ATP argued it should not have to charge VAT on its services provided to defined contribution (DC) schemes clients, as these schemes are special investment vehicles, with the ECJ agreeing.Both rulings had implications for UK sponsors, DB schemes and DC schemes with regard to VAT treatment for both investment and adminstration costs.However, HMRC did not mimic the PPG ruling regarding scheme sponsors and instead changed its guidance, potentially increasing the tax bill for some sponsors. In an update to schemes, the tax office has now said it will issue updated guidance regarding its interpretation of the ATP victory, and also the PPG case.A reassessment of its initial stance could result in scheme sponsors facing a reduction in the tax bill stemming from its DB scheme.A statement from HMRC said the body held extensive discussions with industry representatives regarding its policy on the PPG case.“In addition to this, the ECJ has issued its decision in ATP,” it said. “HMRC is now further reviewing the VAT treatment of pension scheme administration and fund management services to take account of both the PPG and ATP decisions and to consider whether to make any changes to the guidance.”A spokesman for HMRC said the body could not currently say whether the review would result in a more positive stance for sponsors.However, David Wilson, associate director for VAT at accountancy firm Baker Tilly, said the feedback HMRC received on its interpretation of the PPG ruling was that it was overly restrictive, and not following the spirit of the case.“[HMRC] may be taking a step back and thinking about what it needs to do,” he said.“This was followed by the ATP ruling, and it is just going to have to look at the whole scenario about how it impacts pension funds and how these funds are set up in the UK.“I would assume the industry would have been back to HMRC and questioned the differences between VAT law in the European Union and HMRC.”The recent changes to the DC landscape, outside of any VAT case in Europe, will have significant implications for direct tax on DC savers, and thus government revenue, he added. “It will have to re-think its positions as a result of the ATP judgment,” he said.“Hopefully, we will have some joined-up thinking for how it approaches DC schemes and auto-enrolment going forward and get one desk talking to another.” The UK tax office, HM Revenue & Customs (HMRC), could offer scheme sponsors a VAT lifeline, as updated guidance on its interpretations of recent European rulings will be issued later this year.The move from HMRC comes after recent victories for two separate entities against their own domestic tax departments regarding the charging of VAT on pension scheme services.In the Netherlands, PPG, an employer, won its case in the European Court of Justice (ECJ) against the Dutch tax authority over whether the investment management fees it pays on behalf of its defined benefit (DB) schemes should be tax exempt.A ruling regarding Danish pensions services provider ATP, on behalf of its client PensionDanmark, followed this.
The Association of Chartered Certified Accountants (ACCA) has said a proposed new statement of recommended practice (SORP) for pensions accounting in the UK and Ireland should be adopted, but warned that existing reporting requirements could be confusing unless changed.The ACCA and its pensions technical advisory group welcomed the SORP consultation devised by the Pensions Research Action Group (PRAG) on the recommended practice for financial reports of pension schemes.It said: “The ACCA agrees with much of the PRAG’s objectives, including that of not extending reporting requirements beyond those of the Financial Reporting Standard (FRS) 102.”The proposed SORP gave more guidance for preparers of pension scheme accounts under FRS 102, which it said was already a standard that offered conciseness. “However, the ACCA has responded to the 127-page consultation with detailed specific concerns, including that confusion could arise unless there is a change to existing, and now outdated, statutory reporting requirements for investment disclosures,” it said.The association said the PRAG was now liaising with the Department for Work & Pensions (DWP) with the aim of overhauling the prescriptive disclosures in the Audited Accounts Regulations, and said the ACCA wholeheartedly supported the lobbying of the DWP to get the changes in place as soon as possible.Paul Cooper, corporate reporting manager at the ACCA, said: “For the ACCA, the accounting standard FRS 102 and the SORP need to offer a realistic approach to reporting on pensions for the benefit of trustees, employers, investors and pension holders themselves.”The proposed SORP did help to meet these aims, he said, but added that there was work to be done in practice. “The SORP needs to be implemented as smoothly as possibly by preparers,” he said.
