International

By Natalie Cogan
Thu 30 Jul 2009

Big US pension funds face funding gap; PIMCO, BlackRock benefit from fed programs; Malaysia looks to set up private pension plans

Major US pensions face funding gap
The assets of the California Public Employees' Retirement System (Calpers) and California State Teachers' Retirement System (Calstrs) fell by 23.4 per cent and 27 per cent respectively in the year to June 30.

The drop is expected to affect the amount of money the state of California, local governments and school districts will have to contribute to cover a widening funding gap between the return from pension investments and direct contributions.

Both funds said they had shifted some of their investments out of equities and into fixed income and real estate in the past 12 months. Calpers said it would spread the 2008/09 losses over the next 30 years from mid-2011.

Calstrs faces a long-term funding gap of US$22.5 billion ($27.56 billion). Chief executive Jack Ehnes said investments alone would not meet pension obligations in the long term.

PIMCO, BlackRock benefit from US federal programs
Global investment management firm PIMCO has been contracted by the New York Federal Reserve to manage one of the federal programs launched last year to support the frozen short-term lending market.

According to Reuters, PIMCO would earn US$3 million ($3.67 million) each quarter to manage the commercial paper funding facility and would receive an asset management fee of 0.25 basis points a quarter on the average month-end assets in the program.

The Wall Street Journal reported the United States commercial paper market hit a peak of US$2.2 trillion ($2.69 trillion) last July and now stood at US$1.097 trillion ($1.34 trillion) - the lowest level since the central bank began tracking in 2001.

Other big earners on contracts unveiled by the Federal Reserve in July include asset manager Blackrock, which is set to earn US$13.5 million ($16.53 million) in one-off fees for managing several programs. Blackrock will also reap a minimum of US$43 million ($52.64 million) for one year or up to US$92 million ($112.63 million) for three years to manage the Maiden Lane Facilities, which include illiquid securities from Bear Stearns and American International Group.

New York City fund sells off Iran investments
New York City is the latest United States municipal fund to sell off pension investments in companies dealing with Iran.

City comptroller William Thompson said the city sold off US$10.8 million ($13.2 million) in shares in Oil and Natural Gas, and PetroChina  as both had business ties to Iran. Thompson, who is custodian of five pension funds with an estimated US$95 billion ($116.3 billion) invested, recommended the city sell investments in up to eight other companies.

New York State and 15 other states have already divested shares in companies doing business with Iran.

Amex suspends UK pension payments
American Express (Amex) has suspended pension contributions for 6000 United Kingdom employees for up to 18 months, effective 1 July.

Amex is the largest firm to date to freeze pension payments as part of an effort to cut costs in a global recession, mirroring steps taken by other multinational companies.

In April, the British arm of United States insurance broker, Aon, said it planned to reduce its pension contributions to protect itself in "challenging conditions".

IBM is also considering closing its final salary pension scheme to current members, which could affect up to 25 per cent of its UK employees, while Barclays and BP have said they will close final salary schemes.

Fortis in deal with Tesco
British supermarket giant Tesco is set to engage Fortis Insurance as home and motor insurance underwriter on its Tesco Personal Finance arm.

If ratified, the mandate will significantly increase Fortis's market share in the insurance sector. The account was worth an estimated £500 million ($1 billion) a year in gross written premium and could give Fortis an overall annual United Kingdom premium income of more than £1 billion ($2.01 billion) for the first time, according to Datamonitor.

Curtis Banks to simplify SIPPs
Curtis Banks, a new firm created by actuary Rupert Curtis and pensions specialist Chris Banks, will offer middle market and high net worth investors a tailored self-invested personal pension (SIPP) and small self-administered scheme (SSAS).

The firm aims to simplify the offerings by allowing investors to pay for only the features they need. The SIPP will have a basic annual fee of £245 ($493) and will not charge for receiving standard transfer payments, which can often ratchet up costs for SIPP products.

The SIPP will allow any investment within HM Revenue & Customs limits, such as unquoted equities, gold bullion, a derivative investment called contracts for difference and hedge funds.

Malaysia starts up private pensions
As part of planned pension fund reforms, Malaysia has said it will set up private pension funds by mid-2010 for those who are not already covered.

Malaysian Minister Nor Mohammed said several fund managers had already shown interest in establishing private pension funds.

Currently there are an estimated 5.7 million members contributing to the Employees Provident Fund, a public sector pension scheme, which has a government guarantee of a 2.5 per cent return.

Mohammed estimated more than 2 million self-employed Malaysians remained outside a formal pension system.

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