Public pensions just keep falling further and further behind. In fact, they have fallen so far they never can get up again. The local and state pension crisis got at least $300 billion worse in the first quarter of this year compared to 2011, according to analysis of latest data released by the U.S. Census Bureau. That added at least $1.5 trillion to the shortfall — calculated at $800 billion to more than $4 trillion as of 2010 — future taxpayers must make up on top of all other taxes and rate hikes.
International
FT: Funds wake up to diversifying gains
Commodities have attracted far less attention historically from pension funds than other alternatives, reflecting the challenges of investing in a diverse and volatile asset class.
Jonathan Berland, managing director at Gresham, says a concern for pension funds is the perception that commodities are risky, when in fact those risks can be controlled by responsible management.
Since commodities are a relatively new asset class for many pension funds, Mr Berland says there can be a tendency to concentrate on short-term performance or to chase returns. But high levels of volatility in commodity markets can act as an impediment to pension funds taking prudent long-term decisions.
He notes that pension funds have made substantial allocations to other asset classes, such as emerging market equities, where volatility has been significantly higher than in commodities. “Pension funds need to look ahead and think about the benefits that commodities as a broad asset class will generate over the next 25 years,” says Mr Berland.
Alternatives continue to win pension assets
Pension funds are continuing to raise their exposure to alternative investments, according to data collected by Towers Watson, the consultancy.
The Global Alternatives Survey by Towers Watson in association with FTfm, which is now in its ninth year, found that the total pension fund assets under management held by the top 100 asset managers surveyed rose 7.9 per cent, from $951.7bn in 2010 to $1.03tn in 2011.
The rise follows an even steeper 16 per cent increase in pension fund assets under management recorded by the top 100 asset managers in the previous year. Striking though the trend towards increased investment by pension funds in alternatives may be, Towers Watson clearly thinks data collected in previous surveys no longer tell enough of the story.
There has been such a permanent shift in the investment landscape that Towers Watson has this year expanded its analysis to include insurance companies, sovereign wealth funds and endowments and foundations, as well as new investment choices: namely direct investments in private equity funds and hedge funds. The total universe of the research now includes data from 493 managers.
Japan’s massive pension fund books 2.32% return
Japan’s $1.42 trillion public pension fund, the largest national retirement scheme in the world, said it posted an annual return of 2.32 percent on the back of stronger equity markets.
The Government Pension Investment Fund result for its fiscal year to March reversed a 0.25 percent loss a year earlier. The public pension fund manages a whopping 113.6 trillion yen in retirement savings for nearly half of Japan’s rapidly ageing population of 127 million.
By the year 2060, about 40 percent of Japan’s population is expected to be over the age of 65, compared with about 23 percent now — already the world’s highest proportion of seniors.
The fund, which is largely invested in low-yielding Japanese government bonds as well as domestic and foreign equity and fixed-income holdings, said the surge was helped by gains in the latter part of the fiscal year.
NZZ: Wachsende Skepsis gegenüber Staatsanleihen
Europäische Grossinvestoren wie Pensionskassen und Versicherungen stehen Staatsanleihen zunehmend skeptisch gegenüber. In einer Studie des Vermögensverwalters Allianz Global Investors nannten 73,8% der Befragten die Bonität von Staatsanleihen als grosses oder beachtliches Risiko für das Erreichen ihrer Anlageziele in den kommenden 12 Monaten. Die Risikowahrnehmung für die ehemals als sehr sicher geltenden Papiere war damit sogar grösser als bei Aktien, schreibt die NZZ.
In der Schweiz stuften alle Befragten die Bonität von Staatsanleihen als grosses Risiko bei der Vermögensanlage ein (s. Grafik), im vergangenen Herbst waren es noch rund vier Fünftel gewesen. Weniger im Fokus stehen unterdessen die Wechselkursentwicklungen. Im Herbst vergangenen Jahres betrachteten vier Fünftel der Befragten diese als beträchtliche oder grosse Gefahr, nun war es noch die Hälfte.
NZZ /
FT: Pensions no longer need large equity holdings
James Mackintosh traces the “cult of the equity” amongst UK pension funds back to George Ross-Goobey, who switched the Imperial Tobacco Pension Fund into equities in the 1950s (“Parallels with post-war era”, FTfm June 18). After long term equity underperformance, are we now seeing the death of this cult. (…)
But the real reason for the death of the cult of the equity is more fundamental than just equity underperformance. Since Mr Ross-Goobey’s day, the underlying nature of a UK defined benefit pension has changed, without the change being properly recognised. What may have been the right asset allocation a generation ago no longer fits the bill.
