The California Public Employees’ Retirement System, the largest U.S. public pension fund, is considering a proposal to restrict personal stock trades by employees as a way to avoid conflicts of interest.
International
When Retirees Are Shortchanged
For nearly a decade, Ms. Schultz and her colleagues have been rooting through the minutiae of accounting regulations, government filings and corporate retirement plans to expose how many of the largest American companies have systematically plundered their employees’ pension funds, at once robbing their workers of hard-won benefits and enriching their own profits. Her work has led to Congressional hearings, to a Washington investigation or two and to numerous journalism awards.
Now, inevitably, comes the book. In “Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers” (Portfolio/Penguin, $26.95), Ms. Schultz herds all her journalistic cattle into a single corral, laying out by what any measure is a damning indictment of the broken pension promises too many American corporations have made to their workers. For anyone seriously interested in the retirement industry — and that’s what it amounts to, an industry — this book should be required reading.
Towers Watson: Top 300 Pension Funds
Das Gesamtvermögen der 300 weltweit grössten Pensionskassen nahm im Jahr 2010 um 11 Prozent (8 Prozent 2009) zu und erreichte einen Rekord von 12,5 Billionen Dollar. Das ist ein Zuwachs von rund US$ 1,2 Billionen verglichen mit den Vorjahreszahlen – gemäss Pensions & Investment und Towers Watson.
Das ‚P&I / Towers Watson global 300 ranking‚, durchgeführt in Zusammenarbeit mit Pensions & Investments, einem führenden US Investment Magazin zeigt, dass trotz des letztjährigen Zuwachses des Gesamtvermögens, das jährliche Wachstum sämtlicher Pensionskassen über die letzten 5 Jahre auf 6 Prozent gefallen ist. Europa hat die höchste 5Jahres-Wachstumsrate von 11 Prozent verglichen mit Asien (9 Prozent) und Nordamerika (1 Prozent). Lateinamerika und Afrika zusammengefasst haben eine Wachstumsrate für die selbe Zeitspanne von 15 Prozent – allerdings auf einem tieferen Niveau. Die Recherche zeigt zudem, dass die 300 weltweit grössten Pensionskassen aktuell über 47 Prozent des gesamten Pensionskassenvermögens verfügen.
Bigger is better for pension funds
A paper by University of Toronto researchers Alexander Dyck and Lukasz Pomorski found the largest pension funds — averaging $37-billion in assets — outperformed smaller plans — averaging $1-billion in assets — by 43 to 50 basis points annually. “Bigger is better when it comes to pension plans,” the paper concludes.
Why do big plans do better? One reason is that they are more likely to be internally managed, which means their assets are managed by in-house staff rather than by outside private sector money managers. Large plans manage 13 times more of their active assets internally compared to the smallest tier, the paper says. The study says between one-third and one-half of the gains come from cost savings related to internal management, where costs are at least three times lower than under external management.
The data for the study comes from Toronto-based CEM Benchmarking Inc., which maintains a database of financial returns between 1990 and 2008 for 842 pension plans around the world, including U.S., Canadian, European, Australian and New Zealand funds.
UK: Annuity rates tumble to new low
Pension savers are being urged to consider alternatives to buying a lifetime annuity with their funds, after rates suffered their biggest monthly fall on record – to reach a new low. In August, the typical annuity income a 65-year-old male could expect to buy with a £100,000 pension fund fell by 5 per cent, or more than £300 per year, according to new figures released this week (see table).
This would mean £9,000 less income over a 30-year retirement for a pension saver who locked into an annuity rate in August, instead of July. Last month’s drop in annuity rates is linked to the record low returns that insurers are now receiving on gilts – the government bonds that are used to back annuity payments.
