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Pension Funds
Insider

The Pensions Dashboard: yet another positive reason to clean your data

The internet has brought us into an amazing future. On-demand taxis, step calculators that tell you how many calories you have burnt, GPS navigation systems providing turn-by-turn navigation wherever you are in the world and Snapchat (though nobody knows what that is good for yet).

The Pensions Dashboard now brings pension schemes into this brave new connected world.

The ultimate vision of the dashboard is that a member could, with a simple (highly secure) search, identify every pension scheme he or she is a member of and what the value of this pension scheme is.

Potentially, in a world of multiple dashboards, some providers may even add additional features to enable members to model whether their savings are sufficient, their drawdown options or even opportunities to consolidate their arrangements.

As Pension Scheme Trustees, Sponsors and Administrators, do we believe that our data and technology is fit and proper in a world of real-time transparency? Do we see this as a positive challenge to help our members or a bogeyman to avoid at all costs?

Do we really need yet another reason to improve the quality of our data? The Pensions Regulator has clear guidance on both common and conditional data.

They are also due to request data quality scores in our annual scheme returns. Accurate data also gives clarity both for ongoing valuations as well as to inform de-risking exercises. Finally, it speeds up member transactions and reduces administration errors.

The Dashboard merely builds on all of this, giving you yet another reason to invest in improving the quality of data, helping your members with their retirement choices, getting a handle on the true level of your liabilities and keeping on the right side of the law at the very same time.

The Pensions Administration Standards Association (PASA) is currently assessing what the data standards for the Pensions Dashboard should be.

This will ensure that member data can be seamlessly pulled together within a Dashboard to enable members to have a holistic view of all of their pension arrangements in the first instance and potentially to make informed savings and retirement decisions.

This is a broad church of pension professionals from across the industry and their analysis of requirements will take into account types of scheme, legacy arrangements, complexity, staging and all of the relevant factors that would result in a sensible and successful outcome for all stakeholders.

As a PASA Director myself, I am confident that the committee will recommend a solution that is pragmatic and will maximise support across stakeholders.

As participation in the Dashboard could be made mandatory, it is also essential that the starting point of data standards across pension arrangements should be achievable.

However, there are already preparations going on across the industry for this new world. Many Trustees, Sponsors and

Administrators are going way beyond the occasional Pension Regulator requested data audit report. They have clearly defined programmes in place to build a high degree of certainty around both their steady state and real-time data. Trustees and

Administrators recognise that clean data and automation are resulting in quicker turnaround times, a lower error rate and happy members.

Once available, it is relatively straightforward to then make this accessible via websites as members are increasingly open to using this functionality to support savings and retirement decisions.

The current trajectory of the dashboard project indicates that key industry players would like to launch in 2019. We already have data cleanse programmes in place to ensure that we complete our GMP reconciliations by the end of 2018. Finally, the Pension

Regulator has already given us fair warning that they will expect our data scores to be in our annual scheme returns from next year.

Do we need any more reasons to get behind the Dashboard, review our data and improve outcomes for all of our stakeholders?

Written by Girish Menezes, Board Director at PASA.

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Pension Funds
Insider

One third of retirees support family members financially

Contributions average nearly £260 a month, according to new research from Prudential.

The findings are part of Prudential's annual research into the finances, plans, and aspirations of people planning to retire in the year ahead.

Prudential says this year's retirees – Class of 2017 – is its 10th set of data providing insight into the post-financial crisis retirement landscape.

The research found that financial dependents of this year's retirees are most likely to be their children or their children's partners (45%), followed by their grandchildren and their partners (24%), and their parents and grandparents making up nine and five per cent respectively.

Kirsty Anderson, a retirement income expert at Prudential, said: "With life expectancy increasing rapidly it is not unreasonable to expect the members of the 'Class of 2017' to be looking forward to a retirement that will last 20 years.

"But for those providing financial support to their dependants, it is likely to cost an average of £62,000 over the course of their retirement – accounting for a significant proportion of their pension pot and impacting the income they can expect to live on."

The most common reasons for providing financial support, including help covering everyday living costs or paying some or all the regular household bills.

One in five retirees questioned paid for one-off large purchases, such as a holiday or new car, and 11% paid for non-essential costs, such as club memberships and subscriptions.

Despite the squeeze in their income, around one third (34%) of 2017 retirees questioned, said they plan to leave an inheritance – up from 28% in last year's research.

The estimated average amount they plan to leave is just over £173,000.

First published 23.05.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
Insider

College of Law completes £28m pensioner buy-in

The College of Law scheme, the scheme for the University of Law, is administered by the Legal Education Foundation and has 760 members.

This latest transaction covers employees who have retired since 2012, when the most recent previous buy-in was carried out.

It is the fourth buy-in the scheme has completed, having previously completed two buy-ins with Aviva.

It means almost all its current pensioners are now covered by bulk annuities, contributing towards the scheme trustees' long-term aim of achieving a full-scheme buy-out.

Scheme trustees will also transfer the payroll for the pensioners covered by the buy-in to Aviva, to realise efficiencies in the administration of the Scheme.

The buy-in transaction was combined with a review of the scheme's investment strategy, demonstrating that it is possible to reduce the level of investment risk at the same time as carrying out a buy-in.

By shifting some of their return seeking assets into the low risk portfolio, scheme trustees say they have captured the benefits of the strong current funding level.

Scheme trustee Alan Humphreys said: "We are delighted to have completed our fourth pensioner buy-in, taking another important step to materially reduce risk for the members of the scheme."

Hymans Robertson was the lead advisor, with legal advice provided by Linklaters.

