Kamp stressed the importance for schemes’ participants that pension funds and insurers invest locally, saying this boosted Dutch society and helped workers.Diederik Samson, leader of the labour party PvdA, also called for additional pension fund investments in The Netherlands, arguing that an additional investment of 1% would benefit the local economy by €10bn.When asked by IPE sister publication FD-IPNederland, Kamp said an additional percentage point of investment was not his final target and he declined to be more specific.Encouraging pension funds to increase their local investments is a sensitive issue, as it involves private institutions.According to Eloy Lindeijer, head of asset management at the €159bn provider PGGM, “forced investment” is one of the risks of the NII.However, in the opinion of Jan van Rutte, the architect of the NII plan, the risks associated with the Institution would be no different than if it did not exist, although he conceded the risks could increase due to “publicity pressure” for local investment.Another risk is that the NII, despite the support of institutional investors, cannot offer “sound investments”.Lindeijer said he expected that it would take approximately three months before the NII could take off.The Institution aims to offer its first investment in 2015.The NII is considering issuing subordinated loans to small and medium-sized companies, as an addition to the NL Ondernemingsfonds, an initiative of the pensions providers MN and Syntrus Achmea in cooperation with banks and asset manager Robeco. Henk Kamp, minister for the Dutch Ministry of Economic Affairs, has said the new National Investment Institution (NII) will offer pension funds greater options for investing locally in the Netherlands.During the presentation of a concrete plan for the NII, Kamp, a former minister for Social Affairs, said the example of Dutch insurers showed that local investment could be a “responsible policy”.Currently, Dutch insurers invest 43% of their assets in the Netherlands, whereas pension funds invest just 14%.Investors from North America know this as well, Kamp said, adding that the US ambassador told the minister US investments in the Netherlands were larger than its combined stake in the BRIC countries – Brazil, Russia, India and China.
“It is important to ensure the SBCI and the ISIF do not crowd out private financing,” the OECD report added.ISIF’s investments are meant to act as a catalyst for additional private investment, and the fund regularly discloses the amount of third-party capital committed alongside its investments.Its director, Eugene O’Callaghan, told the current issue of IPE the fund’s challenge was now investing three-quarters of its €7.6bn portfolio by its target date of 2020.“The biggest challenge is deployment – and deployment in a way that we don’t big up the price of assets in the Irish market against ourselves,” he said.In July, the fund outlined its investment strategy, which will see it target real assets, venture capital investments and private equity.In late July, it also announced that it would back a €500m residential property venture, which aims to extend credit to domestic residential developments. For more on ISIF’s investment strategy, read IPE’s interview with Eugene O’Callaghan Ireland’s government has been warned about the risks associated with its sovereign development fund and projects funded by its predecessor, the National Pensions Reserve Fund (NPRF).In its annual assessment of the Irish economy, the OECD noted the launch of the Strategic Banking Corporation of Ireland (SBCI), funded by the NPRF, which has since become the Ireland Strategic Investment Fund (ISIF), and used as a means of increasing the amount of lending to small and medium-sized enterprises (SMEs).“Both the SBCI and the ISIF should be monitored closely given the implied fiscal risks,” the OECD report warned.It noted that the SBCI, which received funding from both the NPRF and Germany’s Kreditanstalt für Wiederaufbau, was meant to “foster competition”.
The €273bn asset manager Robeco has appointed David Steyn as chief executive and chairman of the management board of Robeco Groep. Steyn will succeed Roderick Munsters (pictured), who announced his resignation earlier this month. The Rotterdam-based pure play asset manager said Steyn had more than 35 years of international experience in asset management, as well as in management, distribution and investment roles.He was previously in charge of strategy at Aberdeen Asset Management, as well as COO and head of distribution at AllianceBernstein, based in London and New York. Steyn has studied law at the University of Aberdeen.Robeco’s new chief executive is to start his new job on 1 November.According to Robeco, Steyn will work closely with Munsters to ensure a smooth transition.Steyn is expected to accelerate Robeco’s global growth ambitions.The company was acquired by Japanese firm Orix in 2013.Dick Verbeek, chairman of Robeco’s supervisory board, said: “I am confident we can count on David’s long and proven track record in asset management to lead Robeco and benefit from the opportunities that will arise in the global asset management market in the years to come.”The appointment of Steyn is subject to approval by the Dutch authorities.Munsters, when announcing his resignation, said it was a “natural time” to leave, as Robeco was in good shape with solid financial performance and a strong long-term strategy.Before joining Robeco, Munsters served as CIO at the €353bn civil service scheme ABP and the €166bn healthcare scheme PFZW, in addition to holding a number of investment jobs at insurer Interpolis.He has also been chairman at Eumedion, the Dutch industry organisation for corporate governance.
