BMW eliminates longevity risk with shift from DB to DC scheme

first_imgThe company is paying a set amount in basis contribution to the pension scheme, and any contribution made by employees is matched in full.The assets will be invested in Fidelity target funds according to a life-cycle-model, Degel said.People retiring 20 years from now will be allocated 100% to equity funds with the exposure decreasing to almost zero on retirement.The pension plan is backed by a CTA and insured against insolvency, an “absolutely necessity” with DC plans, according to Degel.“The deal is, BMW no longer has new lifelong pension payouts on its balance sheet, and, in turn, the accrued assets can be passed on to one’s heirs,” he said.The company also guarantees 1.75% in minimum return on the pension assets, which is fixed and Degel “expects to outperform”. If not, the company will pay the difference, he said.He added: “I am a fan of guarantees entered into with consideration.”Degel pointed out that a similar promise has been made since 2001 on the company’s deferred compensation scheme (Entgeldumwandlung), into which employees can transfer part of their salaries without any employer contribution.In this other scheme, the first entries were made with a 3.25% minimum return promise, the minimum guarantee for life insurers at that time.“In the meantime, we have a mix of interest rates averaging at around 2.6%,” Degel said.BMW is currently considering how to transfer some of its existing employees into the new scheme or something similar.Degel added that setting up an external pension plan such as a Pensionsfonds would not have allowed the inclusion of all employees into the scheme, and that on-book reserves afforded the company “more flexibility”.“It also is a kind of tradition,” he said. “We have always done Direktzusage, and we think it is the best way.” Any employee joining BMW’s pension fund in Germany this year will be signed up for a new defined contribution pension plan into which they can opt-out on a monthly basis via the company’s intranet.To eliminate the longevity risk in its on-book pensions promise – the so-called Direktzusage – BMW has also switched from paying out a lifelong pension to paying instalments over 20 years.Retirees can withdraw up to 30% of their accrued pension assets on retirement. The rest is then calculated to last for 20 years of payout and continues to be invested.Speaking at the Handelsblatt conference in Berlin, Wolfgang Degel, head of the retirement competence centre at BMW, said: “A standard adjustment of 1% per year is assumed in the plan, but any return on the investments above this 1% increases the pension assets and extends the payout phase.”last_img read more

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Pension funds warned over wait for UK Gilt real-yield improvement

first_imgJonathan Crowther, head of LDI, said because index-linked Gilts remained expensive and yielded negatively, some schemes were intentionally, or unintentionally, exposed to interest rate and inflation movements.“When real yields do start rising, we only expect demand for long-dated, index-linked Gilts to rise,” he said.“This wall of demand will continue to put pressure on the long-end, thereby anchoring yields.”AXA IM predicted long-dated real-yields to remain below 0.5% for the foreseeable future and, given the supply and demand dynamics, unlikely to rise above 0% in 2015.“Negative real-yields may persist for much longer than many pension schemes might think,” Crowther said.“Consequently, those waiting for real-yields to rise significantly before hedging their risk may have to wait rather a long time.”The warning comes after the yield on a 2068 index-linked Gilt hit -0.6% last month and was followed by the announcement from the UK government that borrowing would fall over the long term.In chancellor George Osborne’s Autumn Statement, an update to Parliament, it was said Gilt issuance as a whole would decrease after 2015, only hampering rising yields from a supply perspective.Earlier this month, research backed by Pension Insurance Corporation revealed UK defined benefit (DB) funds would experience a £500bn shortfall in index-linked Gilt issuance, leaving many schemes unhedged.It said funding levels would improve by the end of the decade due to rosy economic circumstances.However, it said pension funds would be unable to hedge away interest rate and inflation risks due to the shortfall in supply.The UK National Association of Pension Funds (NAPF) previously criticised and lobbied the government over its index-linked Gilt issuance, suggesting DB funds remained overly exposed to risks.However, in an interview with IPE, Robert Stheeman, chief executive of the Debt Management Office, said index-linked Gilts remained a core strategy for the government, but it could not issue these exclusively. The real yield on index-linked UK Gilts is expected to remain low longer than pension funds anticipate, warns AXA Investment Managers (AXA IM), meaning schemes waiting to hedge liabilities may be disadvantaged.In a white paper, the asset manager said it was not uncommon to hear index-linked Gilts described as expensive, particularly as real-yields remain negative.However, despite this, strong demand remains, evidenced by over-subscriptions for two long-dated, index-linked Gilt auctions in recent months.This could result in an even stronger burst in demand from waiting schemes should real-yields creep above 0% through a longer-term recovery – but this would, in turn, cause demand pressure to push yields back to the status quo, AXA IM said.last_img read more