James Mullins, partner and head of risk transfer solutions, Hymans Robertson, said: "The strategy the trustees have adopted, of insuring their pensioners in groups over time as they retire when they can afford to do so, has become increasingly recognised as the optimal way of working to insure all benefits.

"We expect to see more pension schemes adopt this approach in future, with an increasing number of schemes now targeting buy-out as their final destination."

First published 23.05.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
Insider

Advisers fear future legislation on DB transfers

The research also found that despite seeing DB transfers as having potential to grow their businesses, many advisers are concerned about the impact of legislation in the future.

Of the 222 advisers questioned in March 2017, 70% said that with valuations rising and more people with DB schemes reaching retirement, had the potential to form a greater part of advisory business in the future.

However, 64% of that group said they are worried about retrospective legislation and how this could affect them in future.

Richard Parkin, head of pensions policy at Fidelity International, said while transfers presented an opportunity for pension scheme members and for advisers, regulatory risks should be taken into consideration.

"With valuations riding high, DB schemes have been in the news as people explore whether transferring out is a good idea," he said.

"For advisers, it's clear they see a real opportunity to help their clients, but are understandably concerned about unforeseen problems down the line.

Parkin added that good advice is essential and called for more information from the Financial Conduct Authority (FCA).

"There's no doubt a transfer will in some people's interests and a well-structured advice offering is key to help them look at that – but the regulatory risks around this business are high.

"While the FCA has provided some helpful commentary on this recently, we'd like to see more from them on this subject," he said.

The fears around legislation could be putting off new entrants to the market, according to the research, which found that of the advisers who refer clients requesting DB advice to a qualified person, 74% believe the area can only grow.

Despite this, however, advisers in general have no plans to upskill to offer this advice themselves, with more than half (58%) citing their concerns around changes to legislation.

Parkin said: "As well as giving advisers more confidence to step in and meet the sharp increase in demand for this service, a clearer regulatory position could also help reduce professional indemnity costs for advisers which are a significant impediment to many being able to offer advice at affordable levels."

First published 23.05.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
Insider

It doesn't matter, until it matters!

Last Monday Kobby, our Head of IT extraordinaire, tried to hide the smug look on his face. It belied the brilliance, diligence and determination that was responsible for us, as a business, having nothing but a passing interest in the ransomware attack that left parts of the NHS and thousands of business around the globe, data disabled.

The reality is Kobby cared enough, when arguably it didn't matter, to get people in the business who weren't particularly interested, to do what needed to be done.

Kobby is responsible for the structural integrity of our business IT infrastructure. He's across levels of details I don't profess to understand. However what he has done, with great effect, is to create a culture of understanding of the perpetual importance of cyber security.

This has shaped individual behaviours of "doing the right thing" in relation to software patches and upgrades.

In some ways it would be easier not to worry about IT vulnerabilities. Until last Friday at least, there didn't seem to be any imminent risk. If I didn't upgrade my software today I could always do it tomorrow, or the next day, or the day after that.

This is just like pensions. They don't matter - until they matter. They don't matter until it's personal. They don't matter until it's too late. It's often only in hindsight one realises that doing what mattered really wasn't difficult, the problem was it was easier not to do it at all.

The way I see it, the responsibilities of pension trustees are similar to Kobby's.

If they are genuinely focussed on driving good member outcomes they must look beyond the infrastructure that supports the provision of a pension and strive to shape the behaviour of the members. To help them to act in their own best interest, day in, day out.

It isn't easy.

Anyone who has raised a teenager will attest to the challenges of behavioural change.

But it is possible with a systematic, governance approach to member change management. It's about applying communication principles - being clear on what you want to achieve and implementing deliberately, diligently and iteratively.

I believe persistence pays off. Shaping member behaviour to do what matters, when it doesn't matter will ultimately have smug looks on the faces of trustees and members when it does.


Written by Peter Nicholas,Managing Director & CEO, AHC.

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Pension Funds
Insider

Over-55s concerned with market volatility over politics

New research from Fidelity International found that among people who had accessed their pension since April 2015, of those aged over-55 and in drawdown, Brexit and Trump scored the lowest of any potential fears around their retirement income.

Instead, low interest rates and market volatility weigh heavily on this group's mind, although, Fidelity said, pensions policy changes scores higher for women than men (70% vs 53%), coming in as their second biggest fear.

For men, this only just comes ahead of Brexit which was cited by exactly half of the men surveyed.

Richard Parkin, head of pensions policy at Fidelity International, said that it wasn't surprising that for those getting income from investments, market volatility and low interest rates scored highly.

He said: "To date the impact of Brexit and the change of president in the US has largely been the higher stock markets, so many people may see them as having a positive effect - but Brexit led to a fall in long-term interest rates that has resulted in lower yields.

"While we have seen some recovery from the lows of last year, fixed income yields are down sharply. Brexit is also starting to drive inflation higher, which will also impact those living on fixed incomes.

Parkin added that as the general election approaches in June, uncertainty around pensions' policy is never far from people's minds.

"For the past few years, there has never been a dull moment in the retirement industry and, if rumours are to be believed, it could get livelier.

"But constant change not only impacts those directly affected, but undermines overall confidence in the system.

"Wherever we end up, we must aim to create a framework that is simple, fair and sustainable which will give people the opportunity to plan their retirement with confidence."

First published 18.05.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
Insider

PLSA says 'affordability challenges' more significant, in response to DB Green Paper

In preparation for its response to the Security and Sustainability in Defined Benefit Pensions Schemes Green Paper, PLSA consulted with its members and found that 'affordability challenges' facing both schemes and employers are much more significant than the position set out in the paper.

