International

By Natalie Cogan
Thu 02 Jul 2009

OECD issues pension warning; UK companies in pension overhaul; Hong Kong retirement funds back in black

OECD issues pensions warning
Public and private pensions are at serious risk following the recent financial crisis and strains on them may last decades, the Organisation for Economic Co-operation and Development (OECD) said in June in its annual review of pension systems globally.

The OECD found private pension plans lost 23 per cent of their value in 2008. Ireland, Australia and the United States topped the OECD's list of countries that had suffered the sharpest drops in real returns last year. All three countries had high levels of equities investments. Ireland, the worst hit, had real losses of 37.5 per cent in 2008.

Rising unemployment and falling tax revenues are also squeezing public finances and OECD governments face budget deficits of nearly 9 per cent of national income on average in 2010. This left little room for more generous public pensions, the report noted.

"Reforming pension systems now to make them both affordable and strong enough to provide protection against market swings will save governments a lot of financial and political pain in the future," OECD secretary general Angel Gurria said.

FSA reviews SIPPSs again
The United Kingdom's Financial Services Authority (FSA) has said it will review self-invested personal pensions (SIPP) for the second time in two years as the flexible pensions increase in popularity.

SIPPs were launched in 1989 but existed as a niche product until recently, used mainly by high-end investors. Changes to pension rules in April 2006 allowed people to increase pension investments and meant those with company schemes could also use a personal pension such as a SIPP.

SIPPs have an estimated $62 billion invested, mainly from money switched from other personal and company pension schemes.

Around 70 small SIPP providers will be assessed to see if they meet FSA regulatory requirements, provide promotional materials that are not misleading and provide customers with adequate information on investment charges.

A further 100 medium to large providers will be exempt from the review as they are already working closely with the regulator.

UK firms change plans
Up to 96 per cent of United Kingdom companies have plans to change their workplace pension schemes, according to a PricewaterhouseCoopers (PWC) survey.

The survey gathered feedback from 157 UK firms - 33 of them FTSE 100 companies - and found 68 per cent were concerned about risk and 60 per cent with reducing costs and 77 per cent of employers surveyed said the 2009 budget pension tax proposals reduced motivation to provide workplace pensions.

Nearly all believe defined benefit pensions are unsustainable and a worrying 74 per cent are considering ceasing all future accrual for existing employees.

PWC partner Marc Hommel said the collapse of future service defined benefit provision was occurring against a backdrop of super protection for benefits already earned.

Hommel also noted the divide between the private and public sector. "Pensions apartheid is upon us, with a growing gap between the relative generosity of the public sector and the intention of over a third of the private sector employers to provide the bare minimum," he said.

Forty-one per cent of smaller firms (under 5000 employees) and 25 per cent of larger firms intend to offer the bare minimum under auto-enrolment from 2012.

BP to close final-salary plan
BP will close its final-salary pension plan to new British employees from April 2010 to cut actuarial costs and risks.

The change could save up to $250.7 million a year 10 years from now, BP said in a statement.

"Given that people are tending to live longer and be in retirement for longer, we needed to think of a way of making sure that the fund can pay future pensions," a BP spokesman said.

BP was one of the few remaining FTSE 100 companies to have a final-salary scheme open to new recruits and last year its United Kingdom pension fund had a $3.26 billion surplus, but the cost of funding the scheme rose to $458.7 million in the first quarter of 2009 compared to $305.8 million for the same period in 2008.

Hong Kong retirement funds back in black
Hong Kong retirement funds have staged a second quarter comeback, increasing by 20 per cent, according to research published by fund manager RCM Asia Pacific.

Hong Kong's balanced funds under its Mandatory Provident Fund Scheme returned -10.4 per cent in the first quarter of 2009, but by May had returned their highest monthly performance with 8 per cent.

RCM Asia Pacific chief executive Mark Konyn said fund performance improved in the second quarter thanks to improved investor sentiment and a recovery in the Hong Kong and regional stock markets.

Barclays accepts BlackRock offer
Barclays announced in June that it would accept United States fund manager BlackRock's $16.9 billion offer for its asset management arm, Barclays Global Investors (BGI).

As Europe's largest hedge fund manager, BGI will give Blackrock, traditionally focused on institutional and government investors, a bigger global footprint and retail investor base.

Barclays will retain a 20 per cent stake in the new entity, which, with an estimated $3.5 trillion in assets according to the Wall Street Journal, will make BlackRock the world's largest money manager.

Barclays board of directors said it would recommend the deal for shareholder approval in August.

US church fund sets up in Asia
The New York-based Church Pension Fund has set up an office in Hong Kong and hired former Carlyle Group asset manager Eric Mason, who previously headed up Carlyle's Asian leveraged finance operations, to run its first Asia base.

The fund, which serves the US Episcopal Church, manages an estimated $10 billion in assets. Investments in Asian real estate (since 2004) include Japan's DaVinci, and it has made commitments to private equity in the region since 2005, including Advantage Partners, Bain Asia and Pacific Equity Partners.

Alternatives for Finland's pension
Finland's local government pension fund, Keva, has unveiled a three-year plan to increase exposure to equities, alternative asset classes and property.

The $35.22 billion fund will also add commodities to its asset mix while reducing exposure to bond holdings.

Keva chief investment officer Ari Huotari said a review in strategy was necessary to sustain a real annual return of 4 per cent. Huotari said equity exposure would be increased from 45 per cent to 50 per cent largely in emerging markets stocks. 

Keva plans to double its strategic alternatives exposure from 4.5 per cent to 9 per cent in the next three years.

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