Press coverage

08 Feb 2013

LGIM partners with PensionsFirst on analytics tool for small schemes

Publication: Professional Pensions

He said schemes that adopted bespoke investment strategies required more frequent reporting, improved risk analysis, the ability to assess investment options and the capability to regularly monitor the effectiveness of strategies.

LGIM said the individualised platforms developed with PensionsFirst would bridge the gap that existed in this area for smaller schemes.

It will begin a pilot of the analytics platform with schemes and their investment advisers in the first quarter of this year.

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27 Feb 2012

Punter Southall automates actuarial valuations

Publication: Professional Pensions
Author: Jack Jones

Punter Southall has teamed up with PensionsFirst to automate the production of actuarial valuations and cut costs for schemes.

The consultant has adopted PensionsFirst's PFaroe pension liability and risk management software in a move it says will also demystify the actuarial process and shift the role of actuaries from "gate keeper to guide".

The software will allow schemes to update actuarial valuations quarterly and give trustees easy access to up‐to-date figures.

Punter Southall chief executive John Batting said this will allow trustees and sponsors to focus more on agreeing funding plans when triennial valuations come round.

He said: "PFaroe is intuitive, in‐depth and, judging by the research we've carried out, in demand. Our firm belief is that the best outcomes are achieved by employers and trustees working closely together, and using PFaroe to give both parties access to the same information will greatly enhance that cooperation".

The software has been taken up by several larger schemes including the National Grid, Babcock and Daily Mail and General Trust, and Batting said the partnership would open it up to a wider range of firms.

It will be offered to all Punter Southall's existing and prospective clients across its 11 offices throughout the UK.

PensionsFirst chairman David Norgrove (pictured) said: "Most schemes have information that is much too limited and out of date for the scale of the risks being managed, as I know from chairing a scheme and my time at the Pensions Regulator."

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27 Feb 2012

Adviser gains tactical advantage over rivals

Publication: Pensions Week
Author: David Rowley

Around 340 manily small and medium sized schemes have adopted a system of asset-liability modelling, previously only affordable to much larger plans.

Clients of consultants Punter Southall, with assets totalling £30bn, have been given access to the PFaroe system, which gives schemes immediate actuarial valuations and allows them to analyse future cash flows using a number of different scenarios for inflation, interest rates and longevity.

The deal will make available software formerly the domain of mulitbillion pound schemes such as National Grid, Babcock, Daily Mail & General Trust, HSBC and Trinity Mirror.

John Batting, chief executive of Punter Southall, said he is confident the deal would strengthen his firm's relationship with clients, rather than diminish its role, as the schemes now control access to information normally provided by actuaries.

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01 Aug 2012

Route to wind-up

Publication: Engaged Investor
Author: Sam Brodbeck

Now that scheme data is as accurate as possible, better projections should follow.  Technological advances and poorly performing markets have resulted in ever-more sophisticated analytics tools designed with trustees in mind.  Consultancy Punter Southall recently adopted PensionsFirst's PFaroe valuation software.  It allows trustees to view their real-time funding level, asset allocation and run scenarios, such as the impact of a 1% rise in inflation.  Adam Gillespie, Punter Southall's head of de-risking research, says that the software eliminates any actuarial discrepancies that used to arise when sponsors and schemes made separate calculations, making triennial valuations a thing of the past.  Many schemes lost out in the buyout frenzy of 2008 due to poor data and delays on quotes - with such software this should not happen again.

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31 Oct 2012

A clearer view of longevity swaps

Publication: Insurance ERM
Author: Hugo James

While full buy-out remains the ultimate goal of many pension scheme sponsors and trustees, longevity swaps are attracting interest as a step on that journey. But finding the right deal requires transparency around the amount of risk being removed, the ultimate recipient of the risk and the role of intermediaries, says Hugo James.

Defined benefit (DB) pension schemes have, in recent years, both destroyed tens of billions of pounds of shareholder value and caused significant concerns for corporates and scheme members alike. What is more, it is becoming increasingly clear that continuing to run such large bets on equity prices, interest rates, inflation and longevity damages company performance and even threatens the entire financial viability of some corporate sponsors.

However, many pension schemes are reticent to execute the most complete solution, a full buy-out, due to opacity of pricing and the transfer of shareholder value that could result from paying an insurer to take on the risk. In addition, unfavourable market conditions have tended to increase the funding gap to buy-out, making them relatively more expensive. Even so, schemes and sponsors need to take some steps towards a full buy-out in order to ensure deficits do not widen even further. As such, longevity swaps are attracting much interest, as they move schemes nearer to the insurer's view of the value of the pension liability and thus stabilise the cost of a buy-out in the future. 

To determine whether a longevity swap offers value for money, pension schemes need to be able to compare how much risk is being removed - that is to say, the potentially higher payments that the scheme may need to make in the future due to increasing life expectancy - to the cost of removing that risk, i.e. the price of the swap contract. Furthermore, it is also important that schemes assess how other risks - including inflation and interest rate risk - in the portfolio relate to each other in order that they can establish how significant removing longevity risk may be to the overall level of risk they are running.

However, a lack of transparency surrounding all risks and assumptions, as well as a lack of granular data describing the impact of a longevity swap on a scheme's future cashflows, can muddy the waters with regards to this assessment of risk versus reward. As described below, this is especially pertinent if banks or insurers reshape the cashflows underlying the swap, for instance. While this may make the transaction appear cheaper to pension schemes, it can also have unintended consequences - often increasing the scheme's exposure to interest rate and inflation risks. An understanding of these effects is hence required in order to correctly appraise a swap in terms of cost versus overall risk reduction.

The risk-reward trade-off: a case study

The advantages of having complete transparency around a longevity swap deal are perhaps best illustrated using a fictitious case study. Take the case of a pension scheme with £2bn ($3.2bn) of pensioner liabilities (measured on an IAS19 basis using an AA-rated corporate bond discount rate), which has undertaken substantive interest rate and inflation hedging, leaving longevity as its largest single risk in relation to its liabilities. As such, it wishes to reduce this risk, and hence its total risk position, by entering into a longevity swap.

