AP3, meanwhile, said it viewed the offer as “fair” but indicated it did not consider the alternative – maintaining a position as a minority shareholder – as sustainable. Peter Lundqvist, the fund’s head of corporate governance, said the last couple of years as a minority shareholder in Scania had not been easy.“There has been a lack of information regarding potential synergies from the collaboration between Scania and MAN, last year VW abolished the nomination committee, and they have also decided to reduce dividends for 2013 without any justification,” he told IPE.“When you invite your partner to dance, it’s difficult when she refuses to step out on the dance floor.”AP2 currently owns 0.2% of stock, while AP3’s shareholding accounts for 0.32% of the firm’s share capital.Due to the use of the Swedish A and B share system, the funds jointly account for just 0.1% of voting rights.Requests for comment from AP1, which, according to local media reports, has sold its stake in Scania since the end of 2013, went unanswered at the time of publication.Volkswagen, which owns more than 60% of shares and controls 88% of voting rights at the company, has previously seen its bid for Scania rejected by the company’s independent committee, resulting in several institutional investors, including pension provider AMF, rejecting the bid.AP4 cited the independent committee’s discomfort with the bid when it rejected the offer.At the time, it said: “Our belief is that the Swedish senior citizens who are the main principals of AP4 in the long term will benefit if Scania remains as an independent listed company.”AMF’s Anders Oscarsson, who heads up corporate governance at the provider, previously said its concerns over VW’s offer stemmed from its ownership of rival truck manufacturer MAN Group.“Scania is in fantastic shape, and MAN is not, and Scania has done some excellent R&D,” he said. “So the question is, could there be some transition out of the company?” Two of Sweden’s buffer funds have accepted Volkswagen’s controversial bid for local heavy vehicles manufacturer Scania, weeks after AP4 rejected the SEK200 (€22.30) a share offer.A spokeswoman for AP2 said it had carefully evaluated the bid, which was “attractive” to the buffer fund.Asked how the fund had come to a different conclusion than AP4, the spokeswoman said she could not comment on the other fund’s assessment of the deal.“We have done our analysis, and they have done theirs,” she said.
It also pointed out that other elements of pension plans, including contribution levels, the distribution of possible benefit cuts and risks within the investment policy, should be taken into account as well.Pension funds, it said, should be allowed to tackle those elements in a way that best suits them, and calculations of the impact of the new regulations should be made for individual pension funds to see whether their concerns are warranted.ABP, the country’s largest pension fund, said it was still worried about the limited options in the nFTK for indexation of pensions to keep up with inflation.It said it aimed to provide pension benefits that kept pace with the average salary developments in the public and education sectors, although it has yet to calculate the implications of the new rules for its participants, it said.Senior citizen interest groups have also expressed concerns about the limited possibilities for indexation.According to one such organisation, ANBO, the new rules “limit the possibility pensions will be raised to keep up with rising prices”.It added: “It will also become harder to make up for lost indexation incurred in the past.”ANBO director Liane van der Haan said: “Millions of Dutch citizens have seen the buying power of their pensions decrease by 12% over the past six years. In addition, dozens of pension funds have had to cut benefits.“Now the chance of indexation will be further decreased because state secretary Jetta Klijnsma is raising the capital buffer requirements.”The only certainty Klijnsma can offer with the current draft legislation is that younger participants will certainly face lower pensions, and seniors will have less buying power, according to two other senior groups, KNVG and NVOG.Leo Witkamp, director at PNO Media pension fund, criticised the solvency buffer requirements at the annual FD Pension Pro IPN conference last week.He said the nFTK had taken a wrong turn and that, in its current form, it would lead to unchecked buffer accumulation.Regarding the required buffer level, an explanatory note attached to the draft legislation states that the capital requirement will increase from 21.7% to 26.6% on average.Pension funds will not be allowed to grant indexation unless they have a funding ratio of 110% or higher. The Dutch Pensions Federation has said it is pleased pension funds will be given more time to implement the country’s new financial framework regulations but worried the new rules will fail to promote a fairer balance between generations.In its response to the new financial assessment framework (nFTK) submitted to Parliament yesterday, it said the proposal might improve intergenerational balance at the macroeconomic level but not necessarily at the level of individual pension funds.It argued that the “new rules of the game” could actually lead to “skewed” outcomes.The organisation said striking a fair balance between generations was about more than indexation alone.
