Non-Public Pensions Watch 2014-whenever

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ok, they should all be moved over now

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EU

http://online.wsj.com/articles/eu-ex...rms-1408017370

The European Commission has bowed to pressure from pension funds concerned about their readiness for its flagship reforms of market infrastructure by giving them more time to comply with the changes.

At a private meeting last month, three British and three Dutch pension funds were told by the commission that it will recommend extending an exemption granted to them two years ago, according to two people present at the meeting.

If the European Parliament and European Council agree, pension funds will have until August 2017 to comply with the regulations, instead of having to do so next year.

If they are still not ready in 2017, they could then get a year-long extension, although EU officials have warned funds there will be no further extension if they drag their feet on compliance. The European Commission declined to comment.

The new rules in the European Market Infrastructure Regulation ban funds from buying derivatives over the counter directly from banks, except in rare cases. The aim is to make derivatives markets more transparent, following the financial crisis.
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That means that EMIR's central clearing requirement would cut the non-benefit retirement income of the average British pensioner by 2.3% a year, according to commission estimates. This would be approximately £180 ($300), based on 2012-2013 U.K. government data, and would cut the non-benefit retirement income for the average Dutch pensioner by 3%. The U.K. and the Netherlands will be the most affected by the changes, because of their large pension fund systems.

Industry estimates of the impact on returns are far higher. Insight Investment, which manages over an eighth of the U.K.'s pension assets, estimates that EMIR's effect on returns from having to hold cash to cover margin calls could be to reduce funds' value by 0.7% to 1.2% a year.

It is to mitigate that impact that the commission has agreed that pension funds need more time to find a solution.

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THE NETHERLANDS

http://www.ai-cio.com/channel/RISK_M...t_Ignites.html

Aegon has taken on the assets and liabilities of two Dutch pension funds in one of the first—and largest—buyout deals to date in the Netherlands.

AMF and BFM, pension funds for mineworkers, have transferred the accrued assets of 28,000 members to the life insurer. Aegon has committed to pay benefits until the final wind up of the schemes.

Under the terms of the deal, AMF members’ benefits will increase by 8%, while BFM’s members will receive a 10% uptick. The funds will not merge, they confirmed in a statement.

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Aegon is one of the few players in the Dutch buyout market, which is dominated by insurers. This latest is the largest deal of its kind in the Netherlands, but with combined assets of just €953 million—€816 million of which is attributed to the AMF fund—the market trails those in the US and UK where “mega-deal” buyouts have shifted billions of dollars and pounds off company balance sheets.

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“One of the issues for Dutch pension funds is the difference made by longevity assumptions between themselves and insurance companies. In the UK, the two models have more or less merged, but in the Netherlands they're further apart.”

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U.S.

http://us.milliman.com/pfi/

Milliman analysis: Corporate pension funded status drops by $5 billion in July due to investment losses

In spite of the rise in discount rates, the funded ratio declines to 85.0%

Updated 2014-2015 year-end projections reflective of the Highway and Transportation Funding Act of 2014 (HATFA)

The funded status of the 100 largest corporate defined benefit pension plans decreased by $5 billion during July as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose to $257 billion from $252 billion at the end of June, primarily due to declines in equity and fixed income returns during July. As of July 31, the funded ratio declined to 85.0%, down from 85.3% at the end of June.

Spoiler:

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http://www.bloombergview.com/article...ecame-a-casino

Under the 1974 act, the Labor Department has the authority to change the way pension funds invest. It should, for example, restrict permissible assets to those with a minimum of a full business cycle of historical performance data, so managers can adequately assess the risks. It might even consider prohibiting investments that are too risky, or in funds that don't use independent third parties to value their assets. During the 2008 crisis, investors complained that the in-house valuations provided by private-equity funds were too high given the sharp decline in stock markets.

Pension funds should also demand more information about fees, and set limits -- an effort that the Labor Department could support by imposing restrictions on the total level of non-performance-based fees and expenses. Understanding the fees that private-equity funds charge is still difficult, because they don't itemize all the compensation they take from the fund and its portfolio companies. The government needs to require full transparency here as well as bar certain types of charges. Some private-equity funds, for example, have the authority to pass on fines for regulatory violations to investors -- a practice that shouldn't be allowed.

The original premise of the prudent-man rule was that pension-fund managers needed to operate as if their clients were widows and orphans. Sadly, experience has shown that the managers are often as vulnerable to exploitation as the people on whose behalf they are investing. A few changes would help ensure that they do their homework better.