The scheme's current risk position (measured in terms of 95% one-year Value-at-Risk) is shown in chart 1. Value-at-Risk is calculated by considering a large number of future outcomes for interest rates, inflation and longevity and their effect on scheme funding. In this case, the metric shows that there is a 5% chance that scheme funding reduces by more than £174m over a one-year period.

Chart 1

Chart 2 shows the cashflows that the pension scheme would have to pay out to a bank or insurer over the duration of the swap contract (blue line). This assumes that the insurer or bank's best estimate of the longevity increases the cashflows by approximately 1%, and it then charges a 6% premium for taking on the risk.

Chart 2

The swap has the effect of increasing the liability by around 7% as each and every pensioner cashflow is effectively uplifted by this amount. The present value of the estimated payments stands at around £2.14bn on an IAS19 basis. Were it to execute the hedge, the scheme would eliminate its longevity risk, but would conversely increase its exposure to interest rates and inflation (see chart 3) as the uplift in cashflows will tend to exaggerate the mismatch between the scheme's assets and liabilities. This means that, in effect, the scheme has paid £140m to remove £56 million of risk.

Chart 3

What is more, it is not uncommon that the longevity swap provider will seek to manipulate the cashflows underlying the swap to make the cost of hedging appear cheaper to pension schemes (chart 4 shows how such a swap might look). The value to the swap provider or cost to the pension scheme of putting in place the swap will depend on their view of the world and hence the discount rate they use to determine the present value of the liabilities - and it is here where transparency becomes a key issue.

Chart 4

In this case we assume that the swap provider assesses present value using the Libor curve so they are happy to offer an alternative set of cashflows with the same present value, but with a longer duration (see the thick blue line in chart 4 where the cashflows have been back-ended). However, because pension schemes discount liabilities using different measures to banks, this has the effect of making the swap appear better value to them. In this example, PensionsFirst Capital analysis estimates that the 'cost' would appear to drop by £4m if the pension scheme valued its liabilities on a technical provisions basis (where the discount rate is equal to gilt yields plus half a percentage point) and £34m on an IAS19 accounting basis (using an AA corporate discount rate).

However, this may have unintended consequences. In this case, the revised structure has increased the pension scheme's rates and inflation exposure by £50m and £27m respectively (see chart 5). This is because by reshaping the cashflows of the swap, the scheme has extended the duration of its liabilities, and hence its sensitivity to interest rates and inflation.  If the scheme were to enter into this swap, it would have paid £106m to remove £31m of risk - an entirely different proposition.

Chart 5

Clearly such information puts pension schemes in a much stronger position to quickly and precisely value the worth of de-risking instruments such as longevity swaps - breaking down many of the barriers that have, to date, halted transactions in their tracks. This puts the onus not only on pension schemes to seek more sophistication in their risk valuation processes, but also on the swap providers to provide complete transparency around the potential transactions. For example, it is perfectly possible to ensure transparency by conducting analysis of potential solutions on an open-book basis, with pricing and risk clearly presented and underpinned by available technology.

Accounting for the intermediary costs

However, while a more detailed understanding of the risk and reward involved in the transaction is a step towards getting the right deal, it alone is not enough. Indeed, transactions that may make economic sense from a risk-reward perspective can be poor value once the various costs surrounding the transaction are considered.

Intermediary costs come to the fore here. Given that historically the reinsurance market has been the ultimate holder of longevity risk, most transactions have seen pension scheme sponsors pay a significant premium (above the price the ultimate holder of the risk would charge to assume the risk) to hedge longevity through a bank or insurer. Assuming some of this premium can be accounted for in administrative costs, it works out that pension schemes often pay as much as 1.5%-2% of the value of liabilities simply to face an intermediary. While this could be justified in a situation where the intermediary offered a significant credit enhancement, it seems a high price to pay when the bank or insurer they deal with is in fact a weaker counterparty than the reinsurers who are the ultimate risk-takers.

With this in mind, pension schemes and sponsors should consider ways of accessing the terms of the reinsurance market directly, avoiding the additional costs of transacting through an intermediary. Not only will such steps ensure that schemes reduce their overall risk exposure at a fair price, but will also move them well on the way to an insurer's best estimate of the liability and reduce the extra cost of a buy-out, which should be the ultimate aim for all.

Hugo James is CEO of PensionsFirst Capital, a subsidiary of pension risk management specialists PensionsFirst Group. Email: hugo.james@pensionsfirst.com

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12 Nov 2012

Removing longevity risk: Why transparency is crucial to getting the right deal

Publication: gtnews
Author: Hugo James

Treasurers and finance directors are becoming more and more concerned about the impact that increasing life expectancy may have on the financial viability of their defined benefit (DB) pension schemes, which is fuelling interest in the longevity swap market. Yet finding the right deal requires complete transparency around the amount of risk that is being removed.

Life expectancy has increased considerably over the past 50 years in the western world. What is more, this trend shows little sign of stopping. In response, actuaries have adopted increasingly conservative assumptions around longevity - driving up pension scheme liability valuations as more members are expected to live further and further into their 90s and beyond. And because the financial health of so many of the UK's large public companies is intrinsically linked to their DB pension schemes, many treasurers and finance directors are rightly convinced that improvements in mortality rates spell a real threat to their company's financial survival.

The much publicised deepening deficits of schemes has made it harder - that is, more expensive - to perform buy-ins and buyouts. Against this backdrop, it is clear why the management of longevity risk has now become an issue of good corporate governance and why schemes are interested in hedging the risk in the nascent longevity swap market. Indeed, last year was a record year for the longevity swap market, with over £7 billion worth of swaps negotiated between pension schemes and banks, insurers and reinsurers. But given the long-term nature of the risk, how can treasurers evaluate, and then justify to board-level executives, the value of such a longevity swap?

How treasurers can assess value-for-money of a swap 

Assessing the value of a longevity swap requires a comparison between the amount of risk being removed - i.e. the potential increase in benefit payments caused by members living longer - and the cost of removing that risk, which is effectively the price of the swap contract. But if treasurers are to establish how significant removing longevity risk may be to the overall level of risk they are running, they must also have a detailed understanding of how the scheme's other exposures, namely inflation and interest rate risk, relate to each other.  