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Half of UK schemes set to insure risk as market momentum continues

first_imgAs the UK bulk annuity market topped a record £12bn in 2014, the survey, published by insurer Legal & General (L&G), found 67% of those schemes looking to use a longevity contract would do so within five years.In comparison, 53% of schemes planning to use a bulk annuity contract said they would operate on a much longer time-horizon of more than five years, while one-third of schemes are thinking more than 10 years down the road.Despite the significant growth seen in pension scheme insurance products, of the 64% set to enter the market, more than a half have yet to speak with a provider, as one-fifth received a quote and decided not to proceed.Last year saw record deals in all three insurance products as the ICI Pension Fund secured a £3.6bn buy-in, TRW Pension Scheme arranged a £2.5bn buyout and the BT Pension Scheme transferred £16bn of longevity risk to Prudential Insurance Company of America.L&G estimated £1trn of UK pension liabilities would be available for potential insurance products as the bulk annuity market undergoes expansion following on from the Budget impact on the individual annuities market.Tom Ground, head of bulk annuities and longevity insurance at L&G, said: “The increased demand for insurance de-risking from the UK’s largest pension schemes is clearly evidenced by the transactions completed [in 2014].“Larger schemes have historically paved the way in the market, particularly on investment strategies, with similar approaches then being adopted across the rest of the market.”The survey also found 67% of pension funds had already implemented a liability-driven investment (LDI) strategy, with an additional 20% looking to do so within the next five years.Despite this, pension funds identified multi-asset strategies as the main area of growth within the next 10 years, followed by government bonds and LDI.Emma Watkins, partner at consultancy LCP, said while the report demonstrated the appetite for insurance contracts among UK pension funds, capacity was the issue.LCP analysis showed that, if half of the pensions reportedly interested in securing a bulk annuity deal in five years insured half their liabilities, insurers would need to provide around £25bn of capacity a year.“This represents a significant increase from 2014, which saw a record £12bn bulk annuity premium written,” Watkins added.KPMG previously reported it expected the bulk annuity market to reach £20bn a year by 2020, as insurers increase longevity exposure in the wake of a reduction in the individual annuity market.In the aftermath of last year’s Budget, IPE reported that two insurers expected to increase writing capacity, with the removal of compulsory annuitisation forcing some providers into dramatic business model changes.L&G’s research comes as the ScottishPower Pension Scheme announced a £2bn longevity risk contract with Abbey Life, a UK insurer.Read Taha Lokhandwala’s analysis of the UK bulk annuity market in the aftermath of the BudgetRead about LCP’s study on the pricing power balance between UK pension funds and longevity insurance and bulk annuity providers Close to half of UK pension funds are set to undertake an insurance contract covering liabilities within the next five years as the solutions market’s growth continues apace.Two-thirds of pension funds said they would incorporate a bulk annuity deal or longevity insurance into their long-term plans, as 36% aim for self-sufficiency using a buy-in contract.A survey of 40 UK pension funds with around £200bn (€270bn) in liabilities found 11% were aiming for a full buyout, where pension funds transfer all liabilities and assets to an insurer.Some 17% aim for self-sufficiency using a longevity insurance contract, while 28% have no intention of using insurance products in their long-term plans.last_img read more