The key criterion to determine whether pension funds build internal investment capabilities or use external asset managers should be asset allocation strategy over a focus on cost, experts have said.Speaking at the IPE Conference & Awards 2014 in Vienna, chief executives from leading pension funds said cost-based decisions were inappropriate for deciding how to manage key asset management functions.Christian Böhm, chief executive at €4bn APK fund in Austria, said the major factor would be the type of asset allocation model operated by the fund.“If you have a dynamic asset allocation model, you need in-house capacity to make decisions,” he said. “Another factor is the knowledge base you have. If you force your investment professionals to follow market developments, they are more captured on what is going on.“The cost issue is not the most important factor – for us, the decision was based on how we can run our model and build up the knowledge base.”CIO of the UK’s Coal Pension Fund Stefan Dunatov supported this and said the real competitive advantage to in-house capabilities was the ability to time investment decisions.“It doesn’t matter how big or small a pension fund is, [with in-house skill], your real advantage is time,” he said.“Being able to ride out the bad times and spot the good valuation, that to me is the biggest advantage and not being sucked into a decision based on whether a team is one and half basis points cheaper than an external manager.”Mike Boychuk, chief executive of the Canadian Bell Pension Fund – which, after a significant strategy switch in 2009, reassessed its in-house and external expertise – also supported the view. The mature fund shifted around 75% of assets into a liability-driven investment strategy mostly accounted for by fixed income holdings.Boychuk said, as a result, the fund began to outsource all non-fixed income investments retaining internal management for its LDI strategy in-house.“First and foremost, our direction was making sure we had the right structure for us,” he said.“Making an in-house team gives you greater control over your assets. Once you give it to an external manager, it is gone, and the control you have is as well.”
Royal London Asset Management – Trevor Greetham is to head the new multi-asset division, joining from Fidelity Worldwide Investment. He will report to Piers Hillier, RLAM’s newly appointed CIO. Greetham spent nearly a decade at Fidelity, most recently overseeing a number of its multi-asset activities.Hermes Investment Management – Ian Kennedy has been named COO, joining the board and executive committee. He has more than 20 years’ experience in finance, working at Fortis Private Banking and as COO and CFO at BNP Paribas UK Wealth Management.Temple Bright – Comron Rowe has joined Temple Bright, which has launched a pensions practice. Rowe joins from Foot Anstey and has previously also worked at Simmons & Simmons. He has advised both private sector clients during negotiations with the Pensions Regulator and worked with outsourcing companies implementing the UK’s Fair Deal policy, whereby public sector workers transfer to the private sector. Zurich, Punter Southall, Ashcroft Rowan, RLAM, Hermes, Temple BrightZurich – Laurie Edmans has been named chair of the Zurich UK Life’s new Independent Governance Board (IGC). Edmans has held a number of non-executive roles and is currently chair of trustees at the Trinity Mirror Pension Plan, as well as serving as a council member at the Pensions Policy Institute and formerly being a board member at the National Employment Savings Trust. His role at Zurich will see him chair the new IGC, a board created to act as a quasi-trustee board within contract-based DC funds.Punter Southall – John Gordon, Douglas Primrose, Nick Vine and Will Wolfenden have been promoted to principal. Gordon has more than a decade’s experience in the pensions industry, qualifying as an actuary in 2007, while Primrose has been with Punter Southall since 1997 and primarily advises trustee boards. Vine joined in 2000, qualifying as an actuary in 2007 and advises both DB and DC schemes, while Wolfenden joined in 2001, qualifying as an actuary in 2006.Ashcroft Rowan – The asset management division has appointed Gregor McNie as investment director. Based in London, he will report to asset management head Harry Burnham. McNie joins from Brewin Dolphin and has worked at James Capel Investment Management and HSBC over the course of his nearly 30-year career.