Norway’s Government Pension Fund Global (GPFG) produced a return of just 0.1%, or NOK15bn (€1.8bn), in the third quarter of this year, with both equities and bonds underperforming their benchmarks.While general economic and market conditions kept investment returns depressed, elements of the fund’s own strategy whittled returns still further.Yngve Slyngstad, chief executive at Norges Bank Investment Management (NBIM), which manages the former oil fund, said: “Increased geopolitical uncertainty in the vicinity of the euro area contributed to a negative return on European stocks.”Two quarters of strong returns for the GPFG had been followed by a virtually flat quarter, he said. “The US, on the other hand, emerged as the global growth engine, and US stocks produced a positive return,” Slyngstad said.The negative overall return on equities was cancelled out by a positive return on the fund’s fixed income investments.Between July and September, equity investments returned -0.5%, and fixed income investments 0.9%.NBIM said the return on these two asset classes had been 0.5 percentage points below the return on the benchmark indices. Real estate investments produced a 1.5% return.The main contributors to the weak return in the quarter were the fact the fund was overweight European and small-cap stocks, its investments in the consumer sector, lower duration on its fixed income investments and its investments in emerging bond markets, NBIM said.Slyngstad told a press conference that consumer services and consumer goods stocks had performed badly, with some its largest positions doing very poorly. Asked to specify which holdings he was referring to, Slyngstad said: “We are hesitant to comment on single investments in general, but it is clear our investment in the British company Tesco has performed particularly poorly during the course of the year.”Currency movements worked in favour of the fund during the quarter, with the krone having weakened against many of the main currencies.This increased the fund’s value by NOK5bn, and on top of this gain, NOK36bn of new capital was transferred to the fund from the Norwegian government.At the end of the September, the fund’s market value grew to NOK5.53bn, from NOK5.48bn at the end of June.Of this, 61.4% was invested in equities, 37.3% in fixed income and 1.3% in real estate.NBIM said the fund bought several new properties in Europe and the US during the quarter, in line with its strategy of slowly increasing the real estate allocation to 5% of the fund.“Our strategy is to invest in a limited number of cities around the world and concentrate on office and retail premises,” Slyngstad said.
It also came the same month as the Pension Protection Fund 7800 index saw aggregate funding levels dip to 81.4%, although levels have since recovered.The UK postal service saw a large share of its pension liabilities transferred to the government ahead of its 2013 listing, with the reformed RMPP subsequently reporting an IAS 19 surplus of £830m.The company said it expected the initial surplus to decline over time, especially in light of what it accepted were worsening market conditions for defined benefit funds.“The increase in the surplus was largely driven by the return on assets – in particular due to the increase in the market value of Gilts and derivative assets principally held to hedge inflation and interest rate risk,” the report notes.Gilt holdings make up well over half of both funds’ £6.6bn in assets, with £3.7bn held in unit trusts – up from £2bn in March last year.A further £195m was held in index-linked UK bonds, £525m in overseas fixed-interest bonds and £60m in UK denominated fixed-interest bonds.The funds held an additional estimated £460m in unit trusts, with nearly £600m in direct equity holdings, £318m in listed and unlisted property and £175m in cash.The report went on to say that the surplus would be likely to decline to the point that there was “neither a material surplus or deficit” by 2018, as the company adjusted its contribution rates to reduce the surplus.Compared with 2014, both schemes assumed retail prices index (RPI) inflation of 3.1%, down 0.3 percentage points, an equal decrease in consumer prices index (CPI) inflation to 2.1% and a nominal discount rate of 3.5%, down by 1 percentage point.The falling inflation assumptions are likely to have reduced liabilities by £270m, while the lower discount rate would have caused liabilities to rise by £900m, according to the company’s actuarial assumptions. Royal Mail’s pension plans have bolstered their funding surplus, seeing it increase by nearly £1.4bn (€1.9bn) as average funding levels within UK schemes fell by more than 2 percentage points.According to the company’s latest annual report, covering the financial year to 29 March, the Royal Mail Pension Plan (RMPP) and the smaller Royal Mail Senior Executives Pension Plan saw a combined IAS 19 surplus of £3.2bn, up from £1.7bn in March 2014.The increased surplus comes despite a comparable increase in liabilities of £1.3bn across both funds. The actuarial surplus was less pronounced but still increased by £371m to nearly £1.8bn – with the Royal Mail expressing surprise that the surplus remained in place.