UK: NAPF calls for overhaul of retirement accounting
Accounting standards are undermining companies‘ pension provision in Britain, a report commissioned by the National Association of Pension Funds argues. The report, by academics at Leeds University Business School, says current standards are inappropriate for assessing pension funds‘ long-term liabilities and can have unintended knock-on effects. Dr Iain Clacher and Professor Peter Moizer argue in their paper that there is a mismatch between valuing assets based on market prices and liabilities based on bond yields that makes pension surpluses and deficits extremely volatile. They argue that this volatility has prompted companies to close viable final-salary pension schemes and to switch investments to lower- return assets.
The academics add that this has led to an increase in the cost of providing pensions and misallocation of investment in the economy away from companies into government bonds. They propose changing the calculation of liabilities to a discounted cash-flow model. Dr Clacher said: "If you discount at the rate of an AA bond yield you push investment away from equities, which are good over the long term, to bonds and this increases the cost of provision."
Apple’s new chief executive to face shareholder revolt
Apple’s new boss, Tim Cook, is expected to face a corporate governance revolt from the computer company’s shareholders at his first annual meeting as chief executive. Calpers, the influential US pension fund, opposes the system for electing directors and is expected to keep the pressure on the revamped board at February’s meeting. Mr Cook was promoted to run Apple last week when founder Steve Jobs resigned because of ill health. Mr Cook had been deputising for his absent boss since January.
Investors were critical of the company’s failure to spell out its succession plans while Mr Jobs was absent and are concerned about the voting process. Anne Simpson, the senior portfolio manager at Calpers, had already complained to the founder, who recommended Mr Cook as his successor at last week’s board meeting. Ms Simpson wants directors to be elected by a majority of investors, but Apple says that this could mean they could be rejected if too few shareholders vote.
EFRP appoints Leppälä as Verhaegen successor
Matti Leppälä has been appointed as secretary general of the European Federation for Retirement Provision (EFRP), succeeding Chris Verhaegen. Leppälä will start in his new role when Verhaegen steps down in December. She was appointed chair of the EIOPA Occupational Pensions Stakeholder Group earlier this summer.
The EFRP said Leppälä was "very well known to many in the field of pensions policy" given his years of service as director of international, investment and legal affairs at the Finnish Pension Alliance TELA.
WSJ: Roubini Warns of Global Recession Risk
Economist Nouriel Roubini says the risk of a global recession is greater than 50 percent, and the next two to three months will reveal the economy’s direction. In an interview with WSJ’s Simon Constable, Roubini also says he’s putting his money in cash. "This is not the time to be in risky assets," he says.
Griechische Pensionskasse stoppt Zahlungen an Tote
In Griechenland hat die größte Pensionskasse Auszahlungen an 1.473 Pensionisten über 90 Jahre eingestellt, nachdem bekannt wurde, dass die Empfänger gar nicht mehr am Leben sind. Wer solche Zahlungen illegaler Weise eingesteckt habe, werde verklagt, teilte die staatlich betriebene Sozialversicherungskasse mit. Zudem wolle die Kasse versuchen, 1,9 Mio. Euro zurückzuholen, die auf die Konten der Verstorbenen überwiesen worden seien. Der Ankündigung waren weitere Betrugsermittlungen vorausgegangen. Beamte fanden heraus, dass rund 9000 über 100-jährige Griechen Pensionen erhielten. Dem jüngsten Zensus aus dem Jahr 2001 zufolge sind aber weniger als 1.700 Griechen älter als 100.
Pension Funds on Meltdown
Almost £50billion was wiped off the value of London’s FTSE 100 Index alone. The collapse in share prices around the world came as investors panicked that the US could slide back into recession and the creaking eurozone may need further multi-billion-pound bailouts to help Italy and Spain.
The FTSE 100 Index fell 191.4 points, or 3.4 per cent, to an 11-month low of 5393.1 – losing a massive £49.8billion from its value in one day. It means the growing financial turmoil has decimated leading shares by more than £120billion in a week.
The huge amount has been wiped off the value of Britain’s top companies and investment-based pension funds which millions of Britons rely on to fund their retirement and savings. During a day of dire economic news, the only ray of hope was the Bank of England’s decision to keep interest rates at a record 0.5 per cent low for an unparalleled 29th month in a row.