However, a lack of transparency surrounding all risks and assumptions, as well as a lack of granular data describing the impact of a longevity swap on a scheme's future cashflows, can muddy the waters with regards to this judgement. This is especially pertinent if banks or insurers re-shape the cashflows underlying the swap, for instance. While this may make the transaction appear cheaper to pension schemes, it can also have unintended consequences - often increasing the scheme's exposure to interest rate and inflation risks. 

An understanding of these effects is hence required in order to correctly appraise a swap in terms of cost versus overall risk reduction, and is perhaps best illustrated using a fictitious case-study. This article looks at the case of a pension scheme with £2 billion of pensioner liabilities (measured on an IAS19 accounting basis), which has undertaken substantive interest rate and inflation hedging, leaving longevity as its largest single risk in relation to its liabilities. As such, it wishes to reduce this risk, and hence its total risk position, by entering into a longevity swap. This article assesses the cost versus risk reduction calculation under two scenarios; firstly, a conventional longevity swap and, secondly, a longevity swap where the provider seeks to alter the underlying cashflows.

Scenario one: A conventional longevity swap

Let's assume that the example scheme has exposure to interest rates, inflation and longevity (values shown in chart 1) which means that, including its positive diversification benefit, the scheme is running £174 million of risk. This is measured in terms of 95% one-year Value-at-Risk (which is calculated by considering a large number of future outcomes for interest rates, inflation and longevity and their effect on scheme funding). Put simply, this means that there is a 5% chance that scheme funding reduces by more than £174 million or more over a one-year period.

Chart 1

If the pension scheme were to enter into a longevity swap to remove its £141 million of longevity risk, it would be required to pay a fixed stream of cashflows to a bank or insurer, which will be based on the expected pension cashflow, under an expected initial rate of mortality and a set of longevity improvements agreed between the scheme and the provider. In return, the provider will pay a variable stream of payments based on actual levels of mortality. In this example, the insurer or bank's best estimate of the longevity increases the cashflows by approximately 1%, and it then charges a 6% premium for taking on the risk(see thick blue line in chart 2). 

Chart 2

The swap has the effect of increasing the liability by around 7% as each and every pensioner cashflow is effectively uplifted by this amount. The present value of the estimated payments stands at around £2.14 billion on an IAS19 basis. Were it to execute the hedge, the scheme would eliminate its longevity risk, but would conversely increase its exposure to interest rates and inflation (see chart 3) as the uplift in cashflows will tend to exaggerate the mismatch between the scheme's assets and liabilities. This means that, in effect, the scheme has paid £140 million to remove £56 million of risk.

Chart 3

Scenario two: The swap provider reshapes the cashflows

It is not uncommon that the longevity swap provider will seek to manipulate the cashflows underlying the swap to make the cost of hedging appear cheaper to pension schemes - and it is here where transparency is vital for treasurers.

The value to the swap provider or cost to the pension scheme of putting in place the swap will depend on their view of the world and hence the discount rate they use to present value the liabilities. In this case we assume that the swap provider assesses present value using the LIBOR curve so they are happy to offer an alternative set of cashflows with the same present value but with a longer duration (see the thick blue line in chart 4 where the cashflows have been back-ended).

However, because pension schemes discount liabilities using different measures to banks, this has the effect of making the swap appear better value to them. In this example, PensionsFirst Capital analysis estimates that the 'cost' would appear to drop by £4 million if the pension scheme valued its liabilities on a technical provisions basis (where the discount rate is equal to Gilt yields plus half a percentage point) and £34 million on an IAS19 accounting basis (using a AA corporate discount rate).

Chart 4

However, reshaping the cashflows in this way may have unintended consequences. In this case, the revised structure has increased the pension scheme's interest rate and inflation exposure by £50 million and £27 million respectively (see chart 5). This is because by reshaping the cashflows of the swap, the scheme has extended the duration of its liabilities, and hence its sensitivity to interest rates and inflation.  If the scheme were to enter into this swap it would have paid £106 million to remove £31 million of risk - an entirely different proposition.

Chart 5

Clearly such information puts pension schemes in a much stronger position to quickly and precisely value the worth of de-risking instruments such as longevity swaps - breaking down many of the barriers that have, to date, halted transactions in their tracks. Which means that the onus is not only on pension schemes to seek more sophistication in their risk valuation processes, but also on the swap providers to provide complete transparency around the potential transactions. At PensionsFirst Capital, for example, we ensure transparency by conducting analysis of potential solutions on an open-book basis, with pricing and risk clearly presented and underpinned by leading technology, in the form of the PFaroe risk management platform.

Not only will such steps ensure that schemes reduce their overall risk exposure at a fair price, but will also move them well on the way to an insurer's best estimate of the liability and reduce the extra cost of a buyout, which should be the ultimate aim for all.

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08 Jun 2011

Pension buyouts don’t save firms as much as they think

Publication: Evening Standard
Author: Anthony Hilton, City Correspondent

"In their haste to get rid of pension funds, companies are in danger of paying through the nose to remove risks that may not even exist or, if they do, are pretty small. The problem is that pension funds are valued only once every three years which means the data is often so old it is very difficult to know what the actual level of risk is. Some systems houses - PensionsFirst being the most notable example - have developed software which will provide real-time information and daily or weekly valuations of pension schemes, giving trustees the information they need to avoid being fleeced by the investment banks…So most funds are flying blind, and that is not the way to secure the best deal from an investment bank."

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14 Jun 2011

Inflation could have positive impact on funding of FTSE 100 pensions

Publication: Plansponsor
Author: Katherine Blacker

PensionsFirst research shows that increases in inflation in excess of 1.4% over current market expectations would have a net positive impact on the funding positions of the pension schemes of the FTSE 100.

The research suggests that increases in inflation are costly for FTSE 100 schemes only up to a level of, on average, 1.4% above the current expected market rates. Inflation increases beyond this level - the so-called "tipping point" - should result in improved funding levels, as caps on pension increases to members come into play but asset values continue to rise.

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14 Jun 2011

FTSE 100 schemes may benefit from higher inflation

Publication: Pensions Age

New research from technology provider PensionsFirst shows increases in inflation beyond 1.4% of market expectations would have a net positive impact on the funding positions of the pension schemes of the FTSE 100.

