International Pension Funds Struggle, Take Action
Recent news from Japan, Denmark, the U.K. and Russia shows other countries are not immune to pension problems.
Pension funds on the international front have snared plenty of headlines, what with dismal news from Japan, actions to shed holdings by Denmark and risk by the U.K. and the embrace of wind projects in Russia.
In Japan, Prime Minister Shinzo Abe narrowly survived a censure motion after he refused to accept a report suggesting pensions are inadequate for most retirees. The measure, according to the Japan Times, “was intended to challenge the Abe government’s reluctance to address public concerns about the sustainability of the public pension system.”
A report in the Asahi Shimbun found that 68 percent of voters were “dissatisfied” with the government’s handling of the report that found public pension payments would fail to sustain people in retirement.
Although the Abe administration has been pursuing “a policy of creating a society in which people can live to the age of 100 without financial concerns,” according to the Japan Times, Reuters reports that Abe is considering raising the retirement age, among other actions, since “many retirees cannot subsist on pensions alone and will outlive their savings[, and that] is one of Japan’s worst-kept secrets.”
Bleak as the news may be from Japan, in the U.K. companies are taking advantage of lower costs to transfer risk from their old pension plans to insurers.
The Financial Times reports that the market for risk transfer is booming, with the market doubling in the last six months. In fact, more than £15 billion ($19.089 billion) in transfers are expected to be completed in the first half of this year alone.
According to consultancy Lane, Clark & Peacock, the first half of the year has been the busiest ever for such deals. A partner at LCP, Charlie Finch, is quoted saying in the report, “There has been a ferocious rate of activity. We’ve never had such a fast start to the year.”
Driving this furious pace has been a combination of greater competition among insurers, lowered life expectancy and investment returns, all combining to bring down the costs to a more enticing level.
The sad thing is that changes to longevity expectations have driven pension plan liabilities down by about 5 percent.
Pension plans are becoming even more proactive about their holdings, reports Chief Investment Officer, with Danish pension fund Magistre & Psykologer Pension (valued at DKK112 billion, or $16.8 billion) dumping Brazilian mining company Vale after trying to address its concerns about the company’s environmental and safety record.
Vale owned the dam that collapsed in January in Brumadinho, Brazil, that killed more than 200 people while creating what is considered that biggest environmental disaster ever in Brazil’s history. And three years earlier another of its dams collapsed, killing 19 and at the time being regarded as the country’s worst environmental disaster.
The pension fund had attempted “dialogue” as a means of addressing the mining company’s record, but the fund’s management was quoted in the report saying that dialogue “has not led to the desired improvements.”
And last but not least, even as in the U.S. the Trump White House is shoring up the coal industry, Russia is going the other way; its pension funds, reports Wind Power Monthly, are considering sizeable investments in wind.
The Russian Association of Non-State Pension Funds, a public association uniting some of the country’s leading private pension funds, says the report, is considering investing in large-scale wind projects. In fact, changes in laws regarding pension fund involvement in infrastructure projects are needed to enable such investments, but those changes are expected to come soon.
That will open the door not just for ANSPF but also other public funds to invest in wind power in the country. Among the projects under consideration is a pipeline of some 15–20 wind projects across Russia from Rusnano; their total capacity is estimated at up to 1.8GW. The country intends to boost installed capacity to 3GW by the end of 2023.
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