Pause for Thought: Issues and Challenges for the Pensions Industry

Pensions Round-Up: Time to take Stock

Plan managers and pension professionals face a challenging and diverse range of issues ranging from how to approach the search for income in a low yield world, interrelated decisions about return assumptions and their impact on asset allocation or how the shift to a greater emphasis on ESG principles is impacting the wider investing industry. Additional questions, particularly those relating to the design and implementation of new retirement products and approaches to the management of existing schemes, remain.

The pensions industry continues to have to evolve and transform as it faces growing pressures from a number of different directions. In order to assist industry participants, Savvy Investor has collated a collection of the best recent papers that attempt to outline some of the issues that currently challenge the industry, together with some suggested solutions.

CASHFLOW BASED INVESTING

Cash Flow Driven Investing: Beyond a Corporate Defined Benefit Solution (Aegon)

Aegon suggests that cashflow-driven investing (CDI) is a potential solution not just for DB plans, but for any investing organization that has regular cash flow requirements.

Dividend-Paying Stocks: A good source of income for pension plans (Epoch, 2019)

Epoch explores whether dividend paying equities might offer a potential solution for pension funds desperately seeking income.

RETURN EXPECTATIONS AND ASSET ALLOCATION

Appraising home bias exposure in pension funds (FTSE Russell, 2019)

FTSE Russell seeks to understand the impact of home bias in the equity allocations of five large pension fund markets — the US, UK, Japan, Canada, and Australia.

5-year Expected Returns 2020-2024: Escaping the Hall of Mirrors (Robeco)

This 117 page report from Robeco outlines their five-year investment outlook for all major asset classes.

Equity Risk Premiums: Determinants, Estimation and Implications (Damodaran)

In this paper by Aswath Damodaran, he explores why different approaches yield different values for the equity risk premium, and suggests how to select the 'right' number to use in analysis.

Real Assets & Portfolio Construction for Institutional Investors (PGIM 2019)

PGIM suggests that real asset exposure within a portfolio could be managed as a distinct entity, using several strategies with differing investment characteristics to achieve a range of outcomes.

THE RISING TIDE OF ESG: TRENDS AND APPLICATIONS

Passive Investing 2019: The rise of stewardship (CREATE-Research/DWS)

In this DWS sponsored report, CREATE-Research finds both a widespread adoption of passive investing by pension funds and increasing levels of corporate enagement related to sustainability issues.

Responsible Investment as a Motivator for Generation DC (Franklin Templeton, 2019)

(For compliance reasons, this paper is only accessible in Certain Geographies)

In this report Franklin Templeton explores the role that Responsible Investing (RI) can play in changing attitudes towards pension saving in the 'Generation DC' cohort.

Board effectiveness: Lessons from companies to trustees (LGIM, 2019)

(For compliance reasons, this paper is not accessible in the United States & Canada)

LGIM presents their suggestions for key areas in which pension boards' effectiveness could be improved.

RECENT DEVELOPMENTS IN DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN MANAGEMENT

2018 US Defined Contribution Trends Survey (Callan)

This Callan survey incorporates responses from over 100 plan sponsors, highlighting key themes and expectations for 2019.

Using AI to power the retirement savings plan of the future (Invesco, 2019)

(For compliance reasons, this paper is only accessible in Certain Geographies)

Invesco informs interested parties about developments in artificial intelligence (AI) and the variety of roles it might play in retirement savings plans.

The new era of defined contribution investing for UK pensions (Capital Group)

(For compliance reasons, this paper is only accessible in the UK)

Capital Group explores how in the UK, investment product design, particularly in diversified growth funds (DGFs), is evolving in response to increasing scale.

2019 Global Survey of Accounting Assumptions for DB Plans (Willis Towers Watson)

In this annual Global Survey, Willis Towers Watson explores the economic and mortality assumptions adopted by major global corporations for their DB schemes.

Managing to liabilities (Invesco US, 2019)

(For compliance reasons, this paper is only accessible in the united States)

Invesco comments on the growth in LDI (liability driven investing) in the last 20 years, and illustrates some potential solutions to some of the complex challenges faced by a range of investors.

The Age of Peak LDI (Hymans Robertson/Nomura, Apr 2018)

Hymans Robertson/Nomura believe that the once dominant trend towards LDI in the UK DB market must change.

INDUSTRY INFORMATION INCLUDING RECENT SALARY SURVEYS

Updated Salary Surveys for the Pensions and Asset Management Industry

Savvy's unique salary survey is drawn from research undertaken in both the Pensions Industry and across the wider Asset Management Industry.

The world's largest 300 pension funds (Thinking Ahead Institute, 2019)

The Thinking Ahead Institute provides an in-depth insight into the world's largest 300 pension funds.

LCP UK Investment Management Fees Survey 2019

In their annual survey, LCP find that fees for investment mangement remain under pressure, with falls across a wide range of asset classes.

Five charts that will make you think differently about retirement (Aviva, 2019)

(For compliance reasons, this paper is only accessible in Certain Geographies)

Aviva Investors' short paper offers a visual insight into how demographic change is impacting upon a changing retirement landscape.

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]