Graham Vidler, director of external affairs, at the PLSA, said the Green Paper will start the process of getting DB back on track.

He said: "Millions of people in the UK rely on defined benefit pensions for a significant proportion of their retirement income, but the system faces a major funding challenge that needs to be addressed.

Vidler said the focus on improving scheme governance and member protection is particularly important and PLSA supports a proportional strengthening of the Regulator's powers to intervene where corporate action may put members' interests at risk.

He said: "We would also support further emphasis on making improvements to both the governance and structure of DB schemes."

"The regulatory focus needs to shift from outputs to inputs, regulating for strong governance through the encouragement of strong, diverse governing bodies.

"Strong governance is also one of the many benefits of consolidation and we welcome the Government's recognition of the need to increase scale in the sector."

Pensions and benefits consultancy Hymans Robertson said the main issue facing UK DB schemes is risk, and its response to the Green Paper reflects that.

Calum Cooper, head of trustee DB, at Hymans Robertson, said: "The DWP's view that DB schemes are generally affordable is absolutely right, so focussing on cost efficiency, while important, is not obviously the number one driver for the industry.

"Instead, it is vital we recognise the cost of running unnecessary risk - each year there is still £423bn p.a. of risk in the system."

First published 18.05.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
Insider

ABI to move Pensions Dashboard to next phase

The Pensions Dashboard is a Government initiative that will enable people to view all their pensions pots in one online location.

Its objective is for the service to be available to consumers by 2019, and for it to be offered by a range of different organisations rather than by a single, central service.

The ABI has been managing the initial phase of the project, to develop a prototype, and it will now lead an 'interim phase' of the project, which it says will maintain momentum of the development of the service.

This initial phase of the project finishes at the end of May and the general election means there will be a break before the Government can resume development of the service.

ABI says while there's been good progress on the technology for dashboards, there is still a lot to do to understand consumer needs in detail, the costs and benefits for all parts of the industry, and to further develop data standards for how a future service would be delivered.

The interim phase of the project will have four main aims: to establish a cost benefit analysis for the wider industry, to research customer needs and establish what features people are likely to find most useful; to establish the requirements and costs for a secure end-to-end service between data providers and data consumer; and to further develop the technical data standards for all firms and work with the Pensions Administration Standards Association (PASA) on agreeing a Code of Conduct in line with requirements from The Pensions Regulator.

Yvonne Braun, director of long-term savings and protection policy at the ABI, said the project was critical for the pensions sector and has the potential to revolutionise how people interact with their pension savings.

"The project to develop a prototype Pensions Dashboard has shown that technological challenges can be overcome, and now the project contributors are keen to move on to the next important phases of the project," she said.

The announcement has been welcomed by some in the pensions industry, including workplace pension provide Now: Pensions.

Adrian Boulding, director of policy for NOW: Pensions, said: "In today's digitally connected world it should be a basic right for everyone to go to a Pensions dashboard and see all the value of all their pension savings in one place."

First published 18.05.2017

Lindsay.sharman@wilmingtonplc.com

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Pension Funds
Insider

Full individualization of pensions is maybe not the solution

Written by L.N. Boon (b)(d), M. Brière (a)(c)(d), B. Werker (b)

Institutions for occupational retirement are facing major challenges and have sustainability problems, with difficulties for sponsor companies to carry the risks related to their Defined Benefit (DB) pension funds. The individualization of pensions is a recent trend (in particular, switching from DB to Defined Contribution (DC), relaxation of certain guarantees, development of hybrid DB / DC funds, etc.). But fully individualized solutions have the drawback that individuals are subject to multiple risks: investment, capital conversion into an annuity, but also biometric risks if individuals choose to decumulate their capital by themselves.

How to reduce these risks?

For investment Risk: solutions exist, in particular manager-guided funds adapted to each individual's profile (life cycle, enhanced target date funds, etc.)

Biometric risks comprise longevity, which is the risk of misestimating the probability of future survival and mortality, which is the idiosyncratic risk that the date of death of the individual is different from the anticipated one, given a known probability of survival.

To fully cover these two biometric risks, individuals can purchase a life annuity contract from an insurance company. The main advantage is that biometric risks are fully hedged. Mortality risk is pooled among participants. But this protection comes at a cost. Shareholders of the insurance company require a remuneration to carry longevity risk. Moreover, the insurance company is subject to default risk, even if in practice, capital requirements imposed by Solvency II regulation or government guarantees limit that risk.

Our research (1) shows that an intermediate solution, a pooled annuity fund (or group self annuitization) might be more attractive for individuals than a life insurance annuity.

In practice, this is a collective scheme where the risk of mortality is pooled, but the longevity risk is on the individual. Pension benefits may slightly fluctuate (in practice, benefits adjustments are in the range of a few percentage points) compared to traditional annuity (nominal or variable) because they adjust to changes in longevity. However, benefits are on average slightly higher than with the life annuity involving an insurance company, where upward adjustments are captured by the shareholders. We show that from the individual's point of view, this solution is attractive, offering a slightly higher utility than in the case of life annuity, under various longevity scenarios and hypotheses on individual's characteristics.

a) Amundi, b) Tilburg University and Netspar, c) Universit?© Libre de Bruxelles, d) Universit?© Paris Dauphine.

1 Boon L.N., M. Brière and B. Werker (2017), "Longevity Risk: To Bear or to Insure?", SSRN Working Paper N?2926902. Also available on Amundi Research Center: http://research-center.amundi.com/page/Publications/Working-Paper/2017/Longevity-Risk-To-Bear-or-to-Insure

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Pension Funds
Insider

Long live pick n' mix

Back in 1978 when I was a wee lad and had just experienced my first Arsenal heartache, a 1-0 loss to Ipswich Town in the FA Cup, the cost of a Mars Bar was 8 pence.