GM, Ford offer buyouts to jettison pension plans
GM said its $134 billion pension obligation is the largest of any company worldwide and was underfunded by $25.4 billion at the end of 2011. Ford’s $74 billion pension liability was underfunded by $15.4 billion at the end of last year. The plans are a huge drain: Ford this year is pumping $3.5 billion into its pensions and won’t catch up until at least mid-decade. And because pension funds are invested in securities, their values can rise or fall unexpectedly. Buyouts would remove some volatility and liabilities from automakers‘ books.
GM is offering buyouts to 42,000 pensioners, or about 36 percent of its salaried retirees. Those who refuse the lump-sum buyouts will find their pension plan shifted to a unit of Prudential Financial along with those of other retired U.S. salaried workers. The moves will excise GM’s 118,000 salaried retirees from its books, though the company will continue to cover the pensions of about 400,000 hourly retirees. GM said the lump-sum payments and annuity will together cut $26 billion from its pension load.
FT: US public pension funds earn record returns
US state and local government public pension funds earned record returns on their investments in the first quarter of the year, according to official data that may ease fears about whether they will be able to pay retirees in future.
The 100 biggest public-employee retirement systems in the US earned $179bn in the quarter, according to the Census Bureau, the highest earnings on investments since records began in 1974. Total holdings and investments increased by 5.6 per cent from the prior quarter, to $2.8tn from $2.6tn.
The data reveal that the funds dumped corporate bonds while snapping up international and US government securities. Pension funds’ holdings of international securities reached their highest level in 12 years, rising to $550bn from $473bn in the prior quarter, while holdings of US federal government securities hit an 11-year high, increasing 25 per cent from the prior quarter to $223.5bn.
Even using the assumed 8 per cent rate of return, public pension funds are 24 per cent underfunded, according to the Center for Retirement Research at Boston College. That has led to calls for lower benefits, higher employee contributions and increased taxes.
The Governmental Accounting Standards Board approved new rules this week that will force public pension funds to mark their assets to market and give a more accurate figure when calculating their returns on investment.
US: New Rules on Public Pension Funds
Cities, states and the millions of Americans who work for them will soon face new accounting rules that will require many local governments to disclose pension obligations that were hidden until now, stepping up the pressure to rein in public workers’ benefits.
The new rules are the result of more than five years of work by the Governmental Accounting Standards Board on one of the most contentious topics the agency has ever tackled. The current rules have been criticized for making pensions look more affordable than they really are and creating incentives for governments to take undue risks with taxpayer money.
EU-Finanzaufsicht warnt vor sinkenden Betriebsrenten
Die europäische Versicherungsaufsicht sieht wegen der niedrigen Zinsen erhebliche Risiken auf die betrieblichen Pensionskassen in der Europäischen Union zukommen. Viele Kassen hätten mit viel zu hohen langfristigen Zinsen kalkuliert, so dass sich Arbeitnehmer auf sinkende Betriebsrenten oder steigende Beiträge einstellen müssten, sagte Gabriel Bernardino, Chef der Europäischen Aufsichtsbehörde für das Versicherungswesen (Eiopa), in einem Interview mit der "Wirtschaftswoche". Er forderte regelmäßige Stresstests für die Pensionskassen.
D: Milliarden-Lücke bei Pensionen
Es herrscht Anlagenotstand bei den deutschen Pensionskassen- und fonds. Nach Berechnungen von €uro-Magazin waren 2011 knapp ein Drittel der Pensionsverpflichtungen der DAX-Konzerne oder 84 Milliarden Euro nicht gedeckt. Bei der Deutschen Lufthansa ist die Lücke bereits 1,3-mal so groß wie die aktuelle Marktkapitalisierung. Auch dem Stahlkonzern ThyssenKrupp fehlen in der Pensionskasse so viel, wie das Unternehmen derzeit an der Börse wert ist. Die Differenz zwischen Pensionsverpflichtungen und -vermögen müssen die Konzerne aus dem operativen Geschäft begleichen. Das schmälert den Gewinn und senkt den Börsenwert. Das Problem dürfte sich in den kommenden Jahren noch zuspitzen: Denn das niedrige Zinsniveau, das voraussichtlich noch einige Jahre erhalten bleibt, vergrößert die Löcher in den rund 150 deutschen Pensionskassen mit ihren sechs Millionen Mitgliedern.
