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Entering her seventh year as chief executive of the UK’s National Association of Pension Funds, Segars has taken the Chair at regional industry body and lobbyist PensionsEurope at a time of huge regulatory and economic change.
“It has been a very tumultuous five years in the UK, and I’m not sure there is much light at the end of the tunnel. We have heard suggestions from the UK government that they may act, but it has not been enough—or early enough—to tackle the consequences of the financial crisis on pension funds and savers.
Since I took over at the NAPF in 2006, risk, de-risking, and sponsor covenant strength have become significant focuses for pension funds—and funds have become a lot more sophisticated in their investment approaches. Our Annual Survey showed there was a higher allocation to fixed interest than equities for the first time since 1975, and investment in domestic equities has fallen below 10%.
There’s a significant shift toward alternatives and finding something that yields an income. That is why we are helping to develop an infrastructure platform to give members an alternative investment vehicle that will generate some inflation-linked cash returns in the shape pension funds want. An interesting trend in the past 12-18 months has been the number of pension funds setting up their own internal management—almost a rebirth of the internal CIO.
We are a very broad church at NAPF—we have members of all shapes and sizes. It is the same at PensionsEurope and there are key themes that unite members: the desire to provide pensions to the citizens of Europe in an efficient and cost effective way and to give decent income in retirement. Yes, situations are very different in each country; some have big unfunded schemes and some in the Central and Eastern Europe have their own particular history and pressures at the moment.
It is also interesting to see how the financial crisis has bitten differently on pension funds across Europe. But even then, there is more that unites than divides us. We may have different legal and regulatory structures, but our mutual objective means we can have a common lobbying voice. We can tell European regulators that they cannot have “one-size-fits-all” approaches and solutions to fit very different entities, even if they work toward the same goal.
Regarding the proposed Solvency II-style rules for pensions, try to think of another topic where you can get unions and employers to agree? They are pretty rare—so when you get these two parties to agree so passionately on an issue, the European Commission needs to sit up and listen. They have, to some extent, but insurers have conducted more than five Quantitative Impact Studies (QIS) for Solvency II. Yet the Commission seems intent on producing a proposal this summer after only one QIS. That is clearly not the way to make sensible policy.
Regulation is a big challenge for PensionsEurope, but we also have to look at the opportunities. There are some good ideas on governance and communications in the IORP Directive review, and there is a paper on long-term investment slated to be published in the spring. During my tenure at the NAPF the greatest pressure has been about how to get out of the tough economic conditions that have been created for us, and that has meant having to move and adjust quickly.
At the start of the NAPF Annual Conference in September 2007, the FTSE was at normal levels. By the end of the conference, it had fallen below the water. When those movements happened, everyone was caught napping. Pension fund investors in the UK are taking huge amounts of advice on how to deal with short-term issues presented by this crisis, but also the longer-term issues, including what the big economic issues mean. Holding this position at PensionsEurope is no doubt going to be a challenge, but it’s a good organization, run by good people, with a fantastic board and members—it would be boring if it wasn’t a challenge.”