The counter of the local news agent was a kid's wonderland, blanketed in a mesmerising collection of ice-cream tubs full of pick n' mix sweets at prices that made it near impossible to blow my 50 pence pocket money in one visit.

Two Fruit Salads/Black Jacks or four MoJo's to the penny! Days of wonder, days of choice and days of value.

Then it changed.

The passing years saw a move to the mainstream and a reduction in sugary diversity and invention.

Gone were the days of choice, the humming and harring as we sought the perfect confectionary combo to fill our little white paper bag, quite often to the frustration of the shopkeeper.

The marketing men had worked their magic and we now knew what we wanted, or we thought we did, before we entered the shop.

Are these sentimental recollections, or do they represent a wider underlying desire for a return to freedom of choice, personal expression and value for money?

I think we can apply elements of this experience to our pension schemes and more specifically the delivery of professional services. I started work in the pension industry in the summer of 1988.

Back then professional standards and the degree of connectivity between administrators and advisers was markedly less than it is today. Something had to change and it did, courtesy of Captain Bob and the resultant

Pensions Act 1995. The Act tightened the screws on pension scheme governance and is seen by many as the Big Bang of much of the pensions legislation we have today.

However, legislation on its own is a blunt instrument. This is where advisers earn their corn, it's simply not enough to regurgitate ad verbatim to toe-the-line and tick the box.

Change can be a force for good, challenging the status quo and presenting opportunity.

Advisers need to identify, explain and implement these opportunities in a way that is cognisant of each client's own objectives, needs and constraints.

It also means that clients should have the freedom to build their own little white paper bag of advisory services into which they can delve when needed,

The other parallel I'd like to draw from my prepubescent memories is the certainty of my weekly financial reward and advisory fees.

My palm would be crossed with silver (copper/nickel alloy really) to the princely sum of 50 pence every Thursday evening. Sadly, my parents didn't see it necessary to protect the purchasing power of my hard-earned cash by linking it to an inflationary index, a definite negative back then!

However, from my parent's perspective there was certainty, they knew that every Thursday they were going to take a hit to the tune of 50 pence in return for the satisfactory discharge of my chores, homework and behaviour over the previous seven days – symbiosis in action.

My point here is that advisory fees should be clear and as certain as possible and deliver value for money on two fronts.

The first is that any fee should always only arise as the result of the delivery of an agreed service. The second point, and this is where some advisers perhaps need to be a little more considered, is that they represent the delivery of a service which provides a meaningful return.

For example, this could be a service that addresses a regulatory must do, or a service that improves efficiencies, reduces cost and improves timeliness.

And before you ask, Munchies? They're still these same size, your hands just got bigger!

Written by Phil Farrell, Partner at Quantum Advisory.

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PLSA unveils pension priorities

It says a strong pensions sector is key to a strong economy, and the six key areas should be a guide for party manifestos.

The six areas are the state pension, automatic enrolment, defined benefit schemes, pension scams, help at retirement, and tax relief.

Graham Vidler, director of external affairs, for the PLSA, said: "Over the last two years, a significant amount of work has been done to ensure the continued momentum of automatic enrolment and to help extend workplace pension saving to more people than ever before.

"We have also seen a welcome recognition from government of the need for action on Defined Benefit pensions."
PLSA said automatic enrolment will deliver a "real improvement" for millions of people's retirement incomes and the government can build on this success.

"It's essential that minimum overall contributions increase to at least 12% of salary by 2030, with steps taken now towards this goal," said Vidler.

PLSA added that the Government should extend automatic enrolment to include 18-21 year olds, self-employed people, and those in multiple jobs paying low salaries totally £10,000 or more.

PLSA also highlighted defined benefit (DB) pensions as a priority, saying they are underfunded with around three million people having a 50:50 chance of seeing their benefits paid in full.

"The Government should bring forward legislation to reduce burdens and enable pension schemes to share services or to merge, delivering better returns, saving money and improving governance," said Vidler.

"This will mean a greater chance of members receiving their benefits and it will free employers to focus on corporate growth and it will return public confidence to the system."

Pensions scams were also in the spotlight and PLSA called for legislation to establish an authorisation regime for pension schemes, as under current law, scheme trustees are powerless to stop the transfer even if they have concerns.

Vidler said: "The next Government needs to consolidate the growth of workplace pensions, increasing the reach of automatic enrolment and setting out a plan to raise contribution rates, and it also needs to make it easier for schemes to make DefinedBenefit pensions sustainable.

"Above all, it needs to build public confidence in the system, helping the industry fight scams and deliver the retirement choices savers want, while resisting the temptation for further raids on the pensions tax relief piggybank."

First published 11.05.2017

Lindsay.sharman@wilmingtonplc.com

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BlackRock expands Tax Transparent Funds for UK schemes

The government introduced the TTF structure in 2013 as a tax transparent fund for institutional investors.

Since then, BlackRock said, there has been an increasing appetite among pension funds and insurance companies looking to maximise their withholding tax treatment in a cost efficient pooled fund structure.

The new range includes seven tracker funds, which are due to launch by June and will offer UK investors access to global equity markets.

The funds are: ACS World ex UK Equity Tracker Fund; ACS Japan Equity Tracker Fund; ACS Continental European Equity Tracker Fund; ACS UK Equity Tracker Fund; ACS 50:50 Global Equity Tracker Fund; ACS 60:40 Global Equity Tracker Fund; and the ACS 30:70 Global Equity Tracker Fund.

