Global Pensions Update: Feb 2022
Pensions Recovery Offers Flexibility for Fully-Funded Schemes
Some pension funds enjoyed the returns on offer across markets in 2021, with many U.S. S&P 500 defined benefit (DB) schemes returning to fully funded status, their best funding levels since the global financial crisis of 2008/9. UK scheme funding levels seem to have remained largely static during 2021 with funding levels at around 92%, suggests Mercer, equating to a net deficit of ￡76 billion for FTSE 350 DB schemes. An environment of rising inflation and interest rate assumptions may prove unhelpful for some schemes, but it may be interesting to see what fully funded schemes do with new-found flexibility, opting perhaps to de-risk via buy-ins, or by choosing?to re-allocate.
This collection of papers features some familiar favourites including the Thinking Ahead Institute's Global Pension Assets Study. An interesting paper from Robeco examines?the implications of divesting from fossil fuels, something that may also be up for discussion at the PLSA's?Virtual ESG Conference which is being held 9-10 March 2022. A paper from AEW argues the case for real estate allocations for those schemes which find themselves fully funded.
RECENT PENSIONS AND ESG PAPERS
Thinking Ahead Institute’s annual study of the major pension markets, covering almost $57 trillion in pension assets across 22 markets.?
For compliance reasons, this paper is only accessible in the United States
BlackRock offers insights into the U.S. corporate pension world, noting that given the strong rebound from the Covid lows, the average plan is now almost fully funded – the highest level since the financial crisis of 2008/9.?
Global SWF’s second Annual Report provides details on some of the world’s largest investors, those sovereign wealth funds and public pension funds, whose assets are estimated to exceed $31 trillion.?
This paper from Robeco considers the potential implications of divestment from fossil fuel industries, which they contend leaves funds vulnerable to both long-and short-term performance risk.
Pictet AM explores the crucial role that fixed income markets must play in the transition to net zero in the coming years. Innovative and intriguing new forms of financing are likely to appear, but over time, these may become mainstream investments in their own right.?
S&P Global’s Sustainability Yearbook offers a comprehensive insight into corporate sustainability, while also offering a perspective on prospective environmental, social and governance issues.?
For compliance reasons, this paper is only accessible in certain geographies
Invesco investigates the funding status of UK DB schemes, noting that both assets and liabilities moved broadly in sync over the last quarter, with lower bond yields being slightly eclipsed by the returns from growth assets.?
This paper from Redington offers an insight into some of the issues facing UK Defined Contribution (DC) schemes.?
For compliance reasons, this paper is only accessible in the UK
This article from Sackers focuses on recent changes in pension law, regulatory issues, and pension reform.?
For compliance reasons, this paper is only accessible in the UK
This Hymans Robertson report explores the environment for UK DB pensions in the light of the Covid pandemic – how recovery plans for schemes have been affected by changes to sponsor credit ratings, and how covenant risk might impact the end game for pension schemes.?
This paper explores the range and scope of alternatives held in U.S. Defined Contribution (DC) plans, ranging across Real Estate, Hedge Funds, and Private Equity.?It also examines a number of the considerations and challenges associated with each asset class.?
For compliance reasons, this paper is only accessible in the United States
AEW argues the case for an allocation to real estate given that most U.S. Defined Benefit (DB) schemes are back to or above fully funded status.?
For compliance reasons, this paper is only accessible in the United States
GSAM presents their Annual Preview and Review, noting that many U.S. schemes are almost fully funded, while also highlighting potential changes to legislation that may remove barriers to the consideration of ESG factors by schemes.
VIRTUAL EVENT
Join the PLSA’s upcoming virtual ESG conference to debate the consequences of COP26 for pension funds and their trustees, while gaining a better understanding of how to apply the proposals, as funds become a force for good in the transition towards a net zero environment.
?ABOUT THE AUTHOR
Andrew Perrins is a former Actuary and Asset Allocator. After qualifying as an Actuary, he worked for 15 years in investment management, serving as Director of Asset Allocation for Abbey Life and for Chase Manhattan, before setting out on a more entrepreneurial path.
To contact him,?email?[email protected]