The research shows that inflation increases beyond 1.4% should result in improved funding levels, as caps on pension increases to members come into play but asset values continue to rise.

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14 Jun 2011

Higher inflation could improve pensions schemes’ funding levels

Publication: Pensions World

Is inflation a problem for pension funds? Today's news from the Office for National Statistics that the UK Consumer Prices Index (CPI) annual rate of inflation held steady in May at 4.5% while the Retail Prices Index (RPI) measure of inflation - which includes mortgage interest payments - was also unchanged at 5.2% coincides with research from technology provider PensionsFirst, that further increases in inflation may actually prove beneficial to FTSE 100 pension schemes.

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14 Jun 2011

Inflation busting over 1.4% good for schemes

Publication: Professional Pensions

Rising inflation would prove beneficial to FTSE100 pension schemes if it exceeded current level by just 1.4 percentage points, research reveals. Going over current inflation levels - today revealed to have flat lined at 5.2% on a Retail Prices Index for May - by 1.4% would trigger a cap on pension increases to members but still boost asset values.

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02 Jun 2011

Invensys scheme uses technology to monitor liabilities

Publication: Professional Pensions
Author: Jenna Towler

The Invensys Pension Scheme has started using PensionsFirst technology to help manage its assets and pension obligations.

The £4bn scheme is using the PFaroe platform to try to drive more effective risk management of assets and liabilities.

Invensys Pension Scheme chief executive Robin Claessens said: "To successfully manage a mature pension scheme in today's challenging environment, there is a critical need for improved liability data understanding, analytical precision and risk measurement and monitoring."

PensionsFirst Analytics chief executive Benjamin Reid added: "With markets already proving volatile this year, it is promising to see an increasing number of pension schemes - such as IPS - putting in place the technological infrastructure to further enhance the management of their scheme assets and liabilities."

The technology gives providers and advisers access to accurate and up-to-date plan information on a single platform.

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17 May 2011

London Stock Exchange in PIC pensions liabilities deal

Publication: The Telegraph

The London Stock Exchange has become the latest British company to move some of its pension liabilities to a third-party as it attempts to lower the risk of running its own pension fund. The exchange's defined benefit scheme said Monday that it would transfer a £158m portion of its liabilities to Pension Insurance Corporation to insure it against investment, inflation and mortality risks.

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16 May 2011

UK roundup: LSE, PIC, Somerset, BNY Mellon, PensionsFirst

Publication: IPE

UK - The London Stock Exchange (LSE) has agreed a £200m (€230m) buy-in with the Pension Insurance Cooperation (PIC) that will see the latter organisation assume responsibility for all current pensioners, as well as all retirees until March 2016.

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16 May 2011

Company pension schemes urged to cut risk

Publication: Reuters

Britain's biggest companies are at risk of seeing sharp increases in the deficits of their pension schemes by failing to lock in recent market gains by moving into less risky investments, according to a report.

Over the last eight months, assets held by defined benefit schemes of FTSE 100 companies have increased by 29 billion pounds, while liabilities have fallen 25 billion pounds, consultancy PensionsFirst said on Monday.

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18 Apr 2011

Derisking case study: finger on the trigger

Publication: Pensions Week

Market changes over the past six months have, in general, been favourable to UK defined benefit pension schemes. Rising bond yields and increasing equity values have combined to reduce deficits for the majority. Yet the opportunity to derisk may be short-lived.

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03 Mar 2011

Funding deficits of FTSE 100 pension schemes have fallen

Publication: employeebenefits.co.uk

The funding deficits of FTSE 100 pension schemes have reduced, according to research conducted PensionsFirst(PF). The latest PF Risk Report, a monthly analysis of defined benefit (DB) pension risk for UK FTSE 100 firms, found that the proxy funding deficit now stands at £84 billion, compared to £134 billion in August. Despite this, the schemes' aggregate risk position has remained relatively constant. †The value-at-risk only fell from £31 billion to £30 billion (at a one in 20 value-at-risk confidence level) in January.

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01 Mar 2011

21st century governance

Publication: European Pensions
Author: Laura Blows

The pensions world is not often described as ground-breaking or dynamic in its use of technology and software. But now, over 10 years into the 21st century, the use of technology and the benefits it can provide for pension scheme governance is being increasingly explored.

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02 Mar 2011

UK roundup: DWP, RS Consulting, PPF, PensionsFirst

Publication: IPE
Author: Jonathan Williams

UK - Research commissioned for the Department for Work and Pensions (DWP) shows that a small but increasing minority of occupational pension schemes only offered members a default option upon joining the fund. Conducted by RS Consulting, the research examines the issues of vesting, whereby members switching employers within two years of enrolling a scheme are offered the possibility of a refund or transfer of accrued assets. It also looks at the increasing importance of default options as the industry prepares for the introduction of auto-enrolment. The report noted it was becoming "an increasingly common practice, albeit, still rare" for defined contribution schemes to only offer one investment option to members upon joining a scheme.

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02 Mar 2011

Pension schemes should take opportunity to de-risk

Publication: Financial Times
Author: Oliver Haill

Recent figures from PensionsFirst showed the aggregate funding deficit of FTSE 100 pension schemes continues to decline.The latest PF Risk Report - the company's monthly report on UK defined benefit pension risk for FTSE 100 companies - highlighted that the proxy funding deficit, which was as high as £134bn last August, now stands at £84bn. In spite of this, the schemes' aggregate risk position has remained relatively constant.

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01 Mar 2011

Deficit Improvements offer FTSE 100 schemes opportunity to de-risk

Publication: Plansponsor

Recent improvements in the deficit numbers - which reduced by another £10bn on a funding basis in the first month of the year - offer schemes a "golden opportunity" to de-risk, according to PensionsFirst. The latest PF Risk Report - the company's monthly analytical report on UK DB pension risk for FTSE-100 companies - highlights that the proxy funding deficit of the FTSE-100, which was as high as £134bn in August last year, now stands at £84bn. Yet despite this, the schemes' aggregate risk position has remained relatively constant - the Value-at-Risk (VaR) only fell from £31bn to £30bn in January.

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17 Feb 2011

Pensions’ Focus on Risk Attracts U.K. Software Firm to U.S.

