Pension Fund Deficits Increase in May | Chief Investment Officer

According to the Pension Protection Fund (PPF), the collective deficit of the UK's private sector final-salary pension schemes worsened by more than £40 billion in May.

(June 8, 2010) — Figures released today reveal the deficit of Pension Protection Fund (PPF)-eligible defined benefit schemes widened to £41.5 billion at the end of May from a deficit of just £2 billion at the end of April. Yet, scheme funding is better than it was a year previously, when combined deficit stood at £179 billion.

The PPF said total scheme assets of the 7,300 defined benefit plans surveyed fell 1.9% month on month to £895.8 billion, but assets actually increased 15% during the year ending May 2010. The firm attributed the decline in assets partly to falling UK and global equities. Meanwhile, the study showed liabilities fell 2.2% over the year to £937.2 billion. Liabilities increased 2.4% over the month from £915.4 billion in April.

The number of schemes in deficit increased from 5,066 to 5,450, while just 1,892 reported a surplus.

Meanwhile, Aon Consulting’s Aon200 Index, which tracks the aggregate deficit of the 200 largest privately sponsored pension schemes, revealed the aggregate deficit of the pension scheme sample was actually reduced by £13.5 billion last month, the biggest improvement since June 2009. The firm attributed the fall in the deficit from £97.2 billion in April to £83.5 billion a month later to a reduction in long-term inflation expectations that offset asset losses from investments.

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“Scheme managers will be praying the dream scenario of rising assets and falling liabilities is round the corner,” Sarah Abraham, consultant and actuary at Aon Consulting, said to IPE.com. “Until then, deficits look set to remain huge by historical standards.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

A new report reveals twice as many investors are asking stock and bond managers about their global-warming policies as two years earlier, but integration of these policies into investment mandates has failed to take off.

(June 8, 2010) — A new report by the Institutional Investors Group on Climate Change (IIGCC) revealed that while the number of asset owners considering investors’ climate change policies as key to selection has doubled since 2007, the actual integration of these policies into investment mandates has been stalled.

According to the findings, 70% of asset owners commissioned or supported climate change research, compared to 45% the previous year. Additionally, the survey, conducted by Mercer, found 60% of asset owners asked climate change related questions when meeting with potential managers in 2009, compared to 30% in 2007. Institutions surveyed include units of Aviva Plc, BNP Paribas, F&C Asset Management Plc and the pension fund for BT Group Plc.

“The fact that asset owners now question their asset managers about their climate change policies prior to making a selection is a clear signal of increased awareness on climate change in the investment community,” said Ole Beier Sørensen, the new chairman of IIGCC. “This progress will be further strengthened if attention to climate change is applied throughout the decision‐making process, from investment manager selection to Investment Manager Agreements.”

The majority of the 26 institutions surveyed (80%) said they were actively engaging with companies on issues related to climate change. In addition, 75% of these investors now also engage with companies on setting policy commitments on climate change, including absolute carbon emission reduction targets.

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David Russell, co-head of responsible investment at the British universities pension fund, the Universities Superannuation Scheme (USS), commented that investors are taking account of climate change when there is a price on carbon with clear regulatory incentives, such as government support for renewable energy, according to a release. He explained that climate change issues are largely not integrated “when policy does not make the issue material, when there are uncertainties surrounding climate change policy and when the long‐term nature of many physical climate change impacts means that they are outside current investment horizons.”

The London-based Institutional Investors Group on Climate Change has 58 members who manage about 5 trillion euros ($6 trillion) of assets.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742