The proliferation of diversified growth funds among UK institutional investors will continue for the next five years despite falling growth among defined benefit (DB) investors, research shows.A report by research firm Spence Johnson showed that the UK market grew by £16.2bn (€22.4bn) over 2014, reaching a total of £124bn.However, by 2019, it predicts the market will be worth £218bn as defined contribution (DC) schemes grow and allocate more.While institutional investors dominate allocations, Spence Johnson suggests retail investors are becoming more of a significant minority. Retail investors led the growth in the market in 2014, followed closely by UK DC funds, which added more than £3bn to the market.Overall, DB funds still have around £55bn in DGF assets, while DC has around £15bn.Spence Johnson, however, predicted that DC investors would be the greatest source of inflows over the next five years.It also lowered its forecast on DB after a “disappointing” 2014.It said DB inflows were past their peak, due to the growing fiduciary management market as a competitor for DB assets.General de-risking is also affecting the outlook for DB allocations, it said.“We have seen growth in DB assets fall to almost a standstill last year, following the huge success of the previous year,” it said.“Because of these factors, we have more than halved our flow forecast from the previous year.”The research also suggested multi-asset solutions in the DC market would grow their market share from 1% to 32% of the £787bn in assets, with DGF funds being the fastest growing element.However, the growth of specific types of DGF products stand to vary, with Spence Johnson predicting absolute return funds accounting for almost half of the market’s growth over the next five years.Of the £55bn of inflows, it expects £23bn into absolute return, £19bn into dynamic DGFs and £12bn into strategies DGFs.For DB investors, absolute return and dynamic funds will be most attractive.However, given the UK government’s 75 basis point charge cap on DC funds used as defaults for auto-enrolment, strategic DGFs will capitalise by being lower cost, while dynamic funds will reduce in quality due to fee competition, Spence Johnson said.Standard Life Investment still dominates, with a majority market share of 33%, while Ruffer, BlackRock and Newton Investment Management all hold more than 10% market share.While the Top 5 asset managers held a 71% market share in 2014, concentration will reduce by 2019, with this figure falling to 57%, according to Spence Johnson.At the end of 2013, the Top 5 concentration was 75%.
Moreover, this situation is not publicly acknowledged or debated but subject to “collective silence”.“The overarching finding of the discussion paper, therefore, is that if the government does not accept and act on the reality we identify and describe, the result will be far from optimal and far from even ‘second-best’,” the authors write.The discussion paper flags the risk of up to 1,000 schemes – representing one-sixth of those in the PPF index and including about 25 of the largest in the country – becoming insolvent.The figure is a broad estimate and represents a worst-case scenario surpassing the PPF’s own calculations, according to the authors. A new approach to managing pensions could avert the institute’s envisaged worst-case scenario, according to the paper.This approach would involve being prepared for many more schemes to pay less than full benefits on a planned and co-ordinated basis, with all parties in agreement on how best this would be achieved.“Freeing an employer,” the paper states, “from the burden of its pension fund, whilst avoiding insolvency, can create extra value that can be shared with the members to achieve a better outcome.”The institute submits seven proposals but does not make firm recommendations as it would normally do in a practitioner report.This reflects a more cautious approach taken by the institute due to the lack of “essential data for evidence-based recommendations” and a “surprising polarisation” in the expert opinions gathered.The proposals go to the heart of the legal and regulatory framework governing the relationship between a DB scheme’s sponsoring employer, scheme members and the PPF.They are wide-ranging, foreseeing changes for the UK pensions regulator, trustees, the PPF and employers.The proposals include changing the remit of The Pensions Regulator (TPR) for trustees of stressed schemes from protection of member benefits to protection of member interests.They also call for the introduction of a requirement for TPR to alert trustees and sponsors when it identifies a sponsor’s covenant is “weak”.Proposals affecting the PPF include the introduction of a pre-assessment period to facilitate early intervention by TPR and changing the PFF’s cliff-edge compensation rules to create greater equity between member cohorts.Employers, meanwhile, should give an annual statement to trustees about the medium-term outlook for the business, including any plans for corporate actions, which would “align the regulation and governance of sponsoring employers with the concerns of trustees”.Other proposals are for non-statutory pension increases to be made contingent on a scheme’s funding level, either by giving trustees the ability to apply to TPR for such power or giving TPR the power to direct trustees in