Everybody’s getting on the pension guideline bandwagon. Earlier this spring, the Organization for Economic Co-operation and Development(OECD)published a set of guidelines for pension fund asset management.

Key among them are the establishment of a “rigorous process by which investment activities are carried out,” a “written statement and investment policy,” a “strategic asset allocation strategy for the pension fund,” a “sound risk management process,” and a “periodic review” of investment policies.

The new guidelines raise questions. Should the Capital Accumulation Plan(CAP)Guidelines plan sponsors are adopting in Canada be put aside? Do these new OECD guidelines trump existing ones?

The short answer, according to Sadiq Adatia, head of Mercer Investment Consulting for the central region of Canada in Toronto, is no. “Everybody is abiding by [the OECD guidelines] already and they don’t change anything significantly. [They were] always best practices.”

One thing these guidelines do, notes Adatia, is put emphasis on investment policy guidelines with which plan sponsors might be unfamiliar. Another topic the OECD guidelines bring up is the concept of risk-budgeting, something Adatia says some plan sponsors may have forgotten. He adds that risk-budgeting may have been part of the OECD’s thinking in drafting the guidelines because of the underfunding problems with defined benefit pension plans in North America.

Of note, adds Adatia, is that the guidelines prescribe having certain asset classes within pension plans but specifically say that plan sponsors should not advise their members what percentages should be invested. “They(the OECD)see that [plan sponsors] have put minimums in their plans and they think it’s really not adding any value and it could restrict people.”

Where the OECD guidelines have missed their mark is with regards to default options for defined contribtion(DC)plans. “If they would have given guidance on that, it would have been appropriate,” says Adatia. Also, as far as DC plans go, he adds that these new guidelines should have discussed the role of plan members. In that respect, he adds, the CAP guidelines go much further.

Overall, Adatia says the new OECD guidelines will act as a reminder to plan sponsors about acting prudently and in the best interests of their plan members.

World View

CUT IN HALF
A new report from Deloitte & Touche in the U.K. shows that top 100 companies in Britain have managed to nearly halve their pension deficits over the past few months.

The deficit, which hit a collective 110 billion pounds or $219 billion Cdn. at the start of the year, has been reduced to about $119 billion Cdn. due in part to a stronger stock market and the government’s indication it would issue more long-term government bonds.

FIGHTING INFLATION IN BAHRAIN
The government of Bahrain is considering a new pension system that would be pegged to inflation. The current system, which raises annual pension payments by 3% per year, is “draining” the system, according to Minister of Finance Shaikh Amed bin Mohammed Al Khalifa.

“The cost of the current system is very high,” he said. “If the 3% is scrapped, it could add 14 years to the life of the Pension Fund Commission. But the scheme is not without critics, like members of the legislature who have said the new system will cut pensions for military and government personnel.

PENSION PORTABILITY?
The Swedish Financial Supervisory Authority has called for all private pension savers in Sweden to have the right to move their pension savings between pension providers. Currently, only private pensioners with new pension contracts have this right.

However, parts of the Swedish insurance industry are opposed to the government intervening in old contractual matters between insurance companies and private pensioners, saying contracts should not be allowed to change retrospectively.

—Joel Kranc