Custody, fund administration and trustee services of the funds will be provided by Northern Trust.

Claire Finn, head of UK DC at BlackRock, commented: "Since their introduction, pension funds and insurers have found the TTF structure effective in helping to manage the tax efficiency of their investments, while having the security, governance and scale benefits of investing through a pooled vehicle.

"The launch of these additional seven funds allows our clients to express a view on global equity markets in tax efficient way, while also providing a solution to the requirements of Solvency II."

The expansion announcement comes three years after BlackRock launched its first TTF range, the UK's first.

BlackRock says the new range will particularly appeal to its Local Government Pension Scheme clients.

"Our Local Government Pension Scheme (LGPS) clients in England and Wales are currently Pooling together their pension scheme assets," said Finn.

"TTF structures are an important consideration for the Pools and these funds will expand the range of available tracker investment funds."

First published 11.05.2017

Lindsay.sharman@wilmingtonplc.com

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Canadian pension investment board launches European hub

PSP Investments is one of Canada's largest pension investment managers, with around $125.8billion of net assets under management.

Established in 1999, PSP Investments manages net contributions to the pension funds of Canada's Federal Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police, and the Reserve Force.

The London office will be its European hub and PSP said the new location demonstrates its ongoing commitment to Europe.

Andr?© Bourbonnais, president and CEO of PSP Investments, said: "Establishing a European hub is a strategic milestone for us and demonstrates our confidence and commitment to the region."

"It is in line with our vision is to be a leading global institutional investor that delivers on its risk-return objective by driving a total fund perspective."

The London team will focus on long-term investments, predominantly in private equity, private debt, infrastructure, and real estate asset classes.

It will combine long-term capital with insight from its partners and management teams to form strategic investment platforms across Europe.

PSP Investments' has seen already made several investments in Europe, including Cerba HealthCare, a leading European operator of clinical pathology laboratories (Private Equity); a joint venture with Aviva that includes 12 office buildings in Central London (Real Estate); and AviAlliance, a wholly-owned subsidiary of PSP Investments and one of the world's leading private industrial airport platforms (Infrastructure).

In line with its investment strategy, it has partnered with some top-tier organisations in the region, such as Partners Group, SEGRO European Logistics Partnership, BC Partners, Permira and CVC Capital Partners.

"The European hub will enable us to capitalise on opportunities, while further developing strategic partnerships locally," said Bourbonnais.

The team has also made significant acquisitions, in line with its mandate to continue to increase PSP Investments' exposure in the European market.

First published 11.05.2017

Lindsay.sharman@wilmingtonplc.com

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Regulatory changes: for better or worse?

1 DIFFERENT VIEWS ON THE REGULATORY WORLD

Times have changed; now, up and down Britain, people are talking about pensions. For many, BHS was a brand you could trust... until it collapsed and members' pensions were threatened. Similarly, the issues facing Tata Steel have threatened people's way of life in whole communities. These are big events. People are naturally interested in why pension promises are so expensive and seemingly so difficult to keep.

What the Government and the industry do next is vitally important.

The Prime Minister has stated that new powers would be given to the Regulator if a Conservative Government is returned after the General Election. However the Regulator already has wide powers to intervene in DB schemes. Arguably, a complete overhaul of the regime is unnecessary and inappropriate.

Work and Pensions Committee Report

The Work and Pensions Committee published a report in December 2016 which made recommendations for change in the regulation of DB pension schemes. The Committee strongly advocated empowering the Regulator, arguing that current Regulator intervention is "clunky", "reactive" and "slow-moving".

The Report's recommendations are well known in the industry. The main ones in the regulatory sphere were:

(a) punitive fines as a nuclear deterrent to avoidance;

(b) a nimbler regulator that is closer involved with schemes (particularly during valuations); and

(c) mandatory clearance for major corporate transactions.

It is fair to say industry reaction was mixed.

Would business transactions be stalled if a risk of punitive fines had to be taken into account? Or if a clearance application had to be made? And can the Regulator really be close to the detail on every scheme valuation during the negotiation process?

DWP's Green Paper

The DWP's Green Paper: 'Security and Sustainability in Defined Benefit Pension Schemes', published in February 2017, was more balanced. Its view, contrary to that of some politicians and of some of the media, is that there is "not a significant structural problem with the regulatory and legislative framework". It does not give too much away about the Government's thinking for future regulatory changes – rather it explores whether there is appetite for something new.

This approach was not welcomed by all. For example, Steve Webb, director of policy at Royal London (and former Pensions Minister) described it is "remarkably timid" on the idea of giving the Regulator more power. However, on one view maybe the DWP was right to 'go green'. The scope of the Regulator's existing anti-avoidance powers is very broad indeed and these powers are continuously evolving.

2 PREVENTING AVOIDANCE

The current regime

The Regulator currently has wide powers to intervene in DB schemes. To list them all would be outside the scope of this paper but the two main powers to prevent / cure anti-avoidance are for the Regulator:

(a) to issue a Contribution Notice where there is an action (or a failure to act) to avoid pension liabilities or where there has been a material detriment to the Scheme's ability to meet its liabilities; and

(b) to serve a Financial Support Direction when an employer in relation to the Scheme is a service company or is "insufficiently resourced".

Broadly speaking, a CN is fault-based and is a demand by the Regulator to pay a specified sum into a scheme whereas an FSD is risk-based and is a direction for financial support to be put in place to support a scheme in the longer term.

The powers can be exercised against someone "connected or associated" with the scheme's statutory employer. As most readers will be aware, it can be difficult for a potential target to dispute connectedness or associateship. The boundaries of these concepts are deliberately very widely set.