this way, and for trustees of stressed schemes to be given guidance on the appointment of specialist advice.,WebsitesWe are not responsible for the content of external sitesLink to “The Greatest Good” discussion paper UK government policy on defined benefit (DB) pension funds is based on the flawed assumption they will be able to pay full benefits and must be changed to avoid a worst-case scenario of up to 1,000 schemes falling into the Pension Protection Fund (PPF), an academic research organisation has argued.Published yesterday, ‘The Greatest Good for the Greatest Number’ is a discussion paper from Cass Business School’s Pensions Institute aimed at the trustees and sponsors of “stressed” DB schemes.Professor David Blake, director of the institute and one of the authors, said the paper challenged the “rose-tinted” view private sector employers with DB schemes would survive long enough to pay benefits in full, an assumption on which UK government policy is predicated.The “crushing reality”, however, is that many schemes are stressed and their trustees face “seemingly impossible conflicts of interests” between diverse stakeholders.
In November, ABP’s board decided to reduce the cost-covering contribution for 2016 from 19.6% to 17.8%.At the time, however, it noted that a surcharge of up to 3 percentage points could be added, in the event of insufficient funding at year-end.With the additional premium component, ABP expects funding to increase to the required coverage ratio of 127.9% by 2027.The civil service scheme said the surcharge would apply, in principle, for a five-year period.If the scheme’s accountability body approves the board’s decision to raise the new premium, the surcharge is to be introduced on 1 April.ABP took pains to emphasise that a rights discount was not yet on the cards.Under the rules of the new financial assessment framework (nFTK), Dutch pension funds must apply a rights discount if their funding falls short of the required minimum of 105% for five consecutive years.Subsequent cuts can be spread across a 10-year period. The €357bn Dutch civil service pension fund ABP has announced that it is likely to introduce a 1 percentage point “surcharge” on its contribution to speed up its recovery.It said it based its decision on the scheme’s financial position at the end of December 2015, when its coverage ratio fell to 97.2%, a decrease of 1.4 percentage points relative to the previous month.ABP attributed the funding decline to disappointing returns due to volatile financial markets, and falling long-term interest rates, the criterion for discounting liabilities.In addition, new longevity estimates from Statistics Netherlands (CBS) reduced its funding level by another 0.4 percentage points, it said.
He also credited joint lobbying for pension funds’ exemptions from the European Market Infrastructure Regulation and the financial transaction tax (FTT).Van Meerten indicated, however, that European supervisor EIOPA – separately from the new IORP II Directive – was developing its own solvency framework with capital requirements, “which could become binding”.“To counter this development, we might need British support again,” he said.In his opinion, new capital requirements driven by EIOPA would force pension funds to expand their financial buffers.“Given pension funds’ current weak financial position, this would lead to additional rights discounts and make a switch to defined contribution arrangements inevitable,” said Van Meerten, who is also professor of European pensions legislation at Utrecht University.He pointed out that EIOPA’s recent stress tests had shown that many pension funds would hit additional turbulence during a crisis, adding that it was “worrying” the Dutch Pensions Federation had tried to downplay these conclusions, “as such a crisis scenario seems to be playing out already”.The professor suggested, however, that a Brexit could also expedite the change to a sustainable pensions system, “which has been under discussion for far too long”.He argued that, if Dutch pension funds speed up the innovation process, they could play a pioneering role and even help EIOPA flesh out a solvency framework.“That would be very sensible, as the Dutch financial assessment framework (nFTK) remains subordinated to European legislation,” he said.Theo Kocken, chief executive at risk manager Cardano, which also has a UK office, agreed that a Brexit could be bad for Dutch pension funds.He said a Brexit would be another reason to adopt a new pensions system quickly, “without vague concepts such as buffers, which the EC wrongly considers as a safety margin and a target of wrong regulation”. A pensions law expert has warned that a UK decision to leave the European Union (EU) could derail the Dutch government’s lobbying efforts in Brussels with respect to pensions.Hans van Meerten, a European pensions lawyer, said the Dutch government, in the event of a Brexit, would lose a key ally in its struggle to carve out a special position for the pensions industry within European financial legislation.The pension systems in the Netherlands and the UK consist predominantly of capital-funded defined benefit arrangements.Van Meerten said that Dutch schemes, with the help of their UK peers, had been largely successful in excluding pension funds from harmonised capital requirements for banks and insurers.
