UK pension shortfall hits record high; Indian election delays pension plan; AIG fallout hastens regulatory change
Turner Review calls for FSA philosophy rethink To avert another financial crisis, there needs to be a "major shift" in Financial Services Authority (FSA) philosophy to focus less on how customers are treated and more on how firms operate, according to the Turner Review on financial regulation. FSA chairman Lord Turner undertook the review to assess the failings of the current regulatory system. Essentially a code of conduct with enforcements, the financial services watchdog plans to implement new rules by November. Banks, building societies and other financial firms could face fines from the FSA if they fail to comply with proposed new rules on pay, bonuses, severance packages and pensions.
Pension shortfall hits record high The shortfall in British company pension schemes reached a record high in February, hit by falls in the stock markets and the easing of gilt yields, according to the latest data from the United Kingdom's Pension Protection Fund (PPF). The PPF's 7800 Index, which measures the gap between the benefits a fund insures and the sums each scheme has available to meet benefits, showed the aggregate shortfall on schemes in deficit reached £228.1 billion ($480.8 billion) in February, a 10 per cent hike on deficits in January. The widening of the deficit in February reflected a 4.7 per cent decrease in assets. The PPF, seen as a safety net for undercapitalised funds, insures 90 per cent of promised pension benefits up to £28,000 ($59,020). Around 9 per cent of the schemes insured by the PPF have a surplus, but that cannot be applied to other schemes with deficits.
Gilt market bubble affects UK pensions A bubble in the British gilt market is affecting the health of United Kingdom pension funds, thanks to a fall in the real yield on long-dated gilts. The rise in the price of index-linked government bonds has taken yields on long-dated bonds to record lows. Yields on the new 50-year index-linked gilt fell to 0.36 per cent in February. And annuity rates are largely determined by long bond yields. In Barclays Capital's Equity Gilt Study published in February, Barclays head of fixed income strategy Tim Bond said new pension regulations had forced funds to buy more bonds as yields fell and that had created a bubble. Bond also questioned the role of bonds in pension portfolios. "There is no way that you can describe gilts as risk-free assets. Over the long run, inflation is the main risk," he said.
Japan's public pension suffers loss Japan's public pension fund has reported a record ¥5.7 trillion ($86.6 billion) loss on its fourth quarter 2008 investments due to a surge in the yen and steep stock market declines. The Government Pension Investment Fund (GPIF) reported a 6.1 per drop for the quarter - its biggest quarterly loss since 2001. The GPIF estimated assets of ¥140 trillion ($2.13 trillion) as of December 2008. Around ¥90.4 trillion ($1.37 trillion) is invested in markets, with 68.8 per cent in domestic bonds, 12.1 per cent in Japanese stocks, 10.6 per cent in foreign bonds and 8.5 per cent foreign stocks.
Indian elections delay pension plan India's government has postponed the launch of its New Pension Scheme (NPS) for private sector employees. Expected to be launched on 1 April by the Pension Fund Regulatory and Development Authority (PFRDA), the new scheme has been years in the planning and should expand pensions investing in India, particularly by those on lower incomes. It is also expected to give investors the option to invest exclusively in equities. India's Finance Ministry said the NPS launch would be delayed until after upcoming general elections to be held in April-May in view of the Model Code of Conduct for Elections. Six pension fund managers and 23 pension collection points have already been finalised and an advertorial campaign was initiated in February explaining the scheme to people, but the PFRDA is still waiting on approvals from the Finance Ministry on a number of issues.
AIG fallout hastens regulatory change United States Treasury Secretary Timothy Geithner has unveiled a government plan to use a combination of private and public funds to remove toxic assets off banks' balance sheets. Geithner acknowledged the need to accelerate the pace of change on regulatory reform, which came sharply into focus after news American Insurance Group had granted US$165 million ($240.37 million) in bonuses to executives despite taking billions of dollars from the government to stay in business. The Wall Street Journal reported the government would pair up to US$100 billion ($145.7 billion) with private capital to generate US$500 billion ($728.4 billion) in purchasing power to buy the assets. Geithner said the program would get credit markets working again. Proposed changes include an enhanced role for the Federal Reserve to monitor economic risks, supervision of bank lending, tougher capital requirements for the bigger banks and consolidation of consumer protection enforcement.
