Round-up of the news and developments from the global investment market with stories regarding L&G, plans to cut the cost of retirement schemes, defined benefit reform and more.
EC News Investments is accompanied by a round-up of the months people moves and mandates and buyouts, giving you indepth insight into the market.
L&G tops ranking for the fastest growing master trust
The three fastest growing auto-enrolment master trusts by assets under management have been revealed with L&G taking the top spot. L&G has projected annual contributions of £451.5m into its Work Save Master Trust and its RAS Master Trust for next year. The figure is in addition to the £2bn the two L&G master trusts already have under management. The People's Pension is the second fastest growing trust which is projected to receive £435m over the next year to add to the £958m it already has under management. Nest takes second place with £1.2bn worth of assets under management and is projected to receive contributions from its members’ of £419 million in 2017. 17 master trusts were asked about their current investment design strategies and the issues they currently face. The report found that to date master trusts have focused on administration, communication and governance with investment design less of a priority. As master trust schemes become more established, the report called for an increased focus on offering innovative and modern default investment solutions to achieve the best possible outcomes for members.
Plans to allow employers to cut the cost of retirement schemes could affect 11 million workers
As many as 11 million workers could see their pensions reduced under plans to allow employers to cut the cost of retirement schemes. Tycoons and big businesses could be given the green light to retract promises made to staff in order to bolster policies that have fallen into the red. Significantly, they might be able to peg rises in pension payments to a lower rate of inflation which could reduce a pensioner’s income by £20,000. Firms that are just getting by might even be able to opt out of inflation-linked increases altogether. The measures are designed to avoid future pensions scandals such as those witnessed at Bhs and British Steel. However, campaigners, MPs and experts angrily warned that they could be exploited by ruthless business leaders. Keir Greenaway of the GMB union said, “Allowing schemes to break promises on pensions and raid workers’ retirement savings to cover for mistakes in the boardroom will not be music to the ears of employees.” Keith Sheehan, of investment firm UBS Wealth Management added, “My concern is that these proposals suggest we are headed down a slippery slope.”
UK government explores defined benefit reform
The UK government has unveiled a green paper looking at ways of supporting the country’s defined benefit (DB) pension system and easing the burden on stressed scheme sponsors. The paper looked to spark a conversation regarding new powers for the Pensions Regulator (TPR), flexibilities for sponsors tackling deficits and potential consolidation. A key idea in the paper is a change to indexation rules which would allow underfunded schemes to stop linking benefits to inflation. The paper said, “There could be a case to suspend indexation in cases where the employer is stressed and the scheme is underfunded.” The paper and consultation come after the government became involved in several high-profile cases last year. It issued a report on the British Steel Pension Scheme early in the year as its sponsor, Tata Steel, was seeking to exit the business. Furthermore, the Work and Pensions Committee launched an inquiry into British Home Stores’ pension fund, which was left with a substantial deficit when the company collapsed.
Winners of the 2017 pension age awards
- DC Pension Scheme of the Year - Bank of Ireland (UK) Staff Retirement Savings Plan
- DB Pension Scheme of the Year - Merchant Navy Officers Pension Fund
- Pension Scheme Communication Award - Aviva
- Best Auto-enrolment Implementation Award - The People's Pension
- Pensions Administration Award - Essex Pension Fund
- Best Investment Strategy Award - Trafalgar House Pension Trust
- Pension Scheme Innovation Award - West Yorkshire Pension Fund
- Pensions Consultancy of the Year - P-Solve, part of River and Mercantile Group
- Pensions Provider of the Year - Scottish Widows
- Fiduciary Management Firm of the Year - Aon Hewitt
- Pensions Technology Firm of the Year - PwC
- At-retirement Solutions Provider of the Year - LV=
- Independent Trustee Firm of the Year - Capital Cranfield Trustees
- Pensions Law Firm of the Year - Stephenson Harwood LLP
- Pensions Accountancy Firm of the Year - RSM
- Passive Manager of the Year - Legal & General Investment Management
- Active Manager of the Year - Artisan Partners
- Equities Manager of the Year - Eaton Vance
- Fixed Income Manager of the Year - M&G Investments
- Alternatives Manager of the Year – BlackRock
- Emerging Markets Manager of the Year - Martin Currie
- Property Manager of the Year - LaSalle Investment Management
- LDI Manager of the Year - Insight Investment
- Hedge Fund Manager of the Year - Man FRM
- Infrastructure Manager of the Year - Pantheon
- Multi-asset Manager/Provider of the Year - Gatemore Capital Management
- Index Provider of the Year - FTSE Russell
- Risk Management Provider of the Year - Pension Insurance Corporation
- Pensions Communications Award - Aviva UK Life
- Innovation Award - Unigestion (UK) Ltd
- Administration Provider of the Year - Barnett Waddingham
- Master Trust Offering of the Year - NEST
- Personality of the Year - Chris Parrott, Head of Pensions at Heathrow Airport Holdings Limited
Prudential to offer defined benefit transfer advice once more
Prudential has obtained FCA approval to give defined benefit (DB) transfer advice. As demand for DB transfer value reports has grown Prudential has seen value in re-exploring the market. Prudential’s financial planning business recently re-introduced a team to give customers advice about DB transfers after receiving FCA authorisation. The service will be only offered to clients who hold deferred pensions and are close to taking their benefits, the company confirmed. Many providers are now starting to re-enter the DB market, albeit by taking a risk-averse approach. Standard Life-owned national advice firm 1825, for example, is also offering DB transfer advice to clients of the firms it is acquiring. Standard Life said, “Given that DB pots are often a significant part of client’s wealth we believe it’s important that we consider this as part of our overall advice. Where it makes sense for the client, 1825 can advise on a DB transfer and it’s clearly an area where quality advice is very important.” However, the spike in DB transfer workload has led to increase pressure on transfer value analysis providers, with some stopping taking on new clients.