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AP7 selects managers for SEK230bn in passive equity mandates [updated]

first_imgAP7 has awarded three mandates worth an estimated SEK230bn (€25.1bn) to passive equity managers, completing a re-tendering launched more than a year ago.The fund, the default option within Sweden’s premium pension system (PPM), hired BlackRock and reappointed State Street Global Advisors (SSgA) and Northern Trust Global Investments (NTGI) following a procurement exercise that attracted interest from dozens of managers.The passive global equity mandates are the cornerstone of AP7’s SEK261bn Aktiefond, which forms one of the two building blocks of its four investment options – Såfa, Offensiv, Balanserad and Fösikitig.The contracts are for three years, although they can each be extended twice by two years. BlackRock, SSgA, NTGI beat competition from 15 other managers to be appointed.While the size of individual mandates is unknown, the fund said last January, when the tender process overseen by bfinance was launched, that it would be tendering SEK230bn worth of mandates – equivalent to around 90% of its portfolio – and the majority of the SEK235bn within its equity fund at the end of 2014.The equity fund has since grown to SEK261bn, around 92% of the fund’s SEK283bn in assets.AP7 said it selected managers making the most economically advantageous offer, the sole criteria for awarding the mandates.The continued focus on costs comes after the fund was able to cut management fees for the equity fund from 0.12 basis points to 0.11bps over the course of 2015, while costs associated with the fixed income fund fell to 0.04%.AP7 employed SSgA and NTGI previously as equity managers, but the appointment of BlackRock sees the departure of Svenska Handelsbanken.The company was the only domestic provider among 13 managers employed by AP7, according to its website, although the fund’s remaining active managers were largely appointed to specialist mandates – targeting Japanese equities in the case of Sumitomo Mitsui Trust and Nomura Asset Management, or focusing entirely on pharmaceutical stocks in the case of Carnegie Asset Management.The fund also employs four private equity managers and recently said it would be investing a further SEK10bn into the asset class.This story was amended following publication to say that only 18 managers overall applied for the mandate, and to remove a reference to NTGI’s mandate being global smart beta equity. This is to correct inaccurate information published in the Official Journal of the European Unionlast_img read more

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World’s largest pension fund ‘increasingly convinced’ of AI benefits

first_imgCredit: Ben Cheung Japan’s ¥157trn (€1.2trn) Government Pension Investment Fund (GPIF) is to explore the possibilities of how to use artificial intelligence (AI) technologies for the long-term asset management of the pension fund.It today announced that it was partnering with Sony Computer Science Laboratories (Sony CSL) for a study on AI’s impacts on asset management.The research will analyse the potential effects on managers’ business models and “appropriate” evaluation methodologies reflecting such impacts.It will also consider the possible use of AI technologies to reinforce long-term investments, including AI-driven dynamic factor analysis and scenario-based risk management. The study will also explore whether AI technologies could be used to reconcile asset managers’ explanation of their investment decisions and the actual track record of trading data.Hiro Mizuno, executive managing director and chief investment officer at GPIF, said: “Given recent developments in AI technologies, GPIF is increasingly convinced that AI would be able to assist our fund investment operation, from asset allocation to asset manager selection and evaluation processes.“By partnering with Sony CSL and leveraging their cutting-edge AI research, GPIF aims to stay ahead of the curve to remain capable of fulfilling our fiduciary duty to future generations.”Hiroaki Kitano, president and CEO, director of research at Sony CSL, added: “The progress of AI technologies, including deep reinforcement learning and generative adversarial networks, has been incredibly significant and it is transforming a broad range of industries. Finance and asset management is no exception.“It is noteworthy that GPIF has decided to investigate the ramifications of AI for their mission and how AI can be introduced into their operations.” In Europe, the €417bn Dutch asset manager APG last year struck a research partnership to investigate whether artificial intelligence and blockchain technology could benefit its operational management.last_img read more

