Canadian Pension Funds Post Negative Q3 Asset Returns

Despite reporting negative asset returns for the third quarter, the funded ratio of Canadian pension funds increased during the period due to declining actuarial liabilities that more than offset the disappointing investment performance, according to consulting firm Morneau Shepell.

“Global stock markets delivered mixed returns in the third quarter with US equities outperforming other major markets,” Jean Bergeron, head of Morneau Shepell’s asset and risk management consulting team, said in a release. “Although asset returns were negative, the decrease in actuarial liability was larger.”

Bergeron added that the solvency ratio for an average Canadian pension plan improved by about 0.5% to 2.0% since the beginning of the third quarter.

Canadian equities were down 0.6% during the quarter, while bond returns in Canada were off 1.0%, and emerging market equities were down 2.7% in Canadian dollars. Long-term bonds posted a loss of 2.4%, while medium-term bonds lost 0.8%, and short-term bonds were 0.0%. High-yield bonds posted 1.0% returns, while real return bonds reported a loss of 2.2%.

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Although the report said the median return for Canadian equity managers during the quarter was a loss of 0.3%, that still outperformed the S&P/TSX Index, which lost 0.6% during the same time period. Meanwhile, the S&P/TSX Small Cap Index lost 2.8%, and the S&P/TSX Completion Index representing mid-cap stocks registered a decrease of 0.3%, and the large-cap S&P/TSX 60 Index was down by 0.7%.

Foreign equity managers’ median returns were 5.4% for US equities, below the S&P 500 Index benchmark, which returned 5.9% during the quarter, while international equities lost 0.7%, compared to the benchmark MSCI EAFE Index, which only lost 0.4%. Global equities managers reported a 2.8% return, short of the 3.2% return of the benchmark MSCI World Index. And emerging markets equities lost 2.6%, slightly outperforming the benchmark MSCI Emerging Markets Index, which lost 2.7% during the same period.

The results of Morneau Shepell’s study are based on the returns provided by portfolio managers, ranging from independent investment management firms to insurance companies, trust companies and financial institutions. The returns are calculated before deduction of management fees. The Performance Universe covers 327 pooled funds managed by 51 investment management firms, with a market value of more than C$268 billion ($204 billion).

Tags: Canada, Morneau Shepell, Pension

A UK-based recruitment agency, its directors, and senior staff have been ordered to pay fines totaling approximately £275,000 for plotting to illegally opt workers out of their pension. The fine is the largest ever, and first custodial sentences, for a case brought by The Pensions Regulator (TPR).

“The scale of the punishments handed down today shows the court agreed with us that these were very serious offences,” Darren Ryder, TPR’s director of automatic enrollment, said in a release.

According to TPR, Derby-based Workchain Ltd. owners and directors Phil Tong and Adam Hinkley encouraged five senior staff to get the workers out of the pension plan so the company could avoid making payments on their behalf.

Financial controller Hannah Armson, human resources and compliance officer Lisa Neal, and branch managers Martin West, Robert Tomlinson, and Andrew Thorpe also conspired to opt workers out of the National Employment Savings Trust (NEST) pension plan, according to TPR. NEST is a defined contribution workplace pension that was created by the UK government as part of its automatic enrollment initiative under the Pensions Act 2008.

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TPR said Neal, West, Tomlinson, and Thorpe phoned NEST posing as their temporary workers in order to get the employees’ account ID numbers. They then logged onto NEST’s online system and opted the temporary workers out of their pension. Accessing the system by posing as workers is also an offense under the Computer Misuse Act 1990.

“This amounted to a deliberate subversion of the automatic enrolment process. It was a deliberate attack on the integrity of the electronic systems of NEST,” Derby Crown Court, Judge Nirmal Shant QC told the defendants, according to TPR.

The scam came to light after NEST became suspicious about several of the calls from Workchain, and TPR examined recordings of the conversations. The employer, the directors, and five senior staff all pleaded guilty to computer misuse offenses after TPR prosecuted them.

“NEST’s vigilance, our thorough investigation and the sentences from the court have led to a clear message—employers cannot opt a worker out of a pension scheme, even if the worker agrees,” TPR said.

Judge Shant ordered Workchain to pay a £200,000 fine and £60,930 in costs. Tong and Hinkley were each given a four-month prison sentence that was suspended for two years, and were ordered to complete 200 hours of community service and to pay £11,250 costs.

Armson was given a two-month prison sentence suspended for two years, a five-month overnight curfew, and was ordered to pay £1,500 costs. Neal was given a two-month prison sentence suspended for two years and was ordered to do 200 hours of community service and to pay £1,500 costs. West, Tomlinson, and Thorpe were each given a two year community order and were ordered to do 150 hours of community service and to pay £500 costs.

“The offenders sentenced today shamefully tried to cheat the system designed to help give workers a secure retirement,” said Guy Opperman, the UK’s minister for Pensions and Financial Inclusion, in a release. “This tough sentence should serve as a warning to any rogue employers who try to flout the rules that they can’t get away with it and will feel the full force of the law.”

Tags: Pension, The Pensions Regulator, Workchain