napf annual pension fund survey suggests that performance-related fees are gaining in popularity though still short of the mainstream
Performance-related fees on pension fund mandates are gaining in popularity but fall well short of being mainstream.
According the NAPF's annual pension fund survey, 9% of schemes questioned said their contracts allow for performance-related fees to be paid to their balanced managers and 13% for their specialist managers. Some 6% said they allowed for it in some cases for their balanced managers and 19% of respondents said in some cases it can be paid to specialist managers.
The majority of respondents answered a flat no, at 63% for balanced managers and 49% for specialist managers.
In the vast majority of cases, investment management expenses, other than transaction expenses are paid for by the fund itself, with just 9% of schemes covering these costs via their parent group or sponsor.
When questioned about the level of interaction with investment managers for the funds, 66% of respondents to the NAPF survey said they instruct the managers as to the asset allocation policy, while 22% said they did not. The investment policy is based in the main on a detailed asset and liability study of the scheme, while 56% based it on consultant and trustee's decisions.
The frequency with which the trustees of pension funds meet with investment managers seems disparate with 1% saying they meet month and 22% saying on an annual basis. Quarterly and six monthly were the most popular time frames for reviewing the pension fund's performance with the investment managers.
A greater proportion of capital in occupational schemes is now allocated to venture capital. In 2001 just 1% of occupational schemes polled had £100,000 or more invested in venture capital. In 2002 that had risen to 16%.
In-house management of occupational schemes has all but ended, with just 6% of schemes now managed in-house. Over 500 of schemes using external managers use pooled vehicles to do so. Each of the schemes is using a range of external managers, with 72% of schemes using two or more managers, although only 145 split assets between six or more managers. Index managers are used by 59% of schemes, while 40% of schemes do not use specialist managers, preferring large generalist fund management houses. External balanced mandates are used by 44% of schemes.
The NAPF also polled members to ask their opinions on the future development of the pensions industry. Conducted among 970 occupational pensions schemes representing 10 million members and total assets of £420bn, the research found that the majority expected the State retirement age to rise from 65 to 70 by 2030.
The announcement came as Conservative MP Peter Garnier introduced a private members bill into the House of Commons. The bill, called the Retirement Income Reform Campaign, was introduced last week, and although details of the bill have yet to be announced, Investment Week understands that a key element of it is to centre on the state pension retirement age. Full details of the bill will be unveiled before the second reading scheduled to take place in the middle of January.
The impact of higher costs is cited in the survey as one of the main reasons behind an increase in the closure and withdrawal of final salary schemes. More than 60% of NAPF members said the provision of occupational schemes takes up more resources than it did five years ago. That figure was up on 57% in 2000.
Almost a third of all occupational defined benefits schemes are now closed to new members, according to the survey.
The number of schemes that have closed down completely has risen in 2002 to 25 from just 13 in 2001, while 46 schemes closed to new members in 2001.
A further 25 schemes switched from final salary to money purchase in 2002, compared to 13 in 2001 and six in 2000.
Accounting standard FRS 17 was one of added costs and administrative burdens defined benefit schemes have had to contend with.
NAPF chairman Peter Thompson said: 'Although under review, FRS 17 is clearly a major problem for employers and appears to have exacerbated the move to defined contribution.'
The Aviva Investors Multi-asset Funds (MAF) target equity risk rather than absolute volatility. Thomas Wells, Multi-asset Fund Manager, explains that while absolute volatility varies significantly over time, the inherent risk of investing in equities remains relatively constant.
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