Investment in emerging markets, rather than being an inherently high-risk way to invest as it is sometimes perceived, is a means for pension funds and other big investors to reduce their overall portfolio risk, experts in the field told a conference.Jerome Booth, chairman of New Sparta Holdings and a specialist on emerging market investment, told the IPE Conference & Awards in Barcelona: “People should be investing in emerging markets to reduce risk.”Addressing concerns that falling commodity prices could hit emerging market economies, Booth countered that many of these markets were commodity importers.“Political risk is not an emerging market phenomenon – corruption is not an emerging market phenomenon,” he added. “The real difference is that the risk is perceived, whereas, in the developed world, there’s also risk that isn’t perceived, and that’s the problem.”He said he did not expect an exit of investors from these markets.“I can’t think of a single scenario where money would leave emerging markets or the bulk of them, and go to the West,” he said.He said this was because he could not think of a single event that was not going to affect the West at least as severely as the emerging countries.“The chance of Brazil defaulting on its sovereign debt is next to zero,” he said. “There are countries in Europe where there are higher chances of that happening.”Mohammed Hanif, chief executive and CIO of emerging market specialist Insparo Asset Management, said that, in the long term, investors could not afford to ignore emerging markets.“It is a fact it is more than 50% of the world’s GDP, and it’s growing,” he said.“That shift is taking place, but, in the meantime, it’s not going to be a straight line.”He said short-term aberrations did take place in emerging markets and that these were opportunities for investment, adding that there was no doubt these markets had suffered from cuts in commodities prices.“There is another side to that,” he said. “We could talk about energy prices and oil prices – that’s a drag on consumption, so (…) consumption could increase as a result of lower energy prices in emerging markets that have a young demographic.”Hanif argued that emerging markets were not in a financial crisis, so there was no collapse in growth due to this. “What we are seeing is the challenge of weaker growth,” he said.Booth argued that emerging markets gave investors a fundamental diversification from what was going on in the rest of the world.
Dooren said that the scheme’s equity allocation had outperformed its benchmark by 1.1% on average during the past five years.US and emerging market equity generated 12.5% and 13%, respectively, during 2016. Indirect non-listed equity delivered 11.3%, an outperformance of 3 percentage points, the scheme said.Private equity returned 3.8%.Government bonds – deployed to match cashflows and to hedge interest risk – yielded 8.1%.In 2015, the Nedlloyd Pensioenfonds sold its swaptions, “as they were not effective any longer”.Under the scheme’s dynamic hedging policy, its interest cover was 50% at year-end.The board said it had decided against taking out an inflation hedge, following an asset-liability management study that showed only one scenario in which participants would benefit. All other scenarios would have increased the risks for the short term, it added.Last year, the Nedlloyd scheme divested its €7m allocation to residential mortgage loans. According to Dooren, the divestment involved an old portfolio comprising 180 individual loans, “which was illiquid and was causing a lot of administrative bother”.He said that the pension fund didn’t have any concrete plans yet to invest in mortgage funds.In its annual report, the Nedlloyd Pensioenfonds reiterated that it saw no reason to give up its status as an independent scheme, but said that it would regularly evaluate the quality of its board and pensions provision as well as its scale.It has already started joined knowledge-sharing sessions with similar-sized pension funds to drive down costs. Dooren said it was also looking for other possibilities for co-operation with other schemes.The Nedlloyd Pensioenfonds said it spent 0.69% on asset management and an additional 0.2% on transactions. It posted administration costs of €290 per participant.The pension fund has 465 active participants, 3,115 deferred members and 7,290 pensioners. At June-end, its funding stood at 118.5%. The €1.4bn Nedlloyd Pensioenfonds attributed investment underperformance to its equity benchmark not sufficiently reflecting its holdings.In its annual report for 2016, Frans Dooren, the scheme’s director, put the 2.8% underperformance of equity down to the equity rally in the wake of the election of Donald Trump.The scheme predominantly invested in high quality equity, Dooren told IPE, but companies with weaker balance sheets rose at the time. “This drove up the benchmark,” he said.The pension fund’s equity portfolio returned 8.1%. The overall net return for the whole portfolio was 7.5%.