What is more, whilst there are threshold tests to be met before either power can be exercised, once these tests are passed the only factor governing whether the Regulator can use its powers is whether it is reasonable for the Regulator to do so.

That is about as wide a legal test as it gets.

The legislation permits the Regulator to have regard to various factors in its consideration of what is 'reasonable' however the statutory list of factors is not exhaustive and it is not mandatory. Arguably, the Regulator can consider whatever it likes when it is considering reasonableness (more on that below).

The Regulator also seems well prepared to use its powers where it considers that it is appropriate to do so. As well as the recent BHS settlement, the threat of action in a regulatory investigation resulted in a settlement for two pension schemes worth £255 million from Coats Group plc. The Regulator has also been successful in judicial review proceedings brought by the Targets of regulatory action in a case concerning the Silentnight Group. Yes, regulatory action can be slow-moving and can take time, but complicated legal disputes like this take time to sort out.

These cases do not suggest an ineffective Regulator.

However, because the mere threat of its moral hazard powers being used has been enough to achieve successful outcomes for schemes, the incremental development of the Regulator's powers is not necessarily made public knowledge. So it is perhaps difficult for the Regulator to establish precedent cases that would arguably influence company decisions more than a reported settlement might do. Anonymised reporting of situations in which the Regulator has decided not to use its powers might help establish boundaries to what might be anti-avoidance.

One view therefore is that we are more likely to (continue to) see a healthy incremental development of the Regulator's existing powers than some of the drastic measures suggested by the Work and Pensions Committee.

3 EMERGING PRINCIPLES

A key principle that can be seen emerging from the Regulator's recent successes is that it is prepared to use its anti-avoidance powers where the scheme sponsor is solvent (previous reported regulatory cases concerned insolvency scenarios).

This is important as it shows the Regulator is willing to pursue potential moral hazard targets before sponsors go bust; it is not just a post-insolvency reactive body.

Another interesting point is how the Regulator determines reasonableness. In early reported regulatory cases it was reasonable for the Regulator to exercise its powers in part because there had been benefit flow (i.e. the movement of benefit away from the scheme's statutory employer to the targets) but it does not follow from those cases that benefit flow is required for there to be reasonableness.

This point in particular shows the wide scope of the Regulator's anti-avoidance powers. If benefit flow is not required for reasonableness, it may be difficult for advisers to advise a purchaser of a business with a defined benefit scheme that they will not be within reach of the Regulator's powers (without an application for Clearance). Consider the following (deliberately extreme) example.

Parentco has two subsidiary companies – one North of the M4, one South. Each has an identical factory and business. The only difference is that Subsidiary A has a DB occupational pension scheme whereas Subsidiary B doesn't. Let's say that over time Subsidiary B increases production and naturally goes from strength to strength whereas Subsidiary A doesn't. Is this moral hazard territory? Is it reasonable to serve a financial support direction on Parentco or Subsidiary B simply because one company in a Group has performed better than another? (A relevant factor going to reasonableness here could be that Parentco or Subsidiary B were particularly "rich" and were able to afford to support Subsidiary A's pension scheme). Where to draw the line on moral hazard depends on what value judgements we place on the society we live in.

Finally, a criticism sometimes aimed at the Regulator is that it does not have the resources to be as effective as it could be. However, what is clear from the Regulator's recent successes is that it certainly has the budget and manpower to use its powers where it wishes to do so – you can't outspend the Regulator (albeit that the Regulator adopts a risk-based approach so may not be able to take on every case). It will be interesting to hear the results of the Regulator's "TPR Future" analysis on how it should exercise its responsibilities over the coming years.

These emerging principles show that the Regulator's current anti-avoidance powers are achieving successes for pension scheme members and that they can be used in a broad range of circumstances. It is interesting that the Regulator, in its response to the Work and Pensions Committee's December 2016 report, has stated it is making significant efforts to pursue more cases and to use a wider range of powers where appropriate. This all seems to suggest the Green Paper's "no significant structural problem" analysis is perhaps a relatively fair reflection of where the DB land lies at the moment.

4 WHERE NEXT?

The Regulator's recent successes, amongst other factors, arguably demonstrate that a complete overhaul of the Regulator's anti-avoidance powers is unnecessary and perhaps even inappropriate.

We might expect to see continued incremental developments of the Regulator's powers. Crucially, this approach would avoid the risk of stifling British business and it would not further burden the Regulator (as penal fines and compulsory clearance might do).

On the other hand, there is an argument that the Regulator's current powers simply put schemes back in the position they would be in if moral hazard had not taken place. So it is possible that a penal power would change attitudes in wider society towards protection of pension scheme promises. For example, an unscrupulous employer might currently risk moral hazard; the only "penalty" to him if he is caught being the cost and time investment of responding to a regulatory investigation. To address this, the Prime Minister has suggested the Conservatives could give the Regulator a power to block corporate activity and to issue punitive fines.

It will be interesting to see where the (post General Election) Government draws the line. For example, the Regulator has expressed wariness about requiring every company to come to it before every transaction. But it has also suggested that mandatory clearance could be appropriate in certain circumstances (for example, where a scheme is seriously underfunded or where the employer covenant is materially weakened by a transaction).

Clearly, whichever of the policy options that the new Government decides to take forward will need to be developed thoroughly before implementation and will also need to reflect how we value the society we live in. Not only does the sector await developments so too does the mainstream media. One positive consequence of the BHS case (and Tata Steel and others) is that there is now more awareness of pensions in the wider public. Whatever direction the Regulator's powers are headed, this can only be a good thing.