Publication: Institutional Investor
Author: Jeffrey Kutler

In a sign of pension plan sponsors' and trustees' heightened sensitivity to their risk exposures and desire for timelier reporting, U.K. risk systems specialist PensionsFirst has formed a North American division and appointed fund management veteran Alan Colner as CEO of the New York-based operation.

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03 Feb 2011

PensionsFirst has expanded its business into the US and Canadian markets.

Publication: Professional Pensions
Author: Jenny Towler

PensionsFirst Incorporated aims to deliver risk management services - through its PFaroe platform - to both public and private sector plans across the Atlantic and will be headed up by chief executive Alan Colner.

Prior to joining PensionsFirst, Colner was a partner at Compass Advisers, an international investment banking partnership. In this role he was an adviser to PensionsFirst for the past two years, helping the company to raise capital and build an alliance with State Street Corporation, which is a minority investor in PensionsFirst Analytics.

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17 Jan 2011

Industry unhappy with DB risk reporting and analysis

Publication: Pensions Age
Author: Laura Blows

The majority of pensions professionals are unsatisfied with the quality of reporting and analysis available to them for the management of their DB pension risk, a PensionsFirst survey has found.

Of the 135 respondents, 83% of respondents agreed that managing pension risk is an important issue for schemes. Despite this, 68% found that the reporting and analysis currently available for DB schemes does not enable effective risk management and 59% did not agree that current reporting analysis is accurate and detailed.

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12 Jan 2011

UK pension funds achieve returns of 12.5% in 2010 but liabilities rise

Publication: Pensions World
Author: David Rowley

Andrew Morris, Assistant Vice President of Client Solutions at PensionsFirst adds a note of caution: "Although these returns will be welcomed by plan sponsors and trustees, focusing on asset performance alone gives a distorted view of the financial health of UK defined benefit schemes. Indeed, we have calculated that for a typical pension scheme with a liability duration of 20 years, the accounting liability over 2010 will have also increased by around 12% - thus offsetting the increase in asset values which many are reporting."

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15 Jun 2011

Ready, Aim, Fire

Publication: The Treasurer

The Treasurer talks to Andrew Birkett, Group Pensions Manager of Babcock International and Matthew Bale, Client Solutions Director of PensionsFirst, about the how and why of trigger-based pension de-risking.

Trigger-based derisking strategies have been attracting attention from pension schemes seeking to adopt more dynamic investment approaches as a way to manage risk more effectively. But what are the advantages of employing such strategies and what are the barriers to their effective implementation?

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08 Jul 2011

PensionsFirst Group appoints David Norgrove as chairman

Publication: City AM
Author: Harriet Dennys

PensionsFirst Group has appointed David Norgrove, who was chairman of The Pensions Regulator from January 2005 until December 2010, as chairman. Norgrove is currently chairman of the Low Pay Commission and the Family Justice Review Panel and deputy chairman of the British Museum. Prior to this, he spent 16 years with Marks & Spencer. He began his career as an economist at the Treasury before becoming private secretary to the then prime minister, Margaret Thatcher.

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07 Jul 2011

PensionsFirst hires former chairman of UK pensions regulator

Publication: IPE
Author: Jonathan Williams

UK - The former chair of the UK Pensions Regulator (TPR) David Norgrove is set to join PensionsFirst.

Norgrove, currently deputy chair of the British Museum, will oversee the consultancy's growth in the area of analytics, as well as risk-transfer services. Timothy Lyons, chief executive at PensionsFirst, said he was "absolutely delighted" Norgrove would be joining the company.

"His unrivalled knowledge of the industry's needs will play an important part in the next stage of PensionsFirst's strategic development," he said.

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07 Jul 2011

Ex-pension regulator chair Norgrove returns to the industry

Publication: Reuters
Author: Cecilia Valente

LONDON, July 7 (Reuters) - British pension consultant PensionsFirst Group has hired David Norgrove, a former chairman of Britain's pensions watchdog, to oversee its move into insuring pension obligations, a sector tipped to grow as more companies seek to offload risk.

Norgrove, a one-time private secretary to former Prime Minister Margaret Thatcher and who left The Pensions Regulator last year after overseeing its launch in 2005, joined on Monday -- the company said on Thursday.

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07 Jul 2011

HSBC alumni in the city

Publication: FT

Wendy Mayall, the chief investment officer of Unilever's pension fund, is standing down after 16 years.

The 53-year-old, who came under the media spotlight a decade ago when she crossed swords with Merrill Lynch Investment Management's co-head Carol Galley in court, is moving back to the consulting industry.

Ms Mayall was the architect of a global roster of preferred providers of investment services. Her departure comes as Unilever announced its intention to close its final salary pension scheme to existing employees.

Meanwhile, David Norgrove, who chaired the Pensions Regulator from its inception in 2005 until last year, is to join pensions consultants PensionsFirst as chairman.

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11 Jul 2011

PensionsFirst appoint chairman

Publication: Director of Finance
Author: Zarina de Ruiter

David Norgrove was chairman of The Pensions Regulator from January 2005 until December 2010.

PensionsFirst has announced the appointment of David Norgrove to lead the company in the next stage of its campaign to change the way the defined benefit (DB) pensions industry measures and manages risk.

Norgrove - who was chairman of The Pensions Regulator from its inception in January 2005 until December 2010 - will oversee the company's continuing push to establish market leadership in pension analytics, as well as its launch of more cost effective insurance-based risk transfer solutions.

Norgrove is currently chairman of the Low Pay Commission, the Family Justice Review Panel and deputy chairman of the British Museum. Prior to this, he spent 16 years with Marks & Spencer in various roles. Norgrove began his career as an economist at the Treasury before becoming Private Secretary to the then Prime Minister, Margaret Thatcher.

Timothy Lyons, CEO of PensionsFirst Group says: "We are absolutely delighted that David, who is highly-respected within the pensions industry, has decided to join PensionsFirst as our new Chairman."

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17 Jul 2011

Call for more oversight of contribution schemes

Publication: The Independent

David Norgrove, best known for derailing Sir Philip Green's bid for Marks & Spencer in 2004, has called for an overhaul of the way defined contribution pension schemes are overseen.