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RUSSIA

not sure which thread to drop this in, but I'll just put it here

http://www.businessweek.com/articles...he-u-dot-s-dot

Earlier this month, the Russian government seized its citizens’ pension contributions. Normally, 6 percent of Russians’ salaries is invested in financial markets, earmarked for their retirement. This year that $8 billion in contributions will finance Russian spending instead. Russia is not the first country to confiscate pension assets to pay its bills, and it probably won’t be the last. Argentina, Hungary, Poland, Portugal, and Bulgaria have all done the same in the last six years.

This is not only a setback for Russians’ retirement accounts; it also harms Russia’s financial markets, which count on a steady flow of pension assets each year. The move is expected to further weaken the already fragile Russian economy. Former Finance Minister Alexei Kudrin spoke out against the move, saying “today we are getting a government policy that lowers economic growth, plus a ‘shrinking’ of the economy’s possibilities and increasing uncertainty.”

The stealing of pension assets is relatively new. It used to be unnecessary: Governments already had them in their possession. Developed countries financed most people’s retirement with pay-as-you-go defined benefit plans, like Social Security in America. But as people lived longer and populations aged, relying entirely on unfunded promises appeared unsustainable. Starting in the 1980s, it became popular to supplement or even replace government pensions with individual saving accounts invested in financial markets. Latin American countries, notably Chile, led the charge, and in the 1990s and 2000s Eastern Europe followed. Some richer countries such as Australia, the United Kingdom, the Netherlands, and the U.S. all adopted some variant of personal pension accounts.

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http://blogs.wsj.com/atwork/2014/09/.../?mod=djemCJ_h

Why do so few workers have a pension plan these days? Blame the shareholders, says a new paper.

Adam Cobb, a management professor at the University of Pennsylvania’s Wharton School, suggests that shareholders have gained greater influence in firms while employees’ power has waned. And in their hunt for big returns, shareholders–particularly financial investors that purchase large stakes—play an important role in the shrinking pool of pensions.

Among other things, he found a significant connection between investors’ accrual of large blocks of shares (at least 5%) and the likelihood that a company abandoned its pension plan or stopped making it available to new hires. Those large blocks indicate greater influence in management decisions, he says.

Sixty percent of Fortune 500 companies offered defined-benefit pensions to new hires in 1998, according to consulting firm Towers Watson in a report published earlier this month, By the end of 2013, that portion had dropped to 24%.

And one more plan just took a bullet. An internal memo from Johnson & Johnson, made public last week, notified workers that pension benefits will be reduced for people hired after January 1, 2015. The company didn’t specify whether the pensions would be dropped entirely.

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“Among firms I examine here, in 1982 dispersed stock ownership is the largest category, comprising 26.4 percent of the sample. By 2006, only 5.5 percent of firms had no shareholder controlling at least five percent of its shares,” he writes. During that period, the number of pension participants in the average firm dropped by about one-third, likely due to new employees being shut out of the plans.

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An analysis by Haig Nalbantian, a senior partner at human-resources consulting firm Mercer, found that shifting away from pension plans to 401(k)s can lead to an exodus of younger, high-potential workers when market downturns lower older workers’ account balances, forcing them to delay retirement.

“The explicit pressure from investors to the CEO may be, ‘you need to figure out a way to boost performance,’ without much direction,” Cobb said. “If you miss an earnings forecast and you have an angry shareholder meeting and analyst call, then you start wondering, what do we do? And you can do A, B, C, D, and E. And firms pick combinations of those options.”

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http://www.ai-cio.com/channel/RISK_M...ty_Tables.html

A surge of pension de-risking is expected before the end of the year, as US corporate sponsors aim to beat new mortality tables that could push total liabilities up by $100 billion, rating agency Moody’s has said.

In a note about a bulk annuity deal that saw Motorola offload $3 billion in assets and liabilities last week, Moody’s considered the extra expense the company would have faced if they had waited another three months.

“Had Motorola waited until 2015, the changes in mortality assumptions would have required the company to offer larger lump sums to retirees,” the note said.

Current financial reporting and funding rules use mortality assumptions that are more than 14 years old. The Society of Actuaries undertook a four-year project to update these tables and intend to publish an updated set on October 31.

“Most actuaries expect these new tables to add between 3% and 8% to pension benefit obligation (PBO), with some actuaries even predicting increases up to 10%,” Moody’s said. “From a financial reporting perspective, companies will likely be required to use the new tables when calculating pension obligations for the fiscal years ending after 31 October.”