China: Huge Pension Funding Gap Looms
China is facing an 18 trillion yuan (2,8 Bio. Dollar) pension funding gap that will become larger as the country’s population ages, according to one of the authors of a new report jointly produced by a research team at the Bank of China and researchers at Fudan University. Liao Shuping (廖淑萍), one of the authors of the report from the Bank of China, told Economic Information Daily that China could see a shortfall of 18.3 trillion yuan in pension funding by 2013.
The report stated that due to an aging population, China’s pension system will place a very large burden on government finances. The authors of the report suggested that among other measures, the government should consider pushing back the current minimum retirement age and also push ahead with reforms to the country’s public institutions to help relieve the pressure.
At the beginning of this month, officials from the Ministry of Human Resources and Social Security said publicly that an adjustment to the age of retirement is inevitable. These officials also indicated that the ministry will put forward an official policy recommendation related to delaying the age at which people can begin to receive their pension at an appropriate time.
Denmark relaxes rules to help pension liabilities
Denmark’s government agreed to ease rules for the country’s pension funds to help reduce their liabilities as record-low bond yields inflate the value of their obligations.
Pension funds and life insurers will be allowed to raise the discount rate they use to calculate their liabilities to better reflect long-term growth and inflation prospects, the Business and Growth Ministry in Copenhagen said in a statement late Tuesday. The decision sent yields on longer-maturity bonds soaring as the industry’s need to buy up debt assets to match their pension obligations was reduced.
“The demand for duration isn’t as strong as before,” Henrik Henriksen, chief investment strategist at Copenhagen-based PFA Pension A/S, Denmark’s second-largest pension fund with about $50 billion in assets, said in an interview. “Looking especially at the 30-year point, there’s less demand for 30-year bonds due to the new rate curve.”
The Danish move follows similar changes in Sweden, where 10-year yields surged 30 basis points on June 7 after the country’s regulator put a floor on the discount rate pension funds use to calculate liabilities. Nordic pension funds had come under pressure to increase their asset purchases as the region’s haven status from the debt crisis sent bond values higher and swelled the value of their liabilities.
UK pension deficits soar to record highs in May
The deficits of final salary pension schemes in the UK surged dramatically in May to new record highs as weak economic growth and central bank monetary easing measures leave companies struggling to plug the shortfall, data showed. The aggregate deficit of the 6,432 defined benefit schemes in the UK increased by 95 billion pounds ($147.36 billion) in May alone, to total 312 billion pounds, the Pension Protection Fund (PPF) calculates. This compares with a deficit of 24.5 billion pounds just a year earlier.
Kanadische PKs im Q4 2011
Das statistische Amt Kanadas hat die Zahlen 2011 der Pensionskassen publiziert. Sie sind deshalb von Interesse, weil vielfach die kanadischen Kassen aufgrund ihrer guten Performance als Vorbilder hingestellt werden. Das Amt schreibt: “The market value of Canadian employer-sponsored pension funds totalled $1.1 trillion at the end of the fourth quarter, a 3.4% increase from the previous quarter. In 2011, these pension fund assets increased 4.6%, compared with 14.2% in 2010 and 10.5% in 2009.
The value of pension fund investments in bonds increased 3.6% to $424.8 billion in the fourth quarter. Investments in stocks recovered from losses in the third quarter, increasing 2.9% to $338.5 billion. In the fourth quarter, 70.2% of pension fund investments were in domestic holdings, and 29.8% in foreign holdings, unchanged from the previous quarter.
Revenue increased 34.4% to $29.2 billion in the fourth quarter. This increase was the result of special payments made by employers to cover pension liabilities, increased investment income and profits from the sale of securities.
With lower losses from the sale of securities compared with the previous quarter, expenditures fell 14.2% to $17.5 billion. With this decrease in expenditures and the increase in revenues, net income rose from $1.3 billion to $11.6 billion in the fourth quarter.
Just over 6.0 million Canadian workers are members of employer pension plans. Of this group, 5.0 million workers are members of trusteed plans. The remaining 1.0 million members with employer pensions are in plans managed principally by insurance company contracts. Data in this release refer only to trusteed plans and their pension funds.