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Setting Standards

In July 2011, Graham Pitcher was sentenced to eight years in prison for his part in the GP Noble scandal. GP Noble, a Nottingham-based firm of professional trustees, was found to have been involved in defrauding £52 million from pension schemes on which its directors had served as trustees.

At a time when there was a growing focus on the importance of professional trustees in ensuring that adequate standards of governance were met, the scandal damaged public confidence in the independent trustee sector.

It raised a number of searching questions about the standards expected of professional trustees and also of their regulation. It has taken six years for the Pensions Regulator to grasp this particular nettle; fortunately it has done so in a way that should produce a lasting resolution.

One of the immediate consequences of the GP Noble scandal was that PMI's Independent Pension Trustee Group (IPTG) decided to establish itself as a formal professional body.

The new Association of Professional Pension Trustees (APPT) sought to establish recognised standards of conduct from its members in order to give the market confidence when appointing a professional trustee.

However, there remains no formal barriers to entry for professional trustees: to practise as a professional trustee requires an individual to do more than describe him or herself as such. Neither is there any form of ongoing regulation for professional trustees.

The Regulator finally addressed these anomalies with its recent consultation on how a professional trustee should be described. This raised a particular problem: just what constitutes a professional trustee? Both the PMI and APPT ran member surveys to form the basis of their respective responses.

Comments from members were not entirely conclusive; one APPT member noting that it was 'a case of you know one when you see one.' Although there was clear agreement about a professional being someone who 'holds himself out' as a trustee, there was less agreement as to what 'holding out' actually means.

Perhaps the best solution would be to follow the FCA's example and to instigate a regulatory regime comparable to the Statement of Professional Standing (SPS) requirements applicable to Financial Advisers since 2012.

Anyone who describes him or herself as a professional trustee would need to hold a relevant qualification and be under the supervision of a suitable professional body. This would, in turn, require them to conform to a Code of Conduct and to complete regular CPD.

The SPS system is tried and tested; its introduction for professional trustees would be both welcome and timely. With adequate governance standards becoming increasingly dependent on a growing number of professional trustees, an effective regulatory structure is absolutely essential.

Written by Tim Middleton, Technical Director, Pensions Management Institute.

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Pitmans Trustees completes management buy-out

PTL is an independent trustee, providing a range of governance services, predominantly to pension schemes, including defined benefit and defined contribution schemes.

Richard Butcher, PTL managing director, said the buy-out signifies a "pivotal and hugely exciting time" for the organisation.

He said: "As people who live and breathe pensions, who truly understand the objectives and challenges our clients have, that we have and that the industry has - we are entirely free to decide our own strategic objectives and how to allocate our resources to the benefit of our clients and the pension scheme members we are responsible to."

"This is great news for the team, our clients, and those members."

Butcher added that the buy-out is "the management putting their money their mouth is" and demonstrates its long-term commitment to the pensions industry and to its clients.

"We have, over the last few years, been building a business with longevity, which is entirely consistent with delivering long-term good governance," he said.

The firm, which was first incorporated in 1994, has grown to 26 staff in 23 years and now has offices in five UK locations – Birmingham, Edinburgh, Leeds, London, and Reading.

It currently has governance oversight of more than £150bn of assets across its portfolio and will shortly be announcing its 2016/17 year-end results – which show double digit growth.

PTL is a member of the Pensions and Lifetime Savings Association, the Association of
Corporate Trustees and the PMI Independent Trustee Group.

It also provides services to contract based pension schemes, including group personal pension plans, and a range of governance services to other non-pension trusts.

First published 05.05.2017

Lindsay.sharman@wilmingtonplc.com

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Young women financially anxious despite smaller gender pay gap

The PLSA surveyed 1,001 people aged between 18-35 years and found that women were less financially confident across a series of key financial indicators.

They were less optimistic about career advancement (55% of women compared with 61% of men), and almost twice as likely to report a decrease in their salary in the last six months (14% of women compared with 8% of men).

Graham Vidler, director of external affairs, at PLSA, emphasised the importance of encouraging young people to save.

He said: "Women tend to have smaller pensions than men, but with the advent of automatic enrolment, more people are being encouraged to save than ever before.

"It is vital that the lack of financial confidence among millennials does not discourage them from taking advantage of workplacepensions and falling behind when saving for retirement"

Additional Pan-European research, released earlier in the year, also suggested that women are generally less confident in their financial knowledge so less inclined to take calculated risks.

However, the same research shows that the actual gender financial knowledge gap is smallest among millennials, suggesting theirlack of financial confidence may well be unfounded.

Vidler added that employers must ensure they engage with young people to increase their confidence about retirement choices.

"The gender pay gap is at its lowest in the early stages of a career, so it is arguably the ideal time to get into the savings habit and start thinking about retirement income," he said.

"Millennial women feel pressure to save for the future and using an occupational pension scheme offers a variety of advantages - not only will they benefit from employer contributions and tax relief, but also gain peace of mind for the fact that they are taking proactive steps to building a better standard of living in retirement."

First published 05.05.2017

Lindsay.sharman@wilmingtonplc.com

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Allowance cap hits pensions savings for high earners

Financial advisor Salisbury House Wealth said the number of people earning above £250,000 per annum has increased over the last five years.

According to the organisation, there were 40,700 people aged 50-59 earning £250,000-plus per annum in 2013/14 – up 16% on 2009/10 when the number was 35,200.

However, those looking to use the additional income to boost their pensions could be disappointed because the allowance limit the amount they can contribute.

Tim Holmes, managing director at Salisbury House Wealth, said: "Older workers are finding that time and the pension tax rules are not on their side."

