International group Kvaerner had a clear vision as to where it wanted to be regarding pensions, its head of human resources Larry Simpson told the Multi Pensions conference in Amsterdam last month. “We are a global business and we will have a global pension fund.” The group with revenues of E7.5bn worldwide has 50,000 employees, of which 10,000 are in the US. Altogether, it operates in 37 countries and has pensions assets worldwide totalling E3.5bn.
Another objective is to have flexible pensions structures, the group already had defined benefit (DB) and defined contribution (DC) schemes and was looking at putting in some forms of hybrids. “We would have a minimum DB base and let people save what they wanted to on a DC basis.”
Seamless mobility was another objective, but that was not just from the members’ viewpoint, but also from the employer’s perspective as well. So if a company is created for a project with a limited lifetime, it would make contributions to pensions during the project.
Simpson said the group wanted to get down to one scheme worldwide if ever possible. There would be tremendous efficiencies in both management and investment terms in such centralisation. “We have gone some way down that road, around 20% of the Norwegian pension fund assets are managed in London and we are just in the process of moving $100m out of our DB plans in the US to London, where the asset management is being consolidated, for funds other than 401(K) plans.”
He added: “This means the expertise is driven out of London, which results in fewer investment managers to deal with. We have made our decisions about indexing and what benchmarks to measure them against.”
The group now has one set of custodians worldwide. In another move, there are Norwegians on the UK pension fund trustee board as the group tries to move towards a common managed global plan.
The strategy involved integration of schemes within countries. “This is mandatory, but was pretty hard to do, with such issues as that of surplus in Japan,” said Simpson. The group was almost down to one scheme per country, down from about 50 pensions plans about three years ago.
“The harmonisation of management, actuarial and investment structures was critical and we have gone some way towards that. We are agreed on the actuarial methodology, we use – projected benefits obligations. We do not like book reserves and all our pension funds are pre-funded.”
The group has a core set of three people on the pensions side, who are trustees of UK plan, on the DB plan in the US and on the Norwegian plan board. “This common group of people have expertise and can cross fertilise ideas. This also makes educational process a little easier.”
The aim was to be responsive to the cultural and other factors affecting different countries’ pensions situation, so where there was good first pillar provision, only top-up provision might be made, with a full-blown DC plan somewhere else. “As I have said to many governments around the world, the money in pension funds does not belong to the company, but nor does it belong to the government, it is the individual’s money,” said Simpson.
“But we are debating still the best and most open reporting basis we want to adopt,” he said. “Our attitude here is that the employee is king and the more transparency we can bring the better.”
Looking at the wider European picture, Simpson said that it was companies like Kvaerner and other multinationals operating in Europe that willhelp the EC to achieve its aim of removing the barriers to pensions harmonisation.
“There should be no restrictions on how pensions funds invest,” he said. “The machinations of different governments to put restrictions on how much could be invested in equities, is a backdoor way of saying because you cannot invest everything in equities you have to invest in bonds, which happen to be our bonds, on which we are paying less than we should. So this is a way of funding their debt cheaply.”
He thought it was a very good for funds to take advantage of the euro to diversify their investments and to use different indices. “The ability to invest on a pan-European basis would really spark the development of capital markets. Europe does not have capital markets right now. Germany does not have deep capital markets as it relies on bank funding, not pension fund funding. The development of pan European pension funds, would be a massive help to the growth of GDP in Europe.