Earlier this year consultancies Mercer and Aon Hewitt predicted that no more than 10 pension funds in the Netherlands would have to apply rights discounts this year given improvements in some market conditions.The coverage ratio of pension funds showed considerable volatility last year, with falling interest rates – the main criterion for discounting liabilities – in particular triggering a funding drop of 8 percentage points on average in the first quarter.Based on this situation, which hadn’t changed at the end of the third quarter, more than two million participants and pensioners were facing rights cuts.The new financial assessment framework (nFTK) allows for the recovery term to be extended in case of extraordinary economic circumstances that would cause a large number of pension funds to fall short of their obligations.Klijnsma, however, noted that approximately 85% of the 290 pension funds still have a funding shortfall, and that full indexation is only allowed if their coverage exceeds 120%.She added that the risk remains that schemes must cut pension rights unconditionally, if their funding stays below the required minimum level of 104.2% during five consecutive years.In other news, the Dutch cabinet said it opposed raising the discount rate for liabilities, as this would benefit older workers and pensioners at the expense of future generations.It drew its conclusion from a study by the Netherlands’ Bureau for Economic Policy Analysis (CPB), which confirmed that a high discount rate would enable pension funds to grant indexation soon.Future generations, however, would receive up to 30% lower pensions as a consequence, according to the CPB.At the moment, the discount rate, set by DNB, varies from 1.12% for pension funds with a predominanly old population to 1.52% for schemes with mostly young participants. The discount rate includes an ultimate forward rate of 2.9%. The Dutch government has said it would refrain from extending the current 10-year recovery term for pension funds, as only a limited number of schemes need to cut pension rights, following the significantly improved economic situation.In a letter to the Dutch parliament, Jetta Klijnsma, state secretary for social affairs, said that rising interest rates and recovering equity markets during the last two months of 2016 had pushed pension funds’ coverage up to 102% on average.As a consequence, supervisor De Nederlandsche Bank (DNB) has concluded that no more than five schemes have to apply rights discounts of less than 1%, according to the state secretary.She added that DNB hadn’t factored in the possibility of a premium increase or additional contribution by an employer that could stave off cuts.