At the end of 2013, Moody’s entire rated universe of non-financial corporate issuers had a combined PBO of $1.8 trillion. Applying a 5.5% increase—the midpoint of the 3%-8% consensus estimated increase— would increase PBO by approximately $100 billion.

Moody’s warned that the increase was “not just a theoretical accounting change that does not affect economics”. Rather it warned that companies would be required to pay down this $100 billion increase over seven years, which would result in “a credit negative”.

“Given this impending large increase to PBOs and cash drains, we expect more Motorola-like announcements in the coming months,” Moody’s concluded.

[NerdAlert]

Originally Posted by campbell

http://www.ai-cio.com/channel/RISK_M...ty_Tables.html

Pension de-risking is a huge part of my job atm. Almost all of my clients have considered or are considering a lump sum window for vested terminated participants, and about half have actually gone through at least one window.

Unfortunately, I think many clients have been frustrated by the lack of interest by participants. They're either hard to reach or assume it's not a legit offer (of course there are ways to increase the take rate, but a lot of clients figure this out too late in the game).

Those new mortality tables are a huge concern. I'm seeing increases in liabilities of around 10% for some of my largest plans, which is massive.

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UK

http://www.ft.com/intl/cms/s/0/6ad13...44feab7de.html

Government plans to scrap a tax levied on pension funds at death would open opportunities for the wealthy to shield their assets from inheritance tax, wealth planners said on Monday.

Financial advisers said moves to scrap the 55 per cent tax levied on unused parts of a “drawdown” pension pot at death could allow retirees to pass up to £1.25m, or more, between the generations, tax free.

In announcing the measure, which takes effect from April, the Treasury predicted savers with smaller pension pots worth £20 to £50,000 would be among the many to benefit from the tax cut.
But advisers said the wealthy had most to gain from the reform.
“Sadly, the changes to the tax charges on death for pensions will not help those who are still struggling to build up sufficient funds to pay for their retirement,” said Andy James, head of retirement planning with Towry, the wealth managers.

It's not exactly pensions, I suppose. I guess it's like inheriting someone else's IRA or 401(k).

http://www.theguardian.com/money/201...t-tax-pensions

Analysis: Firstly, we’re talking here about “defined contribution” (DC) pensions, the new pension plans used by most private employers in which what you get in retirement depends on how much you put aside while working and how much it grew when invested on the stockmarket. People with “final-salary” schemes – nurses, teachers, doctors, academics etc – are largely unaffected by this proposal.

Secondly, this only really affects those people who have already taken their pension. If you are working and saving into a pension scheme, it is likely that the scheme is written in “trust”, and if you die the money goes to whoever you name as a beneficiary. The money doesn’t go into your estate for tax purposes, and the beneficiary can be anybody, not just your spouse.

So who does it really help? This change is targeted at people already in retirement.

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Analysis: This is the nub of Monday’s announcement; it’s for people who have already retired and whose pension is in payment. As a briefing note from the Treasury on Monday morning says, the current 55% tax charge applies “when an individual wants to pay their defined-contribution (DC) pension out to somebody else as a lump sum after they die, and where the pension money is: already in a drawdown account or ‘uncrystallised’; or hasn’t been touched and the individual dies at or over the age of 75.”

We’ll try to translate this. In effect, if you had avoided taking an annuity by using a complex device called “income drawdown” or had simply not taken the pension money, you were liable for tax at 55%. That is now being swept away, helping the beneficiaries of 320,000 people who die every year – although given the fact that the average DC pension pot is below £50,000, and much of it is spent by the time someone dies, the beneficiaries are likely to be wealthier pensioners and their offspring.

If you had taken an annuity, tax wasn’t really in question. The annuity either dies with you, or was set up to allow your spouse to carry on receiving an income until he or she dies. In the latter scenario, once the inheriting spouse dies, the money from the annuity disappears. It was the chief reason why annuities were so hated: the remaining money at the time of death could not be passed on but was taken by the insurance company. What Monday’s change is really doing is aligning the tax system on death with the new pension freedoms announced earlier this year in the budget.

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Analysis: The Treasury briefing note says: “Under the new system, anyone who dies below the age of 75 will be able to give their remaining defined-contribution pension to anyone completely tax free, whether it is in a drawdown account or untouched as long as it is paid out in lump sums or is taken through a flexi-access drawdown account. This does not apply to annuities or scheme pensions.

“Those aged 75 or over when they die will be able to pass their defined-contribution pension to any beneficiary who will then be able to draw down on it at their marginal rate of income tax. Beneficiaries will also have the option of receiving the pension as a lump-sum payment, subject to a tax charge of 45% (if the deceased was over 75).”