Companies and the public sector are moving away from defined benefit schemes, which are typically better the employee but costly to the employer. Defined benefit pensions also have trustees who oversee the funds, while this is not typical with defined contribution schemes.

Mr Norgrove, who was the chairman of the trustees at M&S, and until the end of last year headed up the pensions regulator, said: "I would like to see stronger regulation on defined contribution schemes, in terms of committees within companies that are charged with oversight of them."

Last week, Mr Norgrove became chairman at PensionsFirst, a high- profile appointment for the pension risk management firm.

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01 Sep 2011

A platform for change

Publication: PensionsWorld
Author: Benjamin Reid

To effectively manage defined benefit liability, companies must have a better overall view of the key pension risks they face explains Benjamin Reid, PensionsFirst Analytics.

Economic, market and regulatory forces continue to change the landscape for the defined benefit (DB) pensions industry. Pension sponsors are being forced to take greater notice of the impact that key risks - such as equity, inflation, interest rate and longevity - can have upon their scheme's funding position and subsequently their company's balance sheet, cash flow and income statement. Left unmanaged, DB pension risk leads to volatility and poses a serious threat to the financial viability of many sponsoring companies. For example, ten of the FTSE 100 now have pension liabilities greater than their market capitalisation.

Last December's ruling by the High Court in favour of the Pensions Regulator against Nortel and Lehman (which is now going through the Court of Appeal) has intensified the spotlight on the risks that large DB schemes are running. The ruling - which stated that a Financial Support Direction issued by TPR against an insolvent company can potentially create a priority over other creditors - has added further weight to the calls by key stakeholders for not only better measurement and reporting of pension risk, but ultimately better risk management.

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01 Aug 2011

The Tipping Point

Publication: The Actuary
Author: Matthew Furniss

Since the start of compulsory indexation, inflation has been one of the key risks faced by UK pension schemes. With retail prices index (RPI) inflation recently creeping above the 5% mark for the first time in nearly two decades, trustees and sponsors of some defined benefit (DB) pension schemes are fretting about the impact that increases in inflation could have on their funding positions, with many looking towards reducing their inflation exposure through the purchase of inflation-hedging assets (such as index-linked bonds or swaps). 

On the other hand, some pension schemes may find that caps on pension increases mean that high levels of inflation have less of a negative impact on funding levels than might be expected. Indeed, increases in inflation beyond these caps could in fact be beneficial for schemes, as asset values continue to rise while liability values are capped. Our research shows that, for a sample pension scheme, the point where further inflation could be beneficial - otherwise known as the 'tipping point' - could occur when inflation reaches 1.2% above current market levels. Given theBank of England has signalled that a rise in rates would undermine an already weak economy and curtail a much-needed rebalancing towards exports, this is not an unimaginable scenario.

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08 Dec 2011

National Grid to use PensionsFirst technology

Publication: Professional Pensions
Author: Jenna Towler

29 Nov 2010

Risk modelling tool attracts UK schemes

Publication: Pensions Week
Author: David Rowley, Editor

Schemes representing around 40% of UK pension assets are in negotiations with a provider of risk modelling software for final salary schemes.

Pensions First Analytics, provider of the PFaroe modelling software that gives schemes graphical and dynamic representations of their risk, already has 17 clients with £30bn worth of assets signed up.

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24 Nov 2010

Risk report warns of underlying risk to DB schemes

Publication: Pensions Age
Author: Matt Richie

A new risk report from PensionsFirst aims to shift the focus from overall deficit numbers to underlying risk in analysis of defined benefit (DB) pension schemes, and describes significant underlying risks which could drive deficit swings of billions of pounds over short time periods.

According to PensionsFirst's new PF Risk Report, compiled using publicly disclosed data, the combined deficit across the FTSE100 sponsored DB schemes reduced by £11 billion to £43.5bn in October.

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23 Nov 2010

Unhedged risk exposure could see deficits spiral by £25bn in one month

Publication: Professional Pensions
Author: Michael Bow

The combined pension deficit of FTSE100 firms could jump by £25bn in one month due to unhedged risk exposure, a report suggests. Analysis by risk specialists PensionsFirst showed the current level of exposure to inflation, interest rates and equity volatility could lead to an annual increase of about £100bn in the total defined benefit pension deficit of the FTSE100.

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23 Nov 2010

Trusting VAR is a risky business

Publication: Evening Standard
Author: Anthony Hilton

PensionsFirst has an enviable reputation among consultants for producing usable and useful software. Indeed, the Daily Mail pension scheme - of which I am a member and former trustee - is a client, and its products have proved of great value in telling the managers how much the portfolio is worth at any one time and whether the different hedging strategies and risk management products touted by investment banks offer good value. Usually they don't, which is why the banks are so anxious to sell them.

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23 Nov 2010

Pension risk makes FTSE-100 companies “as risky as hedge funds”

Publication: Engaged Investor

Defined benefit pension risk exposes corporate UK to unhedged financial volatility - and potential deficit increase of £100bn in one year - PensionsFirst report says.

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22 Nov 2010

Pension schemes urged to tackle risk

Publication: Financial Times
Author: Paul J Davies

FTSE 100 pension schemes could see their collective deficits increase by more than £25bn in a single month because of their exposure to interest rate, inflation and equity market risks, according to a new risk management company.

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07 Sep 2010

CPI switch could decrease deferred liabilities by 7.9% for a typical UK scheme

Publication: IPE (Investment & Pensions Europe)
Author: Jonathan Williams

CPI switch could decrease deferred liabilities by 7.9% for a typical UK scheme   UK - Calculating pension increases according to the consumer price index (CPI) would reduce liabilities for deferred members by around 7.9% for a typical UK scheme, according to PensionsFirst.

However, the switch from the retail price index (RPI) may have exactly the opposite effect than originally intended by the government, the organisation warned.

James Mushin, director of professional services at the firm, said that unless legislation was introduced that would allow for retroactive application of CPI use across the board, then deferred scheme members would feel the effect while waiting for pension payments, but likely not when they receive their benefits.

Mushin noted that the government's reasoning for introducing CPI was that it fairly reflected pensioners spending habits, as it took mortgage increases out of the equation.

"Actually we're seeing the opposite [effect], because CPI is replacing RPI for those in deferment, leading up into retirement and then you're still getting RPI in retirement. So it's a bit of a twist there," he commented.