US president Donald Trump attends the G7 summit in Canada, June 2018De Gucht warned that “today’s environment and political atmosphere gives China some good opportunities to go even as far as setting a new world order”.The former trade commissioner also urged the EU to work towards modernising the World Trade Organisation in co-operation with the US and China, in order to give the initiative political impetus.Karel de Gucht is currently Belgian minister of state and president of the Institute for European Studies at Brussels Free University. “After almost two years in office, we still can’t make sense of his ‘America first’ [policy],” he argued, noting that “the policy game seems to change every day”. Credit: Patrick FrostKarel de Gucht, former EU commissioner“Europe has, for now, escaped somewhat Trump’s wrath on global trade,” he said. “But the honeymoon between Trump and [European Commission president Jean-Claude] Juncker could very well be over within a fortnight.”De Gucht said he was shocked when he heard Trump describing the EU – “the US’s biggest trading partner and oldest friend” – as a “foe” in the context of trade, in an interview with US TV network CBS in July.In his opinion, Trump’s alienating of allies was “extremely dangerous and foolish”.ChinaOn the relationship with China, De Gucht said that the US should work together with its allies to bring China to the negotiating table.“Rather than chastising his allies, Trump should work with them, as together they can keep China’s international encroachment, expansion and unfair trade practices in check,” the former commissioner said.“You cannot scare it off or anger it further into retaliation. As a world power, a key trade player and partner, China deserves its place on the world market.” The EU should use access to its single market to its advantage when dealing with US president Donald Trump, according to former EU trade commissioner Karel de Gucht.In a keynote speech at IPE’s conference in Dublin last week about the relationship between the EU and the US, De Gucht argued that the EU must remind Trump how “unique and valuable it is, and more beneficial than dealing with member states bilaterally”.He also emphasised that, rather than criticising and bullying its allies – as Trump has done – the EU should take on a “more united and leadership role in trade security, foreign affairs and preserving the rules-based system and democracy”. De Gucht repeatedly referred to the erratic and confusing behaviour of the US president.
German insurance companies HDI and Signal Induna are among the newest financial backers of European rating agency Scope.The research and rating company – which aims to break the oligopoly of the big three US credit rating agencies – has raised capital from a number of investors, including several Pensionskassen operators.“Institutional investors who buy into the company are primarily motivated by their interest in establishing a European rating alternative, in addition to expectations around Scope’s value development,” said Florian Schoeller, CEO and founder of the Scope Group.Following recent investments from Switzerland, Scope has sought permission to offer its services in the country and was granted a license by the Swiss financial authority FINMA. “Financial market regulation in Switzerland stipulates that supervised institutions may use the credit ratings of registered credit rating agencies for regulatory purposes,” Scope said.Scope is the only EU-based independent full-service rating agency that operates internationally. It currently has offices in London, Paris, Milan, Madrid, Oslo and Frankfurt with Berlin as the headquarter.Although the company is unlisted, roughly 70 shareholders are invested directly in Scope. These include institutional investors from Austria – such as Vienna-based B&C Beteiligungsmanagement – and insurers from Switzerland (Mobiliar) and Luxembourg (Foyer).HDI, the parent company of insurer Talanx, and Signal Iduna are major players in the German pension market, running some of the largest Pensionskassen in the second pillar and featuring in IPE’s Top 1000 Pension Funds ranking last year.In addition, Scope has appointed Ralf Garrn as head of digital development to “shape its digital future”.Garrn founded rating agency Euler Hermes Rating in 2001, with a focus on small and medium-sized companies. He was managing director until last year, having previously spent three years at its insurer parent company as director of credit risk management.“Garrn is one of the innovators driving the rating industry’s digitalisation,” said Schoeller.The Euler Hermes rating agency is co-owned by Moody’s, and in June 2018 François Bourgeois took over as managing director.