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Brexit: Investors return to UK assets in Q2, survey finds

first_img“The survey reflects a period when optimism regarding Brexit (and sterling) was near its peak,” he said. “Investors were less optimistic as a whole, but less pessimistic on their UK asset holdings. The test now will be whether that holds as the practicalities, political and otherwise, of a softer Brexit are fleshed out.”   Institutional investors parked their fears over the UK’s prospective departure from the European Union in favour of increasing their exposure to UK assets in the second quarter of 2018, a new survey has found.According to State Street’s quarterly “Brexometer” study, optimism among the 102 institutions surveyed peaked during the period, with the number of investors looking to decrease their UK weighting dropping to an all-time low of 14% – 10 percentage points lower than recorded in the previous quarter.The number of investors actively seeking to increase their exposure rose a percentage point to 13% – the same as during the second quarter of 2017, the data showed.However, Michael Metcalfe, head of global macro strategy at State Street Global Markets, sounded a note of caution.  UK prime minister Theresa May leaves a European Council meeting on 23 March. The UK is scheduled to leave the EU on 29 March 2019.Concerns remain over the potential impact of the UK leaving the EU in March next year, however. A further poll, conducted by PTL, an independent trustee and governance services provider, revealed that Brexit investment implications ranked second among trustees’ worries about defined benefit risks.Employer covenant risk was the main concern (27.6%), with Brexit and the possibility of new deficit funding rules – which many expect to be introduced by the Pensions Regulator later this year – vying for second and third place with 13.8% and 13.2% respectively. In September last year, Brexit worries were highlighted by just under 11% of trustees – with longevity increases voted the second most worrying factor (12.9%) after covenant risks (24.8%).“The risk score for the investment impact of Brexit has once again increased, perhaps as we near the end of the negotiation period without any real clarity around what will happen to the markets, or those who raise capital through them,” said Richard Butcher, managing director at PTL.“Employer covenant risk remains the highest-rated risk and is up by a sizeable margin for the second consecutive quarter, indicating continued uncertainty about the UK economy and employers’ ability to meet their funding needs.”PTL’s survey also highlighted trustees’ concerns over cyber-security Both surveys emphasised ongoing worries over various macro-economic factors, such as global growth and inflation.last_img read more

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APG, LGIM support efforts to halt deforestation in Brazil

