UK roundup: LGPS, Cass Business School, Westler Foods, Aon Hewitt, BBC
UK - The Local Government Pension Scheme (LGPS) should consider diversifying its investment portfolio to help mitigate the medium to long-term risks on its investments, according to a white paper from Cass Business School.
The paper, entitled 'Multi-asset class investing and the UK's Local Government Pensions Scheme', argues that the LGPS should implement a more diversified approach to asset allocation by employing some aspects of the investment approach used by Yale University endowment.
The authors said a weighting of almost 80% in alternatives could be prohibitive for LGPS, which needs more liquidity, but suggested Yale's notably low exposure to domestic US equities (7.5%) and fixed income (4%) and high allocation to alternatives offered better diversification and returns over the medium to long term.
Andrew Clare, co-author of the report, said: "Although we appreciate not every scheme would suit such replication, the paper demonstrates how vulnerable those solely dependant on traditional asset classes with no diversification are - especially if equity markets continue their sideways progress of the past 11 years."
Meanwhile, North Yorkshire-based hotdog manufacturer Westler Foods has gone into administration following a struggle to plug the company's defined benefit scheme deficit.
With a funding gap of more than £15m, according to the scheme's most recent valuation in early 2009, the firm has appointed Howard Smith and Mark Firmin of KPMG's restructuring practice as joint administrators.
Smith said: "This is an uncommon and unfortunate situation of a well-run and profitable business being compelled to enter insolvency specifically because of the scale of its pension deficit.
"The company has a number of extremely interesting contracts, so we are trading the business as a going concern while seeking a buyer."
In other news, Aon Hewitt is inviting people to participate in its latest survey of sponsors and trustees to establish current approaches to measuring and managing pension risks.
This is the fourth such survey, with each year's results providing an insight into how attitudes to pension risks, and the risks themselves, are changing.
The survey is online until 24 December, and all participants receive a copy of the survey findings to help them benchmark their risk practices against the market and understand the latest thinking on global pension risk management.
Kevin Wesbroom, head of global risk services at Aon Hewitt in the UK, said: "With assets up by over 40% since the depths of 2009, surely pension risk should be off the agenda for UK companies. The problem is that, with real interest rates getting ever closer to zero, liabilities are up by 40% as well."
Finally, the National Union of Journalists' dispute with the BBC over changes to the broadcaster's pension scheme was resolved last week, following amendments to the revaluation of a new career average benefit (CAB) scheme, due to start on 1 April 2011.
From that date, revaluation of the CAB 2011 will be at the lower of CPI or 4% until 1 April 2016. From April 2017, the BBC will only award less than this formula in response to one of two triggers.
The first trigger would be if there were two consecutive years of negative inflation, in which case, revaluation would be measured with reference to the prevailing CPI. However, the BBC agreed not to seek to exercise this discretion before April 2017 and starting from two consecutive years ending December 2016.
The second trigger would be a 12.5% or greater cut in the face value of the licence fee, or significant new additional external responsibilities for the BBC, equivalent to 12.5% of the licence fee or more.
If this occurred, the BBC could ask the trustees to consider an increase of less than the 'lower of CPI or 4%' formula. If agreement could not be reached between the BBC and the trustees, the scheme actuary would decide.
The broadcaster also agreed to meet with the unions if it intended to seek to exercise this discretion, and that in a year of negative CPI, revaluation would be zero.