The ministry said the proposal was also aimed at strengthening and clarifying the regulations on the funds’ sustainability work.The draft rules put a focus on sustainability into legislation for the first time and clarify the connection to Swedish environmental goals as well as to international agreements, it said.“With this proposal, I am convinced that the AP funds will reduce the environmental impact of their portfolios and place themselves in the absolute top layer in terms of sustainability,” Bolund said.“This is necessary if the Paris agreement and the objectives of Agenda 2030 are to be reached,” he said.The wording of the funds’ investment guidelines is to be changed to state that a maximum of 40% of the funds’ assets can be held in illiquid investments, replacing the current text which limits investment in unlisted instruments to 5% of assets.According to the draft, the funds will not be required to sell illiquid investments if strong market movements — for example, a sharp fall in the price of listed securities — force the proportion of illiquid investments above 40%, saying that such a requirement could be detrimental to pension assets.The proposal also says the funds must work together on responsible investment and develop guidelines jointly, and that they must work to become exemplary in the field of sustainable investment.Back in May, when Bolund talked about the plan to relax investment restrictions, AP2 said the move would be positive because the return levels the fund had achieved historically would become increasingly difficult to attain under the current regulations.Niklas Ekvall, chief executive of AP4, said the fund welcomed the proposal. “A modernisation of the current investment rules will give us better prospects of achieving our long-term return goal and therefore of fulfilling our mission within the pension system,” he said.“Apart from having greater freedom in the choice of investments, it is also crucial to have enough flexibility so that investment can be carried out as cost-effectively as possible.” However, Ekvall pointed out that the proposed new 40% ceiling on illiquid investments would include real estate investments.The proposal has come from the cross-party Pensions Group and the deadline for consultation responses is 26 October.The new rules are scheduled to take effect on 1 July 2018. Sweden’s main national pensions buffer funds — AP funds one to four — are set for big changes to their long-berated investment restrictions next year after the government formally proposed a package of liberalisations.The Swedish finance ministry has announced a number of draft changes including a new 40% ceiling on illiquid investments in place of the current 5% lid on unlisted instruments, with the new allowance to include real estate – which is unlimited under the current rules.The proposal also includes a reduction in the minimum allocation – from 30% to 20% – to interest-bearing securities with low credit and liquidity risk that the funds must have, abolishes the rule that 10% of their assets must be managed externally, and removes the funds’ option to invest in commodity derivatives.Per Bolund, financial markets minister, said: “Over time, investment patterns change and therefore we also need to review the investment mandates of the first four AP funds.”
The government planned to spend around €30bn on various items, according to Italian newswires. The coalition’s plan was set out in the Documento di Economia e Finanza, which will be presented to parliament next month and will form the basis for the 2019 budget law. Other measures included €10bn to kickstart a “citizen’s income”, a form of basic income granted to the unemployed that could amount to €780 per month. The government also needed €12.5bn to maintain its pledge to scrap a planned rise in VAT, according to reports. Cutting taxes on self-employed workers from 2020 would cost around €1.5bn. Canceling the effects of Italy’s Fornero pension reform of 2011 will require around €8bn of additional spending, according to reports in the Italian press.In its budget report last week, the country’s government confirmed its plan to roll back the reforms that raised the state retirement age to 67. The coalition – made up of the Northern League and the Five Star Movement – instead wants to allow retirement after workers have reached 64 years of age while contributing to the system for at least 38 years. The measure would initially affect 400,000 workers.The government said it had agreed to a significant rise in spending for 2019 to “overcome” the country’s public pension framework and maintain electoral pledges to lower the default retirement age.The populist government agreed to target a budget deficit of 2.4% of GDP for the next three years. This was similar to last year’s budget target, but it represented a sharp increase from the 1.6% level initially targeted by finance minister Giovanni Tria. Source: Italian finance ministryItalian finance minister Giovanni Tria speaks at a press conference in JulyBond markets reacted to the announcement by sending the spread between Italian 10-year government bonds (BTPs) and German Bunds to 280 basis points at one point on Friday. The FTSE MIB, Italy’s main stock market index, fell more than 4%. On Monday, the index recouped some of the losses, and the BTP-Bund spread fell back below 270 basis points. Markets had been awaiting news on the government’s spending plan to assess the potential effect of additional spending on Italy’s government debt profile. Italy has a debt-to-GDP ratio of over 130%, among the highest in the developed world.The rise in yields on Italian sovereign debt and fall in share prices suggested markets were pessimistic on the country’s ability to maintain its growth trajectory and a sustainable fiscal balance.The OECD forecast Italy’s GDP growth to fall from 1.6% in 2017 to 1.4% this year and 1.1% in 2019. The primary surplus, which was forecast to be 2.7% earlier this year, would fall to 1.3%, the OECD predicted, the lowest level since 2011.While the 2.4% targeted deficit would not infringe European Commission rules, commentators expected tense discussions between European and Italian leaders on a budget law that could weaken Italy’s fiscal position within the euro-zone.The agreement on a higher government deficit was struck after finance minister Tria clashed with the leaders of the coalition parties, the Five Star Movement’s Luigi Di Maio and the League’s Matteo Salvini, who serve as labour minister and interior minister, respectively.The pair – who are also both deputy prime ministers under Giuseppe Conte – forced a higher deficit pledge from Tria, who is rumoured to have threatened to resign over the matter, according to Italian media.