"Just as workers in their 50s are starting to earn the sort of income that allows them to invest significant sums of capital into their pensions, they have to be careful not to exceed the annual pensions allowance or they will effectively end up paying tax twice."

"For workers who have spent decades climbing the career ladder, paying off the mortgage, and raising a family, the annual pensions allowance limit comes as a real blow."

The annual allowance caps the amount individuals can contribute to their pension tax-free to £40,000 per year, reduced from £50,000 in 2014/15 and down from £255,000 in 2010/11.

New rules introduced in April 2016 mean that tax relief also tapers off for income above £150,000 per annum, meaning that anyone earning over £210,000 has their annual allowance capped at £10,000.

"While it's true that retirement planning needs to start young, it's often only when people are older that they have accumulated sufficient resources and reduced their other outgoings to be able to make a real difference to their pension pots," said Holmes.

Salisbury House Wealth added that workers in their 40s were the only other pre-retirement age bracket to see an increase in those earning £250,000 or more - up by 4% from 50,100 in 2009/10 to 52,300 in 2013/14.

"For higher earners in their thirties and forties, it's essential to plan ahead as much as possible to ensure that they can save sufficiently for their retirement in the most tax-efficient way."

"They may feel that they've got plenty of time to bump up contributions when they are older and many other responsibilities to consider first, but it may not turn out to be as easy to make that strategy work as they might think."

First published 05.05.2017

Lindsay.sharman@wilmingtonplc.com

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VSTOXX Interest Jumps amid Record Low European Volatility

To read this article please click here

Jan-Carl Plagge
Managing Director – Head of Research
STOXX Ltd.


Jan-Carl Plagge is managing director and head of research at STOXX Ltd. In this role Jan is responsible for the devel-opment of innovative index concepts across all asset classes.

Prior to joining STOXX Ltd in 2010, Jan spent 4 years as product development manager at
Deutsche Börse AG, where he was involved in the development of equity- and strategy indices.

Jan-Carl Plagge holds a master of science (M.Sc.) in Business Management from the University of
Münster/Germany and a Ph.D. in Finance from the EBS, Universität für Wirtschaft und Recht, Wiesbaden / Germany.

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First Time Outsourcing

First-time outsourcing projects are not as uncommon as people think and, whilst the trend of DB closures has continued, so has the gradual process of in-house operations being outsourced for the first time.

As active scheme member populations have gradually moved into contract-based arrangements, and defined benefit populations have matured, the arguments in favour of maintaining an in-house administration service have diminished.

But, despite the common perception that all schemes must already have been outsourced, there are still a significant number of pension schemes going through this process for the first time now.

For those schemes and administrators that are tackling this type of project I offer a cautionary warning: first-time outsourcing projects are not the same as third-party transitions and have some unique challenges that must be addressed.

Anybody involved in a first-time outsourcing project should not assume it is the same as running a third-party-to-third-party service transfer. Whilst the objective of these projects might be the same, the journey and process of achieving the goal is often markedly different for several reasons.

Service definition – in-house teams rarely define the service in such precise and prescriptive terms as third-party providers. Whilst it might seem an obvious step, describing exactly what is required, by whom and when is the essential first step in any outsourcing project.

Satellite or unique "pension benefit" tasks invariably find their way into in-house administration operations – we have seen this range from paying corporate mobile phone bills to arranging annual membership dinners to fund rebalancing and management. All third-party administrators have a core service level agreement (SLA) that fees and delivery are based upon.

Start by looking at an example of one of these and building a gap analysis between what the in-house team does compared to what a standard SLA covers. If you would like to see a copy of our SLA to assist you then contact joe.anderson@thpa.co.uk.

Knowledge – experience has taught us that in-house teams rely more heavily on human capital to deliver services than on systems or processes.

Often, due to smaller in-house teams not possessing the required specialist developers or analysts needed to deliver and maintain process automation, they instead build operations around experienced personnel.

Without the requirement to define and describe calculations, processes and outputs, this often results in in-house teams not maintaining fully documented calculation and scheme guides. More time is therefore required as part of the transition to fully document operations.

Resilience – an administration transition invariably results in more work for the transferring administrator. They are required to both continue usual operations through the transition window as well as support the transfer process by answering questions and supplying data.

With limited resources, in-house teams cannot backfill or transfer support from other teams to assist the transition project. When combined with the double-whammy of needing to wind down operations at the same time, if not closely managed, these pressures run the risk of jeopardising the delivery of live operations.

Sensitivity to this risk and the development of a 'plan b' solution is critical to the transition planning process.

Skilled resources – administration transitions rely on both the resilience of the live delivery team as well as the skilled expertise of the project team.

Developers, programmers and analysts are often needed on both sides to deliver the migration. In-house teams will rarely have full-time programmers or developers, so carefully planning where this resource will come from, most commonly directly from the system vendor, is key.

If third-party support partners are being used, then greater care and planning needs to go into resource mapping and issue resolution.

First-time outsourcing has not gone away. As a specialist in administration we have seen a sustained steady number of schemes each year still tackling this type of project.

In our experience, the most successful first-time outsourcing projects are those that apply the flexibility, creativity and additional support to address the unique nature of each one of these projects.

Whilst most third-party-to-third-party service transfers follow a similar pattern of requirements, process and deliverables, a first-time outsourcing project always throws up unique and highly specific challenges that have often evolved from many decades of in-house service provision.

Recognising, defining and developing solutions to address these unique challenges is an essential part of achieving success – do not try to fit a square peg into a round hole.

Gillian Hickey,Projects Team Manager,Trafalgar House

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