first_imgHaving originated with global food companies, the statement supports the objectives set out in the Cerrado Manifesto and a commitment “to working with local and international stakeholders to halt deforestation and native vegetation loss in the Cerrado”.Lucian Peppelenbos, senior responsible investment and governance specialist at the €480bn Dutch asset manager APG, said: “Companies that directly or indirectly cause deforestation, especially in sensitive conservation areas such as the Cerrado, face physical, regulatory and reputation risk – and that translates into the potential for tangible capital loss for investors.“The investor statement on Cerrado is a powerful statement to the wider market that institutional investors like APG favour agricultural production on existing arable land over supply chains that threaten international climate goals and global biodiversity.”ABP, the Netherlands’ biggest pension fund and APG’s main client, recently announced it would sell a stake in a South Korean company because a subsidiary was involved in chopping down rainforests for palm oil plantations in Indonesia. Meryam Omi, head of sustainability and responsible investment strategy at LGIM, said deforestation needed to become a more important issue for the boards of large food retailers and producers given the role it played in greenhouse gas emissions.“Ensuring responsible sourcing and land use for commodities such as soy and cattle is a key component of risk mitigation,” she added.More than 70 large corporate buyers – including McDonalds, Tesco, Walmart and Unilever – have signed the statement of support since it was first produced in October last year, shortly after the Cerrado Manifesto itself.The involvement of investors such as APG and LGIM comes after a steering group for the companies recently approached FAIRR, a non-profit organisation that focuses on the risks posed by intensive livestock production, to drum up investor backing.   In August drafting is to start on an agreement between producers, industry, consumer organisations and civil society on an action plan for eradicating deforestation in the Cerrado area.What is the Cerrado? According to The Nature Conservancy, a US-based charitable environmental organisation, the Cerrado is the world’s most biologically rich savanna, stretching across an area nearly three times the size of Texas.It is also one of the most unprotected savannas in the world, with less than 2% of its region protected in national parks and conservation areas. According to the manifesto, an area of the Cerrado the size of greater London was destroyed every two months between 2013 and 2015, with deforestation rates exceeding those in the Amazon for over 10 years.The expansion of agribusiness was the main cause of the conversion of native vegetation in the Cerrado, The Nature Conservancy said.The conservation organisation said the expansion of large scale agriculture across the Cerrado began in the 1960s.The area is one of the largest producers of soy beans in the world. China has imposed tariffs on US soybeans as part of a response to the US imposing tariffs of its own. Two of Europe’s largest asset managers have pledged to support efforts to halt deforestation and adopt sustainable land management practices in the Cerrado region of Brazil.Dutch asset manager APG and Legal & General Investment Management (LGIM), who have more than €1.5trn in assets under management between them, have signed a statement of support for the “Cerrado Manifesto”.Robeco and Green Century Capital Management, a US investor, have also put their names to the statement.Produced in September last year by a number of Brazilian civil society organisations, the “manifesto” described the scale and nature of the deforestation and native vegetation conversion in the Cerrado, and called for action by companies that buy soy and meat from within the area and by “investors active in these sectors”.last_img read more

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UK appoints new work and pensions secretary amid reshuffle

first_imgRudd also had a brief spell as minister for women and equalities at the start of this year. Former UK home secretary Amber Rudd has been appointed minister for work and pensions following the resignation of Esther McVey yesterday.Her appointment, announced by prime minister Theresa May this afternoon, makes Rudd the third minister to lead the Department for Work and Pensions (DWP) this year and the fourth since May took office in 2016.Rudd was home secretary for less than two years before resigning in April this year, after she admitted misleading a parliamentary committee investigating her department’s handling of an immigration scandal.She was elected to parliament in 2010, and joined the UK’s Department of Energy and Climate Change in 2014, becoming the head of the department a year later. Amber RuddMcVey quit the cabinet yesterday morning in protest at the draft agreement between the UK and EU regarding the UK’s exit from the bloc.Brexit minister Dominic Raab also resigned yesterday, and has been replaced Stephen Barclay, who previously led the health department.Guy Opperman remains as minister for pensions and financial inclusion.Short-termism? The work and pensions revolving doorIain Duncan Smith led the DWP from 2010 until 2016, spanning the whole five-year coalition government of the Conservative and Liberal Democrat parties.He was replaced by Stephen Crabb, who lasted just four months before being removed in the wake of the 2016 EU membership referendum.Damian Green then led the department for 11 months before being transferred to the Cabinet Office in June 2017.David Gauke lasted seven months in the role before being replaced by McVey in January.last_img read more

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‘ESG will not happen’ if Solvency II comes to pension funds: Leppälä