UK: Scramble for safe havens puts pensions at risk
The UK asset-manager F&C publishes a quarterly index of pension funds‘ hedging activity, which it tracks by surveying staff on investment banks‘ dealing desks. It said that in the three months to June 30, funds bought £24m worth of interest-rate swaps – which will cover £9.3bn of their liabilities against movements in interest-rates.
Falling interest rates make pension funds‘ liabilities look bigger, which makes their deficits worse. As F&C notes: "Long-dated interest and inflation rates are frequently used as an economic measure of the present value of pension schemes’ future payments to members."
So those that covered themselves in the second quarter may be grateful. Real interest rates have been falling in June and July as the European sovereign debt crisis worsens, along with the outlook for the US economy. In response, investors have been dumping risk-assets like equities and piling into US government bonds, UK gilts and gold.
BlackRock, the US fund manager, said the effect is already being felt in the US — where liability values at US pension plans it tracks rose by 5.7% during July and are now up 6.8% during 2011. Asset values fell by 0.1% during July, but are still up 5% for the year.
About £85.5bn of UK pension liabilities have been hedged against interest-rate movements since F&C started tracking the numbers at the start of 2009. But compared to roughly £1 trillion of private-sector pensions liabilities, that is comparatively small beer.
Keith Guthrie, chief investment officer at Cardano, said he believed UK plans‘ funding ratios have already been reduced by about 5% in the past two months. A full-blown eurozone crisis could hit plan assets by up to 20%, he estimated, and cause liabilities to go up another 5%. He said: "Most UK pension funds remain heavily invested in equities and only hedge a small proportion of liability risks."
Cardano says that pension plans should cover themselves better, by hedging as much of their liabilities as they can against movements in interest-rates and inflation, and diversifying their assets into a broad "all weather" portfolio, rather than relying on equities.
FT: Top hedge fund returns elude pensions
A rush into hedge funds during the last decade has produced poor returns for North American pension plans, according to analysis for the Financial Times. In the past 10 years institutional investors have been under pressure to allocate more of their assets to expensive alternative investment managers, away from run-of-the-mill stockpickers.
However, figures show that pension plans have failed to back the industry’s brightest stars, in aggregate falling short of returns showcased by hedge fund indices. Between 2000 and 2008, according to academics at Maastricht University and Yale University, US pension plans received just 1.9 per cent a year on average from their investments in hedge funds, after fees. Canadian pension plans made 0.6 per cent a year from hedge funds, during a period when Canada’s stock market returned an average 2.9 per cent each year.
Over the same period the average hedge fund produced an annualised return of 5 per cent, according to the Hedge Fund Research index. The results could lead to a reassessment of the pension industry’s push into hedge funds as it reacted to a decade of poor stock market performance.
Oregon PERS board votes to keep 8 percent rate of return standard
A majority of the five-member citizen’s board tasked with overseeing Oregon’s Public Employee Retirement system said Friday that they doubt the pension fund’s investments will generate returns averaging 8 percent annually over the long haul. Nevertheless, the board voted 4-to-1 to maintain the system’s assumed rate of return at 8 percent, thus avoiding a further hike in the rates that public employers, and ultimately taxpayers, pay to fund the system. Oregon’s $59 billion pension fund currently has 79 cents in assets for every dollar in liabilities, a funding shortfall equivalent to $12.8 billion.
Pension funds urge action on US deficit
Some of the largest U.S. pension funds and investment firms have urged President Barack Obama and Congress to resolve the deficit impasse and avoid inflicting "pain and hardship" on the nation. In an open letter to Obama and lawmakers dated July 25, top officials from ten pension funds and plan sponsors urged an increase in the debt ceiling, but more so of the need to reduce the massive federal budget deficit and avoid a potential downgrade of the U.S. by credit agencies. "The idea of America losing its AAA rating was once unthinkable, but now highly likely if our leaders fail to act," the letters said. "The consequences of such a downgrade are very real and very serious."