Rating agency Standard & Poor’s is to launch three defined benefit pension(DB) rating products in the UK in May, characterised by a star rating system of credit risk. The company says it is responding to the Myners Report, which called for trustees to become better informed.
The services are designed to assist trustees deal directly with specific key decisions, S&P says. The products (see box) would focus on firstly the funding and sponsor side of funds – this is where the star system comes in. Then there is a measure of pension management performance. These two services would be paid for by trustees. Last is an assessment of asset managers, paid for by the asset managers themselves.
“In a nutshell what we are doing is a unique package of services,” says Jim MacLachlan, S&P’s director of pension services. “This is a liability-based product.”
The pricing of two services aimed at trustees would depend on factors such as the complexity of the scheme. The asset manager rating system would be priced according to factors such as type of asset class. S&P would not be drawn on specific pricing, except to say that a typical asset manager may have to spend sums in the “tens of thousands of pounds” to get rated.
S&P says the system “creates enormous opportunities” for asset managers. “It allows asset managers to present themselves independently to trustees,” MacLachlan says. The idea is that it could also become a tool used by investment consultants.
Asset manager ratings will take into account the financial position of the firm as well as factors such as high profile staff leaving.
The services would be run by a separate S&P division with eight staff, though it would be able to draw on the corporate ratings that S&P regularly produce.
The star rating system would be provided to trustees and not initially made public, though S&P hopes the ratings would become known as a way to help communication between trustees and members.
S&P stresses its independence from sponsors, trustees, asset managers and other scheme advisers. It has spoken to the Department of Work and Pensions, the Treasury and the Occupational Pensions Regulatory Authority. “Our impression is that they welcome that they are tools for trustees,” MacLachlan says.
He adds that S&P had used data from four actuarial firms to help construct the products. “We’ve been working with them right from the start,” MacLachlan says, adding that S&P would make use of data from State Street’s performance-measurement arm WM Co.
The asset manager rating service could be launched in continental Europe, for example using WM’s Dutch database.