first_imgThe Solvency II directive, which covered half of the European pension market, had pushed pension insurance companies “almost totally” out of equity investments, said Leppälä.In June a survey by the trade association InsuranceEurope found that almost half (48%) of insurers across Europe said Solvency II had led them to invest “less than optimum amounts in equities, long-term bonds, private placements or unrated debt”. Matti Leppälä, PensionsEurope CEOPension funds, noted Leppälä, had successfully resisted such regulation, so in countries such as the Netherlands they were continuing to invest in the real economy and for the long-term.That, said Leppälä, was the transition that needed to take place.He hoped that “in the end there will be a re-evaluation of the financial market regulatory framework”, and that there would not be – as there had been previously – a push to include pension funds in the same financial framework as banks and insurance companies.Restrictive capital requirementsElaborating on his comments in Brussels, Leppälä told IPE that if pension funds were faced with similar risk-based capital requirements as those for insurance companies under Solvency II, their equity investments would be very limited – as would other investments considered risky such as private equity, venture capital, infrastructure and real estate.These types of investment were “crucial for ESG and sustainable finance”, he added.PensionsEurope is lobbying against the introduction of delegated acts in the EU pension fund directive as part of the Commission’s package of sustainable finance measures.Some of its members fear that this could pave the way for the introduction of Solvency II requirements for pension funds. The industry successfully lobbied against this in the process leading to the new EU pension fund directive, IORP II, but remains on its guard. The European Commission’s sustainability goals risk not being achieved if EU financial regulation restricts pension fund investment in risky assets, the CEO of Europe’s occupational pension fund association has suggested.Speaking at a Eurosif event in Brussels on Monday, Matti Leppälä of PensionsEurope said: “ESG will not happen if everything is in euro-denominated government bonds.”“You have to be able to take risk to be able to get real returns, have growth in the real economy, have good employment, and then make the necessary investments into infrastructure, into impact investing, into private equity,” he added.PensionsEurope has been concerned with a trend in European regulation “to harmonise everything on a short-term time horizon”, he said.last_img read more

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South East QLD’s top suburbs buyers are flocking to

first_img44 Yarrayne Valley Drive, Upper Coomera, will go to auction on September 22. Picture: realestate.com.auIn Upper Coomera a house at 44 Yarrayne Valley Drive is also listed for auction on September 22.The five-bedroom house is on 1.39ha and is surrounded by the hinterland forest. The kitchen has a butler’s pantry and leads out to a covered entertainment and pool area. The main bedroom has a private living space.On the lower level of the house is an open-plan dining and lounge area with ducted airconditioning and a media room.It is listed through Gary Bartsch and Saskia Bartsch of Raine & Horne Upper Coomera. 64 Lesley Avenue, Caboolture, is on the market for offers over $505,000. Picture: realestate.com.auIn Caboolture, a four-bedroom family home at 64 Lesley Ave is listed for offers of more than $505,000. The home is in a cul-de-sac and has landscaped gardens. The main bedroom has an ensuite and a walk-in wardrobe.There is a formal lounge and dining area with a fireplace and the kitchen has a five-burner gas stove.It has three split-system airconditioners and fans throughout the house. There is also a swimming pool.It is listed through Narelle Cordaro of All Around Realty — Caboolture South. Stay up to date with real estate news with The Courier-Mail’s free email updates A four-bedroom house at 21 Pertaka St, Buderim is scheduled for auction on September 22. Picture: realestate.com.auTHESE are the suburbs where everyone wants to buy a house — the ones in South East Queensland that have chalked up the highest number of sales in the past 12 months.According to the latest figures from CoreLogic, Buderim is tops within Queensland for house sales, with 570 changing hands in the past 12 months.This was followed by Upper Coomera on the Gold Coast which recorded 499 houses sales, Caboolture with 498 sales and North Lakes with 439 sales.Also achieving more than 400 sales in the past 12 months was Morayfield on 426, Narangba 414 and Kallangur 411.center_img 21 Pertaka Street, Buderim, has an elegant lounge area. Picture: realestate.com.au Mixed bag of homes to go under hammer Best place to be a renter in Australia How long to save a home deposit? At Buderim, a four-bedroom house at 21 Pertaka St is scheduled for auction on September 22. The home has an elegant formal lounge area with high ceilings and a fireplace. The main bedroom has ocean views and there is a walk-through wardrobe and an ensuite. Timber flooring is a feature of the home, which is listed through Lou Cooper and Ambre Perry of McGrath — Buderim.More from newsParks and wildlife the new lust-haves post coronavirus16 hours agoNoosa’s best beachfront penthouse is about to hit the market16 hours agolast_img read more

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