The National Association of Pension Funds (NAPF) held its annual investment conference on 11-12 March 2015 in Edinburgh. The NAPF is the representative body for around 1,300 UK pension schemes. The UK’s propensity to engage with ‘market forces’ means UK pension funds are now dealing with a number of issues that may also affect the provision of pensions in continental Europe in coming years.
On that basis, the NAPF’s investment conference (‘the largest and most reputable of its kind’ according to the pre-conference bumpf, ‘designed to specifically address the key investment choices, challenges and changes faced by defined benefit and defined contribution pension funds and institutional investors’) is of interest to all in our industry.
The miracle of a digital world enables those of us who were not present to access the presentations via videos that the NAPF have made available to us all. These presentations provide instructive insights into some of the current issues for UK pension providers. Many of these issues are of great interest to those of us in continental Europe too. Here is our overview of some of the main presentations from Edinburgh’s conference:
1. Ruston Smith, Chair of the National Association of Pension Funds (NAPF)
Ruston Smith, the NAPF’s Chair opens the conference. The theme of this year’s conference is:
“Living longer, investing smarter”
The objectives being:
- To look at the challenges and opportunities of an ageing population.
- To consider how pension funds can improve outcomes for savers by ‘investing smarter.’
Ruston Smith begins his talk by with some food for thought on ageing in the UK: Thirty years ago there were around 3 400 centenarians in the UK, today there are 15 000 and it’s forecast that in 30 years’ time there will be 150 000…
2. Jimmy Wales, Co- founder, Wikipedia
Creative destruction: The impact of the internet on investment
Jimmy Wales is an American Internet entrepreneur best known as the co-founder and promoter of the online non-profit encyclopedia Wikipedia. He devotes the bulk of his presentation to presenting Wikipedia and his other projects. There is however (contrary to what the title of his presentation suggests) no specific discussion of what the internet might mean for investing or pensions.
3. Martin Wheatley, Chief Executive, Financial Conduct Authority (FCA).
Heightening expectations for pension delivery
The Financial Conduct Authority (FCA) is the regulatory body responsible for consumer protection in the UK financial services industry.
On April 6 this year new legislation will allow UK savers full discretion over the use of retirement funds putting an end to the previous compulsory purchase of an annuity. In the consultation document presented to the UK parliament in 2014, George Osborne, the UK’s Chancellor of the Exchequer, said the government was “introducing the most radical changes to pensions in almost a hundred years.”
Martin Wheatley begins his talk by confirming that in his view the impending changes to be arguably the most profound change since state pensions were introduced in the UK.
His presentation focuses on the challenges of the self selection model and in particular the “equation of responsibility” (involving consumers, politicians and policy makers) that underpins the new regime. His talk gives an excellent insight into the issues the UK’s policy change is creating for the regulator.
4. Robert Winston, Imperial College London
A man of many talents (he’s a professor, a medical doctor, scientist, TV presenter and politician), Robert Winston makes clear at the outset that scientists cannot predict what medical advances will mean for longevity. He does however give a fascinating talk on some of the factors that have so far influenced longevity. His remark on the beneficial effects of that the decline in smoking and better exercise regimes is striking.
5. Steven Maijoor, Chair, European Securities and Markets Authority
Regulators, pension funds and efficient financial markets
The Capital Markets Union (CMU) is a plan of the European Commission (EC) that aims to create deeper and more integrated capital markets in the 28 Member States of the EU. The European Securities and Markets Authority, an independent EU authority, is charged with “enhancing the protection of investors and reinforcing stable and well-functioning financial markets in the EU.”
In his talk Steve Maijoor talks about the importance of efficient markets for pension funds and identifies and discusses the following four main building blocks for a better CMU:
- A greater diversity in funding for commercial borrowers
- Increasing the efficiency of capital markets
- Strengthening and harmonising supervision
- Increasing the market’s attractiveness to EU investors (this refers to protection of investors)
6. Hans Hoogervorst, Chair, International Accounting Standards Board
Bad accounting breeds bad policies
In the EU public sector pension liabilities are often not quantified by national states or if they are measured, they are not incorporated into national governments’ balance sheets (click here to see cross-country comparison of pension liabilities in 2006). As it is widely recognised that many national governments will not deliver on their current pension promises, bad accounting can be considered to breed bad policies. Hans Hoogervost, former Minister of Finance in the Netherlands talks about some of the challenges for pension funds today and the importance of accounting standards.
7. Lord Hill of Oareford, European Commissioner for Financial Stability, Financial Services and Capital Markets Union
Pensions, Investment and Europe: the new agenda
The new European Commission has set out ambitious plans for boosting long-term investment in the EU economy, but what does it mean for UK pension funds and their members? The Commissioner in charge sets out his approach to building the new Capital Markets Union and developing a modern framework of EU legislation for pension schemes. Among the challenges he identifies are the doubling of the ratio of retirees to workers that is forecast in Europe by 2050 (from 4 workers per retiree today to 2 workers per retiree in 2050).
8. Profit as a dirty word: A panel discussion
Chair: Anthony Hilton, journalist
Frances O’Grady, Gen. Sec., Trades Union Council
Lady Susan Rice CBE, President , Scottish Council for Development and Industry
Simon Walker, Director General, Institute of Directors
More than half of the UK population is said to distrust big business. Yet company profits are fundamental to pension schemes via the dividends companies pay them as investors and as the backbone of the sponsor covenant. The discussion focuses on how the business world can restore public trust in company boards and chief executives.
9. Martin Wolf, Chief Economic Commentator and Associate Editor of the Financial Times
Global economic prospects
A global economic view:
Martin Wolf considers whether the global economy is out of the woods yet, as well as exploring what’s on the horizon. He talks at length about the fall in real interest rates (“an astonishing and unprecedented event”) and comes to the conclusion that, in his opinion, there are no obvious reasons why either real interest rates or inflation should rise sharply in the near term. Compelling stuff.
10. Solving the post-retirement challenge: A panel discussion
Chair: Graham Vidler, Dir. Of Ext Affairs, NAPF (part 1)
Mark Fawcett, CIO, NEST Corp.
Carol Young, Head of Pensions & Benefits, RBS
Tim Banks, MD, Pension Strategies Group, AB
The changes introduced by the UK government in last year’s Budget create a new challenge for schemes and their beneficiaries: what does the flexible future where more responsibility is assigned to scheme members look like? How can schemes best offer choice that individuals want? The participants offer their thoughts on what the drawdown landscape will look like, and whether there is an ongoing role for annuities.
11. Transformational change at Railpen: delivering value
Chris Hitchen, CEO, RPMI (Railways pension fund) – part 1
Roger Urwin, Global Head of Investment Content, Towers Watson – part 2
The RPMI looks after all administration and trustee services for the Railways Pension Scheme (RPS) in the UK. This case study of RPMI explains the background to, and implementation of, a comprehensive transformational change programme at RPMI. Namely, the recent insourcing by RPMI of investment management activities. It gives a very good overview of how strategic investment thinking has evolved at one of the UK’s leading pension funds.
11. Defined Benefits – strategy session 1
Raj Mody, Head of Pensions Consulting, PricewaterhouseCoopers, Paul Hulhern, Independent Trustee, Scottish Pension Trustees. Chaired by Frank Johnson.
Defined benefit schemes are on the way out in the UK (of FTSE companies only 4 now have active defined benefit schemes). However, with a book value in excess of Sterling 2 trillion, its a very significant legacy for members and trustees. This presentation explores the legacy of defined benefit schemes in the UK and the issues relating to the ‘ecosystem’ for dealing with this legacy.