Germany’s pension fund association (aba) has endorsed government proposals to give Pensionfonds more flexibility. In August, the Labour Ministry (BMAS) called for stakeholder comment on a proposal that would allow the relaxation of minimum guarantees during the payout phase from a Pensionsfonds. In Germany, defined contribution (DC) funds have to be set up with a minimum guarantee, or Beitragszusage mit Mindestleistung, and, if a Pensionsfonds is used as a vehicle, the payout phase has to contain an insurance element.At present, Pensionsfonds are used infrequently on retirement but rather as a financing instrument for pension payouts. The BMAS’s new proposal aims to change the norm by allowing the application of a 0% discount rate on all pensioners’ assets in Pensionsfonds.In a statement, the aba welcomed the changes, as Pensionsfonds with minimum guarantees are considered the “German alternative to international defined contribution plans”, which enjoy greater flexibility.One of the main advantages of the government’s proposal, according to the aba, is that it “makes it possible to have a less restrictive and more flexible asset allocation, which is particularly fitting in light of the low-interest-rate environment.”If the proposal is passed, Pensionsfonds will no longer require separate asset allocations for active and retired members.“This will create opportunities for higher returns,” the aba said.The association, however, did raise a number of concerns, most notably the volatility of pension payouts that people “will have to deal with”.It said German workers had grown accustomed to “very predictable” pension payouts and that the new regulation would guarantee only a minimum, with “volatile top-up elements”.Further, it warned that company liabilities could increase in certain cases under the new regulations compared with the current ones.Overall, however, the new regulation can help “increase acceptance of and participation in the second pillar”, the aba said.Another proposal by the BMAS would allow certain employees to opt out of the protection offered by the insolvency fund PSV.The aba said it had questions regarding taxation on this issue, but it generally welcomed the proposal.
Local authority schemes including the Environment Agency Pension Fund and Avon Pension Fund are exploring the launch of a pooled investment vehicle for their £19bn (€24.2bn) in assets.The eight funds, all located in the South West of England, said they had been working on details of a possible collaboration since the UK’s July Budget reiterated government support for asset pooling as a means of reducing management costs.In a statement, the funds said any approach would need to allow for sufficient flexibility “to evolve as governance or investment requirements change”.They added: “The objective will be to achieve savings over the longer term from both lower investment management costs and more effective management of the investment assets.” It stressed that the structure would focus on pooling the buying power of the collaborating pension funds, maintaining an individual scheme’s ability to control matters such as asset allocation.In minutes from a September meeting of the Avon Pension Fund, the scheme said the preferred approach was for a collective investment vehicle (CIV) centrally administered by one of the councils, with all members represented through a joint board.This would differ from the approach pursued by London’s councils, which set up a standalone corporate entity, with Hugh Grover as chief executive, to oversee its consolidation efforts.The report to the pensions committee said a CIV approach would involve compromises, including less control over the structure of future investment mandates.But it argued that the approach was preferable to unnamed alternatives that would “probably leave the fund at the margins”.The eight funds – Avon, Cornwall, Devon, Dorset, the Environment Agency, Gloucestershire, Somerset and Wiltshire – have historically exchanged best practice and worked on a number of joint procurement exercises, including one in 2010 for consultancy services.In the minutes from the Avon meeting, it was noted that the current eight members would be suited for collaboration, as no single authority would dominate.However, it accepted that, with £19bn in assets, it fell short of the government’s wish for substantial asset pools, with previous figures setting the target at £25bn.The announcement that the South West was looking to collaborate comes after chancellor of the Exchequer George Osborne said the pooling of local authority assets – which he said would create British Wealth Funds – would help boost future investment in domestic infrastructure.Other efforts to pool investments include all Welsh local authority funds jointly procuring a new passive equity manager, the London CIV and collaboration between the London Pensions Fund Authority and both the Lancashire Country Pension Fund and the Greater Manchester Pension Fund.