Standalone pension administration service withdrawn by Aon Hewitt
Aon Hewitt has said it will now focus on its integrated service pension clients, those where administration is offered alongside actuarial or investment consulting work. It is thought these integrated clients make up 80% of the schemes Aon Hewitt currently provides administration services to. Will Durston, Aon Hewitt head of UK pensions administration said, "There are several reasons behind this decision. It is a case of focusing on the services that add the most value to the client while also looking at commercial factors. Standalone pension administration has not served us well over the past few years and it's not where we should be focusing. The cost of administering these schemes tends to be higher as they are often more complex and it is more difficult to standardise processes. Integrated service clients tend to be more straightforward so you can standardise processes which we believe enables us to do the job better. We remain committed to UK pensions administration but our focus will be on integrated clients and we want to provide them with a market leading service." The shift will also affect the number of staff working on pension administration. Aon Hewitt said approximately 70 people are currently going through a consultation process out of a total administration workforce of 700.
BHS pension deal could usher in an era of 'zombie' schemes
The deal between Philip Green and The Pensions Regulator could usher in an era of so-called "zombie schemes", an expert has warned. The deal will see Green contribute £363m to a new, standalone pension fund for the BHS pension scheme's 19,000 members, who are currently in the Pension Protection Fund. While the deal could leave members better off, it will also mean they have no sponsoring employer to underwrite the scheme if the pot fails to deliver sufficient returns. John Broome Saunders, actuarial director at pensions consultancy Broadstone, described this structure as a "zombie scheme" and cautioned that the deal could give the green light for struggling employers looking to offload their scheme. He said Kodak and Trafalgar House had made similar arrangements, and warned more would follow. Saunders said, "The deal shows we are probably moving towards a position where more employees will have no sponsoring employers. I think it will become quite an attractive idea for businesses that are struggling but not at the point where insolvency is inevitable." He highlighted that the PPF had explicitly opposed the creation of such a structure for the British Steel Pension Scheme. Broome Saunders said structures such as these raised numerous regulatory questions over investment strategy, the appointment of trustees and how to allocate funds in the case of a surplus.
PLSA unveils diversity campaign
The Pensions and Lifetime Savings Association (PLSA) has launched a year of diversity campaigns starting with “Breaking the Mirror Image”, a collection of essays on the subject. The PLSA wants to promote greater diversity on trustee boards after finding that 83% of trustees are male. Lesley Williams, PLSA chair, said the association will start by focussing on gender, but that she intends to extend the association’s work to look at all forms of diversity. Contributors to the 44-page book include NEST CEO Helen Dean, Investment Association chair Helena Morrissey, Railpen CEO Chris Hitchen and Pensions Regulator chief executive Lesley Titcomb. Richard Harrington, the UK government’s pension’s minister, welcomed the move saying “A balanced workforce is good for businesses, their workplace culture and for investors. Firms with a good gender balance in senior positions and across teams perform better, and therefore attract the best talent.”
Asset management exchange launched by Willis Towers Watson
Willis Towers Watson have launched an asset management exchange which offers asset owners centralised access to managers and standardised fund infrastructure, reducing costs and providing other benefits. The Asset Management Exchange (AMX) will provide ready-built infrastructure for fund managers, which the consultancy said would allow managers to concentrate on investment rather than operational matters. Willis Towers Watson said the tool was an “institutional asset management marketplace designed to fundamentally transform institutional investment for the benefit of the end saver”. It has been reported that AMX provides clients with a single point of access to a range of asset managers and it provides centralised infrastructure. This means that instead of managers doing all the infrastructure work, that all gets done by AMX centrally on a scale that means the end result is both better and cheaper.