Trinity College officially withdrew from the £64.5bn (€72.2bn) multi-employer pension fund on 31 May after its leadership decided that it did not want to run the risk of picking up costs relating to other USS employers if they go bust.Exiting the scheme will cost 2% of its assets, Trinity said today, amounting to roughly £29m based on data from its 2017-18 accounts. Trinity’s endowment funds were worth a combined £1.5bn as of 30 June 2018.Trinity defends withdrawal decision Credit: Rafa EsteveTrinity College, CambridgeThe college said its academic employees had been transferred to a new pension arrangement “providing the same benefits as USS”. This would affect “fewer than 20” full-time staff, Trinity said, or 0.01% of USS’ total active membership.“This decision to leave USS will remove the remote but existential risk to the college arising from continued participation in USS,” the college said in its statement. “Although the college is a tiny employer, in a worst-case scenario, all of its assets could be transferred to USS.”Rory Landman, senior bursar at Trinity, said the decision followed “substantial legal and actuarial advice” and was “in the best interests of the college”. He added that it would support the college’s ability to provide funding to other higher education establishments.UCU head of higher education Paul Bridge said: “The cost to Trinity’s reputation from a boycott will be far greater than the tiny risk of being left to carry the can for pensions if the higher education sector collapses. Trinity’s overreaction to such an unlikely risk will cost the college millions of pounds and leave it at odds with the rest of the sector when it comes to pension provision.“A boycott is our most serious sanction, but Trinity needs to be clear that we are prepared to implement one there. The sector needs to work together to deliver high quality, guaranteed pensions and it is up to Trinity to now reconsider its short-sighted decision.”Jo Grady, general secretary of the UCU, wrote to Trinity teaching staff last month arguing that the college would “not benefit from the decision to exit”, adding that there was “no plausible scenario in which USS will need to call on Trinity’s assets”. She described the exit bill as “a waste”.USS plays down impact of Trinity exitA spokesperson for USS said the withdrawal would not have a material impact on the scheme’s funding position or covenant strength “in isolation”.“As a multi-employer scheme backed by more than 340 institutions, USS has significant scale and strength which brings several benefits to all of our sponsoring institutions along with our members in the form of lower investment management costs and the pooling of risk,” the spokesperson said.“The trustee’s primary objective is to ensure the valuable benefits promised by USS are secure for all of our members and options for protecting the strength of the collective financial support offered by sponsoring employers are currently under consideration.”Thousands of academic staff went on strike last year to oppose the closure of USS, prompting the establishment of a joint expert panel to scrutinise the valuation and come up with alternative options.The panel concluded that USS could take more risk to lower the level of employer and employee contributions required, arguing that “USS is a large, open, immature scheme which is cashflow positive and can adopt a very long-term time horizon”.The UCU last month demanded that the pension scheme should adopt all the panel’s recommendations, as well as calling for the resignation of USS chief executive Bill Galvin. The UK’s university staff union has called for a boycott of Trinity College, Cambridge after it confirmed its decision to withdraw from the Universities Superannuation Scheme (USS).The University and College Union (UCU) censured the college’s leadership after a motion to reconsider its exit from USS, posed at a meeting this morning, was rejected by 43 votes to 76.In a statement, UCU said it would set up a committee to attempt to engage with Trinity College fellows and “press the case for it to reverse its decision before the boycott became necessary”.Should this prove unsuccessful, UCU said it would ask all higher education staff “across the globe” to refuse to speak at, attend or organise academic events at Trinity, not to give lectures there and not to take up any form of employment with the college.
Many sovereign wealth funds (SWFs) and other institutional investors have kept a high exposure to risky assets during the current coronavirus pandemic, according to the International Forum of Sovereign Wealth Funds (IFSWF), a global network of sovereign wealth funds from nearly 40 countries, and State Street Corporation.The duo has conducted a research study that shows that these investors have maintained this position even when they were already either overweight cash or underweight equities before March 2020 when the economic impact of the pandemic became more apparent.Consequently, SWF portfolios have proved more resilient to the market rout in March and April 2020 than widely supposed, it concluded.In fact, the IFSWF and State Street research suggested that institutional investors, including SWFs, did not display widespread risk aversion in a falling market. Instead, the research showed they selectively took on risk – for example, selling fixed income securities to buy equities – to rebalance their portfolio and retain their asset-class allocations. Duncan Bonfield, chief executive officer of IFSWF, said, “Our research suggests that SWFs have not undertaken large-scale liquidations to provide liquidity for governments as widely speculated. In fact, only two of the 10 IFSWF members surveyed for this research said that they had experienced a call on their assets since the beginning of March.”He added that iinvestors had been able to use their cash position to satisfy private equity managers’ capital calls and “invest in the long-term interests of their owners at a time of great uncertainty”.Neill Clark, head of State Street Associates EMEA at State Street, said the research findings represented the capital flows and behaviour across a broad set of global institutional investors and suggested that long-term investors maintained “institutional discipline” during the market volatility seen in March and April 2020.”We did not observe such widespread risk aversion during this period relative to previous crises and signs suggest there has been a stabilisation in aggregate capital flows observed across asset classes during April,” he added.The full research report, Pandemic, No Panic: Evidence from Institutional Investor Flows, is available on the IFSWF websiteLooking for IPE’s latest magazine? Read the digital edition here.