Hertzog was the head of Publica from 2004 to 2011.He subsequently moved to Aon Hewitt, where he was the managing director for Switzerland until 2014.He told IPE that, with his appointment at BPK, he was “back in the industry”.“I’m on the buy-side again,” he said.Hertzog parted ways with Aon Hewitt over what he said ultimately amounted to cultural differences, and differences of opinion that left him as a “persona non grata” within the firm.However, he said he believed his reputation in Switzerland was enhanced rather than damaged as a result, and that he had been welcomed back by many.Hertzog said it was too early to comment on any plans for BPK following his appointment.The Pensionskasse had some CHF12bn in assets under management as at the end of December 2015.It counts 36,000 active members and 14,000 pensioners, and 137 participating employers. Werner Hertzog, the former director of Switzerland’s largest pension fund, Publica, and former managing director at Aon Hewitt Switzerland, has taken over as director of Bernische Pensionskasse (BPK), the CHF12bn (€11bn) public pension fund for the canton of the Swiss capital.Hertzog took up his role last Monday, 12 December, having been appointed to the position by the board of directors in June.He replaces Hansjürg Schwander, who is retiring after having been the head of BPK since 2009.The Bern pension fund’s board referred to Hertzog as a “proven expert”, having led the Pensionskasse for the country’s federal public sector for seven years.
Some companies regulated by the Financial Reporting Council (FRC) may have been unaware that its annual levy is voluntary, according to documents obtained by IPE using the Freedom of Information (FoI) Act.The Office for National Statistics (ONS) considered the issue of the FRC’s levy as part of its assessment of whether or not the accounting watchdog was under central government control.The FRC requests annual levies from UK entities including listed and private companies (known as “preparers”), insurers and pension schemes. Schemes with more than 5,000 members are asked to contribute £3.12 (€3.52) per 100 members.In a document compiled in 2010, the ONS stated: “Excerpts from the FRC guidance relating to the three main levies are set out below. “These guides could be read to indicate that the FRC has or is using statutory powers under the Companies Act 2004 to require payment of the preparers and insurance levy, (i.e. the levy here is not voluntary).”In early 2010, the ONS quizzed the FRC about the voluntary nature of the levy and called for proof that companies knew they were under no obligation to pay. The FRC replied: “The entities falling within the levy group are sent requests for payment.“The requests do not specifically state that the payment is voluntary given the information on the FRC website, its practice of consulting on the levy annually and the capability of each recipient of a request to raise queries.“Where any recipient queries whether they must pay the levy requested they are told very clearly that there is no obligation to pay. In the event that a recipient of a request does not pay, the FRC has no right to require payment.”The ONS also established that some firms refused to pay.It concluded: “Technically the levy does appear to be voluntary, although it does not seem unreasonable to assume that some companies could be under the impression that the levy is compulsory.In a statement, the FRC told IPE that it explained the voluntary nature of the levy in a series of factsheets posted on its website.The FRC added that the factsheets accompanied its requests for payment.Although the FRC warned that it could ask the government to put the levy on a statutory footing, sources familiar with the issue have told IPE this might be difficult to achieve in practice.Government questioned over FRC statusMeanwhile, pressure is mounting for the UK government to come clean over its handling of the FRC’s status as a publicly accountable body.Baroness Sharon Bowles, a Liberal Democrat member of the UK upper house of parliament, tabled nine parliamentary questions on the topic last week.The former chair of the European Parliament’s Economic Affairs Committee asked the Department for Business, Energy and Industrial Strategy (BEIS) to clarify why it described the FRC as a private sector body in its memorandum of understanding with the watchdog.Other questions touched on the FRC’s application of the FoI Act and whether the government had guaranteed its legal costs in actions brought against the major accounting firms.Documents released to IPE under FoI laws detailed the lengths to which the FRC, HM Treasury and BEIS went in order to dodge classification as a public body.Regulator consults on strategy and budgetThe FRC has launched a consultation on its proposed strategy for “business and public trust” covering the next three years and its budget for the next 12 months.The FRC said in a statement that its strategy was centred on delivering “increased confidence and public trust in UK companies in line with its mission to promote transparency and integrity in business”.The audit watchdog also pledged to “enhance the speed and effectiveness of its enforcement activities and has committed to increased transparency when closing enforcement cases”.
