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Impact Investing

IPE special report May 2018

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UK roundup: NAPF, LGPS, PPI, bulk annuities, Aon Hewitt

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A reform of the Local Government Pension Scheme (LGPS) should result in good value for employers, taxpayers and scheme members and not simply be about cutting costs, the National Association of Pension Funds (NAPF) has said.

In response to the government’s consultation of local authority pension funds, the NAPF said although it was vital sustainability and affordability was addressed, the outcome of the consultation should have structure and solutions that leverage scale whilst providing fund with flexibilities where needed to invest depending on their own circumstances - which should include internal and active management approaches.

The NAPF also said governance of investment structures must be aligned with the long-term interest of the LGPS to help continue to provide good long-term value.

NAPF’s chief executive, Joanne Segars, outlined the principles at its annual local authority conference, admitting that although it would not be easy to balance the principles the it has outlined, they would help deliver good long-term value.

The Department for Communities and Local Government recently launched a consultation that proposed the introduction of several collective investment vehicles to pool local authority assets assets, with the possibility that the schemes would no longer be allowed to invest in actively run mandates mooted.

Continuing with the theme of good value pensions, this week the Pensions Policy Institute (PPI) found that workers aged between 50 and state pension age (SPA) automatically enrolled into a scheme could still accrue a good value pension if they did not opt out.

The report, ‘The benefits of automatic enrolment and workplace pensions for older workers’, looked at rates of return, household circumstances, the likely effects of mean-tested benefits and tax in retirement; it found that under reasonable assumptions, as much as 95% of older workers would receive good value from their pension scheme.

Currently, the opt out rate for over 50s is around 15%, compared to 9% for other age groups.

The PPI said it hoped that recent changes to pension policies, such as the phased in introduction of minimum contributions for automatic enrolment and the introduction of a single-tier state pension in April 2016, would help improve rates of returns for this age group.

Mel Duffield, deputy director of the PPI, warned however that although staying in a workplace pension was likely to deliver a good return, pension pots being built up by older workers, and particularly lower earners, could be relatively small.

The PPI added that a small group, less than three per cent of those aged 50 and SPA, who are automatically enrolled may not find it suitable for them where they are eligible for Guaranteed Credit in retirement, as staying automatically enrolled and increasing their private pension income by £1 simply leads to a £1 reduction in benefit entitlement in later life unless they can save enough to go above the means-tested thresholds.

In other news, Aon Hewitt claimed UK schemes could save up to £50m (€60m) by underwriting bulk annuity deals with medical data of members.

In the past, schemes have not been able to take advantage of medically underwritten annuities, but this changed last year, resulting in around £100m of bulk annuity deals being recorded so far this year and another £500m more activity expected for the full year as schemes look at ways to de-risk.

Aon Hewitt found that funds could save around 10% on traditional bulk annuity costs and that this could be a viable option for both large and small schemes.

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    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
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