Consultants refocus agenda
The law on occupational pensions in Belgium and the European pension fund directive both have a major impact on the management of occupational pensions, says Jos Verlinden of M&P Consult.
“Although the directive in itself does not bring a revolution to pension funds in Belgium, the supervisory authority has drafted a new law, which is going beyond the requirements of the directive, and that will cause a lot of hassle for pension funds,” he says. And this comes hard on the heels of the new pension law of 2003, which changed the pensions environment in Belgium, he adds.
On top of this, the new IFRS accounting rules impose new strategies regarding plan design, actuarial valuations and asset management, at least for defined benefit (DB) plans, says Verlinden. And the guaranteed interest obligation will force companies to adapt their strategies, he adds.
Verlinden says the main services in demand from advisory firms at the moment are plan design, asset-liability modelling and legal compliance, for example on non-descrimination issues, projections of the new law on pension institutions.
On the investment side, pension funds are focusing on cost control and reporting, he says.
The move by the Suez-Tractebel Pension Funds to consolidate all its investments into one Luxembourg Sicav is an example of this. All of Suez-Tractebel’s defined contribution assets, and nearly everything in its portfolio of DB assets are now held within the Sicav, which is called Esperides.
By setting up the Esperides Sicav, which has three sub-funds, each of the pension funds now has a portfolio which has no more than three different funds within it, rather than forty funds, as before. So accounting and rebalancing is now much easier.
Pension clients are also keen to lower the volatility of their investment performance, says Verlinden. The larger of Belgium’s pension funds are aiming to segment their asset management, following the trends already under seen in other countries.
Increasingly, multinationals such as IBM and Néstle, are trying to pool the assets of their various pension schemes. “The parent companies want to be more involved in the management of local pension funds,” he says, and these efforts will eventually lead to pan-European funds.
As a pensions consultancy, this year it is going to be particularly important to keep abreast of all the legislation changes that are happening, says Verlinden. Another task facing the firm over the next 12 months is that of convincing the management of companies that offering a decent pension plan is still an important factor in an integrated human resources management policy. “And that a total compensation approach is enabling companies to make their remuneration and benefit policies more effective,” he says.
Within the pensions consultancy marketplace in Belgium, Verlinden predicts that legal firms will be playing a bigger role, because of the increased legal complexity imposed on occupational pensions.
“The actuarial firms will keep their respective position on the market,” he says. International consultancy firms, such as Towers Perrin, Watson Wyatt and Mercer, will all continue to be the major partners for multinational corporations, while some smaller local firms will develop business with local companies, authorities and certainly with SMEs.
Apart from the knock-on effect of legislative changes, the other main driver in the pensions consultancy market is still the re-thinking of investment strategies in the wake of the stock market crash.
“Most pensions consultants are still working on the legislative changes that took place at the beginning of 2004,” says Marnik van Impe, senior consulting actuary at Hewitt Associates in Belgium. The law has been applied, but amendments are still being made and this will continue until the end of the year.
There has been a marked increase in the use of investment consultants by pension funds since the beginning of the decade, he says.
Before the stock market crash of 2000, pension funds in the country used investment consultants very little. “This has increased rapidly,” he says. “Pension funds have be reconsidering those investment strategies, and posing questions about strategies that have been in place for many, many years… This is clearly an area where much more attention is being focused.”
Koen de Ryck, managing director of Pragma Consulting, says he does not see much fundamental change in the market for pensions consulting in Belgium. “It is a very small market,” he says. “There is not much growth in my view.”
However, the business is becoming more complicated – as is happening everywhere else. Clients are becoming more demanding, he says.
They are looking for the whole range of services, including risk management, benefit design and manager selection. As well as this, they are asking for strategic asset allocation and following up managers.
Pensions clients have been looking for ways of garnering higher returns on their investments, says De Ryck, though so far, there has not been much pressure - if there has been any at all - from the regulator or actuaries for pension funds to move their assets towards liability-driven investment.
“Those that kept faith in equities had excellent returns for a third consecutive year,” he says. “Those that moved more to bonds had much lower returns. The differences are significant.”
A few years ago, it was hoped that the new law on second pillar pension funds would lead to many new sector funds in Belgium, he says. But so far, that has not happened.
De Ryck says clients have also been focusing on alternative asset classes, including emerging markets, for example, although there has been more talk than action.
This year, it is important for the firm to educate clients about risk and asset classes, says De Ryck, and show that risk is positive, and not negative.