Report: Pension Closures Are Accelerating

A new report by the United Kingdom's National Association of Pension Funds shows that more final-salary pension schemes have been shut to existing staff in the private sector during 2011.

(December 15, 2011) — The number of businesses that have closed their final salary pensions to all of their staff is quickly growing.

According to the United Kingdom’s National Association of Pension Funds’ (NAPF) latest annual survey, almost a quarter (23%) of pension schemes are now shut to both new staff and to future contributions from people who were already in the pension. This is up by a third from 17% in 2010, and was just 3% in 2008.

The research by NAPF — which represents the biggest company pension schemes in the UK — reflects the decline of final salary pensions, which have been increasingly strained by rising longevity, poor investment results, and red tape, NAPF asserted in its study. As employers have been closing these pensions in an effort to manage risks and rising costs, only 19% of private sector schemes are now open to new joiners, compared with 88% a decade ago.

In response to the findings, Joanne Segars, NAPF Chief Executive, said in a statement: “The private sector is seeing a seismic shift in its pensions, and more change is certain. Final salary deals are coming off the table and are either being watered-down or replaced altogether,” noting that demographic and financial pressures mean businesses are struggling to afford these pensions.

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Furthermore, Segars noted that while it is difficult to be exact, NAPF estimates that up to a quarter of a million people have been moved out of their final salary pension over the past three years as many firms are trying to get a grip on risks and rising costs by freezing the fund to both new and existing staff.

“People will often find that the replacement pension on offer is a good one,” Segars said in a release. “It’s encouraging to see that, despite the harsh economic climate, payments into defined contribution pensions by staff and their employers have remained stable. Whatever the type of pension, the main thing is to get more people saving. The UK simply isn’t salting enough away for its old age.”

After Virulent Attack, Thomson Reuters Defends Popular PE, Venture Capital Database

After a recent research report expressed doubt on the accuracy of Thomson Reuters' popular database that has been used to judge private equity and venture capital performance, the firm is defending itself, saying that the report is based on false assumptions.

(December 15, 2011) — In response to a recent paper that claimed that the Thomson VentureXpert (TVE) database — which has been used for over two decades by practitioners and academics to benchmark and judge the performance of private equity and venture capital — may be seriously flawed, the creators of the database are strongly refuting the claims.

“Thomson Reuters refutes the key messages articulated in the research report recently published by Rudiger Stucke…At no point did Dr. Stucke engage with Thomson Reuters to establish some of the basic facts which appear to underline the report,” Leon Saunders Calvert, Thomson Reuters Head of Global Deals & Private Equity, told aiCIO in an email.

According to the paper by Rüdiger Stucke at the University of Oxford, a closer look at aggregated and individual figures revealed severe anomalies in the underlying data which are the result of ceasing data updates. “Since existing errors have a systematic and persistent character, they do not just increase noise but result in a significant downward bias of presented performances. Consequently, many empirical results established using this database may not be replicable with correct data. In particular, the claim that private equity has not outperformed public equity is unlikely to hold with true numbers,” the paper asserted.

“It is going to shake up the industry,” James Bachman of The Burgiss Group, whose client list includes over 300 asset owners that represent in excess of $1 trillion in private capital commitments, told aiCIO earlier this month, referring to the study.

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While Stucke’s research report sheds doubt on the accuracy of Thomson Reuters’ popular database, Calvert continued to thwart the merit of such assertions: “In line with its confidentiality obligations, Thomson Reuters did not share any underlying cashflow data with Dr. Stucke, which implies that a good deal of his analysis must, by definition, have been based on assumptions that are not precisely described in his research paper. Dr Stucke’s claim that 47% of the funds in the Thomson Reuters private equity performance sample are stale is unsustainable. Furthermore, there is a suggestion in the report that the Thomson Reuters product has experienced some kind of mechanical error leading to an increase in stale funds in the sample. This is patently false. Thomson Reuters is committed to servicing the private equity industry and indeed working with practitioners, industry bodies and academics to ensure we continue to reflect market realities, especially during these challenging market conditions.”

Click here to download the full report by Rüdiger Stucke.