He said that while RPI is mostly specified as the measure by which schemes needed to increase pension payments, scheme rules will often only refer to the statutory revaluation for any increases to deferred members accrual.

If government plans go ahead, then the statutory revaluation rate would be the consumer price index from next April.

In figures calculated for IPE, PensionsFirst estimated that a representative UK pension scheme, with 10,700 members and total liabilities of £2.065bn, would see liabilities for deferred scheme members drop by £35m, or 7.9% from £402m, once CPI was introduced.

He further expected total scheme liabilities to fall by almost 10% if the government introduced legislation allowing for the retroactive worsening of accrued benefits.

Based on his estimation, scheme liabilities would therefore fall to £1.865bn.

However, Mushin conceded that any such retroactive attempt by the government would be fraught with legal problems.

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18 Aug 2010

Pensions Technology Provider of the Year Award & Innovation Award

Publication: European Pensions Award Winners Brochure
Author: Francesca Fabrizi, Editor European Pensions

PensionsFirst was one of the few companies to go home with multiple trophies at the European Pensions Awards 2010 - the Pensions Technology Provider of the Year award and the European Pensions Innovation award. 

One judge commented that this firm "had a clear and unrivalled recognition of the needs of defined benefit (DB) pension schemes today," and was excited by the dramatic improvement the PensionsFirst approach could have on the global pensions sphere.

Fracesca Fabrizi, the Editor of European Pensions interviewed Benjamin Reid, PensionsFirst Analytics' CEO and Fiona Page CTO to learn more about the background and aims of the firm. Please click below to download and read the full article.

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01 Jul 2010

IASB changes will aid risk management

Publication: FTSE Global Markets
Author: Matthew Bale, Vice President of Client Solutions, PensionsFirst

IASB changes will aid risk management

Much has been written about the detrimental effects that proposed changes to IAS 19 (the international accounting standard for employee benefits) will have on the profit and loss accounts of defined benefit (DB) pension scheme sponsors, potentially wiping a reported £8bn of profit off the value of the FTSE 100 alone. Yet few have stopped to consider how the recent proposals from the International Accounting Standards Board (IASB), which may ultimately be adopted by the Financial Accounting Standards Board (FASB), will remove a significant barrier to companies' effective pension risk management.

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01 Jun 2010

Breaking Down Barriers: More efficient de-risking of defined benefit pension schemes

Publication: TMI (Treasury Management International)
Author: Matthew Bale, Vice President of Client Solutions, PensionsFirst

Breaking Down Barriers: More efficient de-risking of defined benefit pension schemes

Amid the furore surrounding the negative effect that proposed changes to the international accounting standard for employee benefits (IAS 19) may have on companies' profit and loss accounts, it is worth highlighting the positive long-term impact. The changes will remove a key barrier to the efficient de-risking of defined benefit (DB) pension schemes.

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19 Apr 2010

State Street bags derisking tool deal

Publication: Pensions Week
Author: David Rowley

State Street bags derisking tool deal A pensions risk measurement tool, in contract negotiations with 70 leading employers, has entered into an exclusive deal with State Street

PFaroe, which allows finance directors and trustees to view the interaction between liabilities and assets on one system, is being marketed as a basis for making smarter and more timely derisking decisions.

Under the terms of the deal, PensionsFirst Analytics, the creators of PFaroe, can sell the tool to individual employers, but the cannot enter into a deal to offer it to any other fund manager.

State Street hopes PFaroe will give it a competitive edge as a provider of derisking optionsfor pension schemes and endowment plans worldwide.

Joseph Antonellis, vice-chairman of State Street, said "With the difficulty of accurately measuring liabilities, this innovative product provides an enhanced level of transparency and insight into pension risk."

In the UK, PFaroe is currently being sold directly to company treasurers and finance directors, with the pitch that it is the last area of business risk not to have a handy and simple technology measure.

The tool is designed to help both sponsor and trustee to agree asset allocation, buy-outs and hedging policies.

PensionsFirst Analytics says its stream of business will lead to PFaroe being used on pension fund assets worth £30bn by this summer.

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15 Apr 2010

State Street and PensionsFirst alliance to provide pensions risk testing

Publication: IPE (Investment & Pensions Europe)
Author: Julie Henderson

State Street and PensionsFirst alliance to provide pensions risk testing

GLOBAL - State Street Corporation and PensionsFirst Analytics are teaming up to provide State Street's clients with access to PFaroe's online software, to allow trustees and corporates to run real-time diagnostics and testing on defined benefit pension fund risk.

PFA's PFaroe will be promoted to State Street's pension fund clients as the service helps trustees, sponsors and advisers to understand the fund's cash flow position and test investment scenarios on a daily basis.

One of the key difficulties pension fund executives faced during the recent economic crisis was the ability to get up-to-date valuations on assets and understand how changes might affect assets and liabilities if, for example, bond yields rose by 50 basis points. This is even when clients had access to online services from custody providers, such as State Street, detailing regular changes to valuations and counterparty risk.

State Street has itself faced several legal action suits by defined benefit pension funds since the credit crunch surfaced, relating to securities lending and other concerns about the information delivered to clients about their investments.

Pfaroe, meanwhile, was launched in the UK last year to bridge a gap in information delivery as it allows pension funds to run virtually any investment or risk scenario which might affect the pension plan, so officials can be better equipped to tackle problems as they arise or tap investment opportunities.

Joe Moody, managing director and head of liability-driven investing State Street Global Advisors, said the aim of the strategic alliance is therefore to introduce existing clients to the PFaroe tools and then allow them to be used via a single platform, through State Street's existing tools.

"People realise they are going to have to be more proactive about managing their way out of the problems they are in," said Moody.

"There is a window of 2-3 years where pension fund officials will act. They can see the decisions being taken, the managers appointed, they will be able to appreciate the risks they are running through the economic cycle. It is in the interests of the corporates and trustees to share this common tool.

He continued: "It drives efficiency for the customer as it makes more information available. We will introduce existing clients to PensionsFirst Analytics, and if they set up they will receive other benefits and be able to use them together on one service," he added. 

