Pensions forum: Supporting struggling economies and firms
EUROPE - The impact of the credit crunch and the resulting market volatility on financial institutions, in particular banks, has led a number of countries, and institutions to look to pension funds to bail them out, but do schemes agree?
In October Icelandic pension funds were urged to help the struggling banking sector by repatriating assets invested abroad and transfer them to domestic investments. (See earlier IPE article: Iceland's pension funds urged to thaw banking pressure)
More recently Irish pension funds have come under increasing pressure to help financial institutions, with Brian Lenihan, the Irish minister for finance, confirming that assets from the National Pension Reserve Fund (NPRF) could be used to stabilise institutions under certain circumstances. (See earlier IPE article: NPRF may be used to shore up Irish banks)
But what exactly do real pension funds think about this, IPE.com asked schemes:
"Should pension fund assets be used to support struggling economies and companies?"
Ken Bumpus, pensions officer at Camden Council for its £708m (€812m) local government pension scheme (LGPS), said:
"In essence no they shouldn't, as we can't help them when we are struggling ourselves. Our funding level, for example, had dropped to 59% in October, from 74% in June and 80% in March. Maybe if schemes were 100%-funded or getting close to that then maybe it would be a possible solution. But it is not appropriate when pension funds are struggling."
Deane Morrice, fund secretary at the £3.1bn Northern Ireland Local Government Officers' Superannuation Committee (NILGOSC), said:
"I do not think that pension funds should be used to support struggling economies and companies. Pension fund trustees have a fiduciary duty to act in the best interests of their beneficiaries and have a legal duty to have regard to the suitability of investments. Before investing in any asset class trustees will obtain proper advice and the advice would be not to invest in struggling economies and struggling companies."
Have Your Say: Peter Kraneveld, said:
"Pension funds should build pensions, not bail out companies or governments.
Having said that, pension funds are well-placed to help companies and governments ... at the right price. Most open funds have a positive cash flow. In a situation where equity is ridiculously cheap, pension funds should be buying. If governments offer attractively priced bonds, pension funds should buy.
"Why don't they? Because government regulation and accounting rules drive them towards the short-term."
Have Your Say: If you have any comments you would like to add to this forum or would like to propose a topic for next week, contact Julie Henderson on + 44 (0)20 7261 4602 or email email@example.com