.”However, European Commission president Jean-Claude Juncker warned that “time is almost up” for the UK to accept the withdrawal agreement, which he claimed was “a fair compromise and the best possible deal”.He also said that the rejection of the agreement yesterday meant that the risk of a disorderly exit from the EU had increased.“While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared,” Juncker said. “I urge the United Kingdom to clarify its intentions as soon as possible.” UK business groups reacted with frustration following a historic defeat of the government’s proposed EU withdrawal agreement last night.Parliament voted overwhelmingly to reject prime minister Theresa May’s agreement, struck with the EU late last year after 18 months of negotiations, by a margin of 432 votes to 202 – the biggest defeat of any UK government bill in modern history.Jeremy Corbyn, leader of the opposition Labour party, tabled a vote of no confidence in the government, which will take place today.However, representatives of the UK’s industries hit out at politicians for failing to give any kind of certainty for company leaders, warning that exiting the EU without an agreement would be damaging for businesses and the economy.