Benjamin Reid, partner at PensionsFirst Analytics, said its service will remain totally independent of State Street, but is teaming up with State Street in part because of its focus on global pension fund business.

"We see the [defined benefit] issue as being a global issue, concentrated mainly in the US, UK Canada, Japan and the Netherlands. We were clearly looking for a strategic partner to allow us to make the most of the opportunity we have created with PFaroe, and State Street has a global footprint with a strong leaning towards pension funds. It was also the breadth of its products which attracted us," he continued.

Pfaroe is already available to UK pension fund executives but in some cases is already being used on a global scale to assess a company's global pension fund risk and liabilities.

The service is expected to be rolled out to the US market in Q3 2010, closing followed by Canada, said Reid.

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09 Apr 2010

State Street takes minority stake in PensionsFirst Analytics

Publication: Fin Extra

State Street takes minority stake in PensionsFirst Analytics

UK/US - State Street Corp. has taken a minority stake in PensionsFirst Analytics, which offers a web tool that can provide actuarial valuations on a daily basis, and has plans to take the London-based firm global.

State Street now owns less that 50% of the firm, but details of the deal were not released.

State Street was lured by PFaroe, the company's web-based service that allows plan sponsors to evaluate asset and liability scenarios on a single platform, said State Street Global Advisors managing director and head of liability driven investing Joe Moody. PFaroe was launched in November 2009 and can deliver actuarial valuations as often as the trustee requires - daily, monthly, yearly etc - and is said by the companies to be the first of its kind.

In an interview with Global Pensions Moody said "The pieces of information have existed, but they've never really existed in a way that allows (trustees) to really make informed decisions at the right time."

"They're seeing the picture for the first time," Moody added.

PensionsFirst Analytics chief executive Benjamin Reid said it allows trustees to stress test allocation scenarios in different ways and can provide cash flow details down to the individual member level.

Reid said he expects to launch PFaroe in the US in the third quarter of the year, a move that was previously announced at the launch of the platform. But through its partnership with State Street, Reid expects to expand to Canada, Japan and the Netherlands. Combined with the UK and the US, these five countries account for 65% of all pension liabilities worldwide, said Reid.

Reid said the platform is already modelling £13bn (US$20bn) of liabilities in the UK and is in final negotiations with pension plans that will bring the total to £30bn.

Moody said the two firms had been in discussions about the product for a year. "It's just a natural fit. We're a global organisation with global relationships and this is something we can bring to our clients."

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01 Apr 2010

Timing is Everything

Publication: Pensions Age
Author: Darren Best, Director of Client Solutions, PensionsFirst

Timing is Everything

Scheme information must be both timely and accurate for defined benefit pension risks to be managed effectively.

The management of defined benefit (DB) pension risk is likely to become the major pension story of the next decade. Left unmanaged, these risks can seriously impact the future profitability or even viability of a company, with significant implications for both shareholders and scheme members.

While many scheme sponsors and trustees recognise the need to improve scheme management, significant barriers exist when attempting to calculate a successful de-risking strategy. Indeed, in the vast majority of cases, de-risking strategies are developed and executed based on outdated and inaccurate information. Yet in today's environment of stricter accounting and funding rules, as well as volatile reported funding levels, it is simply no longer appropriate for schemes to rely on inaccurate risk management techniques and data.

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30 Mar 2010

All in the timing

Publication: Pensions Management
Author: Darren Best, Director of Client Solutions, PensionsFirst

All in the timing

Effective management of defined benefit scheme risk requires both timely and accurate information - which is rarely to the found.

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07 Dec 2009

Trading Places - Asset Management

Publication: Financial News

Simon Parr, formerly group financial controller at IAG-UK, has joined PensionsFirst Group as finance director.  Rob Stuart has left multi-strategy hedge fund provider MKM Longboat to become PensionsFirst's general counsel.

23 Nov 2009

Trading Places

Publication: Financial News

PensionsFirst Analytics has appointed Benjamin Reid as its chief executive. Prior to the launch of PensionsFirst in 2007, Benjamin was a director at Wachovia Securities in New York.

19 Nov 2009

PensionsFirst launches web valuation tool for sponsors

Publication: Professional Pensions

PensionsFirst has launched a web-based service - PFaroe - that aims to deliver accounting, actuarial and solvency valuations on demand within 24 hours, regardless of scheme size. The service is designed for users with no actuarial expertise, and enables them to perform sensitivity testing on assets and liabilities, conduct standard VaR analysis and scenario testing. PensionsFirst believes that the tool will help in negotiations between sponsors and trustees.

19 Nov 2009

PensionsFirst unveils PFaroe

Publication: FT Adviser

PensionsFirst has launched PFaroe, web-based service to help manage defined benefit pension risk by analysing and reporting on scheme assets and liabilities on a single risk management platform. It also gives customers the opportunity to receive valuations on funding, accounting or solvency bases within 24 hours.

Click here for the full article

16 Nov 2009

PensionsFirst adapts to launch 24-hour valuations

Publication: IPE.com

PensionsFirst has unveiled the first known technology system to deliver actuarial valuations within 24 hours - regardless of scheme size. Most UK pension funds conduct valuations on a triennial as required, but it has so far been impossible to carry out regular checks on asset holdings and strategies, to determine whether improved strategies are possible. The additional functionality is seen as a major benefit by customers testing the system, because it substantially increases their knowledge of their pension plans.

16 Nov 2009

PensionsFirst shakes up market

Publication: The Independent

PensionsFirst unveiled a service which could radically shake-up the pension buyout market by enabling companies to get an immediate valuation of the liabilities of their retirement funds. Recent volatility in investment and bond markets has made it almost impossible for company final salary pension schemes to understand their funding position. PensionsFirst can now change this by providing a monthly valuation.  

16 Nov 2009

PensionsFirst launches online risk model system

Publication: Pensions Week

PFaroe, a new web-based service, is being offered to pension schemes, allowing daily asset and liability valuations and reducing reliance on actuaries. It is designed to enable pension scheme managers, trustees and finance directors to make forecasts based on alternative assumptions for inflation, longevity or investment growth. It also has applicability in making pricing decisions for buyouts, buy-ins and longevity swaps, and in costing of one-off enhanced transfer exercises and redundancies.