A plenary session of the European ParliamentUnder its proposal, pension schemes’ exemption from mandatory clearing would be extended by two years instead of the Commission’s and Council’s three.The Commission also proposed that an additional two years’ extension be granted if a solution to the problem was “within reach”. The parliament’s proposal was for an additional one-year extension if stakeholders had agreed a solution and needed more time for implementation.The parliament also stated that the next exemption period should be the last. If stakeholders had not agreed a solution, the Commission would need to propose a binding one, but it should not be another exemption.The prospect of a legal gap arising was acknowledged in the parliament’s proposal for amendments to EMIR, as it stated that the exemption from clearing for pension schemes should apply retroactively to all over-the-counter derivative contracts executed after 16 August.“The retroactive application of this provision is necessary to avoid a gap between the end of the application of the existing exemption and the new exemption, since both serve the same purpose,” said the proposal.The solution questEMIR requires central counterparties and their clients to hold cash as collateral for the derivative contracts being traded. However, pension schemes – which use derivatives for hedging strategies and liability matching – prefer not to hold large allocations to cash because this eats into returns.When EMIR was first introduced it was hoped that an exemption from central clearing for pension funds would allow the clearing houses and schemes to come up with a solution, but this has yet to materialise.Last year Commission vice-president Valdis Dombrovskis, responsible for financial stability, financial services and the Capital Markets Union, began organising meetings to bring together central counterparties, pension funds, central banks and investment banks in an attempt to find a solution.According to PensionsEurope’s Verstegen, the solution in the pension investors’ eyes is based on the central repurchase (repo) market, but with central banks acting as a liquidity backstop. The EU’s three bodies are due to commence negotiations on a proposal from the European Commission to amend aspects of EMIR. The Commission tabled this in May 2017 after a “regulatory fitness and performance” check of the regulation.Negotiations between the Commission, the European Parliament and the EU council, the body for member states, could have started sooner but the parliament’s economic and monetary affairs committee decided to have the matter voted on in the plenary rather than going straight to the “trilogue” negotiations. Parliament adopts tougher proposal The EU council adopted its position in December, endorsing the Commission’s proposal, but the European Parliament has taken a tougher stance. European pension schemes could be faced with a legal gap surrounding the obligation to clear certain derivatives after their current exemption from the rule expires in August.PensionsEurope has called for regulators to make clear that the obligation will not be enforced for pension funds if amendments to the European Markets Infrastructure Regulation (EMIR) are not effective until after the exemption runs out on 16 August.Matthies Verstegen, senior policy adviser at the trade association, said an agreement between the EU’s law-making institutions could be reached relatively quickly, but it was now impossible for it to be in force by August.“We hope co-legislators find an agreement as soon as possible,” he added.
The funding level of some Swiss pension funds is set to fall considerably after the equity market volatility of last year.Preliminary calculations relating to funds from the cantons of Zurich and Schaffhausen were presented by the BVS, the regional supervisory body for Pensionskassen and foundations in these two cantons.Speaking at the authority’s annual conference, Roger Tischhauser, director of the BVS, said that “a typical pension fund will report a lower funding level by 400 to 600 basis points because of the capital market developments” in 2018.This year, Tischhauser said he expected “an additional 12 or more pension funds” under BVS’ supervision to report underfunding in their 2018 annual reports. For 2017, the group of more than 750 pension funds supervised by the BVS showed a significant improvement in its funding position.Compared to 2016, the number of underfunded schemes fell from 10 to four. The funds with shortfalls in 2017 were smaller schemes with combined assets of CHF4bn (€3.3bn).Equity market volatility hit Swiss pension funds last year, a development also reflected in the industry indices compiled by UBS and Credit Suisse, as well as preliminary results published by Publica, Switzerland’s largest pension fund.Nevertheless, Tischhauser said he was impressed by how the average pension fund had developed over the past few years.In 2017, over 80% of all funds supervised by the BVS were 100% funded and around 50% had “already restocked the necessary funding buffers”, which had been emptied in the wake of the financial crisis, Tischhauser said.He highlighted public pension funds, which “can look back at seven years of very hard work” since they were legally transformed into entities independent of the canton’s authority.In total, the BVS oversees almost CHF300bn in occupational pension assets, more than one third of the total CHF850bn in the Swiss second pillar.Collective pension funds as systemic risk factorsTischhauser also defended proposals from Switzerland’s top finance regulator, the OAK, regarding new rules for collective pension funds, the Sammelstiftungen and Gemeinschaftseinrichtungen.He contradicted critics who recently spoke out against further regulation for this sector within the second pillar. The OAK wants to introduce additional risk reporting requirements for such plans.Tischhauser said a “consistent set of rules” was necessary for this sector.“In this segment, which is of systemic importance, financial stability has to be increased and for this we need a unified regulatory framework,” he said.He explained that, given the competition in this sector, collective pension funds on average “took more risks in their investments and made higher promises” than company pension funds not open to outside customers.