Post on 14-Aug-2015
1
A standard, yet very different PPIKempen Capital Management seminar ‘Hollands Glorie’
De toekomst van ons pensioenstelsel: In search of the Holy Grail
April 23, 2015
24/04/2015
Private and Confidential
3
And now for something completely
different...
• DC has the future• ...as despite common myths..• ...the underlying trend is unassailable
• PPI is the best vehicle• ...supported by massive growth...• ...and now breaking barriers....• ...acting in the interest of participants
• Further improvement is on the way• ...yet myths are tenacious...• ... and participant interests should outweigh
providers’ interest.
4
And now for something completely
different...
• DC has the future• ...as despite common myths..• ...the underlying trend is unassailable
• PPI is the best vehicle• ...supported by massive growth...• ...and now breaking barriers....• ...acting in the interest of participants
• Further improvement is on the way• ...yet myths are tenacious...• ... and participant interests should outweigh
providers’ interest.
5
1605
1st “pension”
State elderly
pension
1956
No more early
age retirement
2011 g
1st fund
1970 -1990
Early retirement
65 -> 67 72DB to DC
1845
Final pay avg. pay
2000 -2008
2004 2011 2011 g
PPI growth
2014
www.ingim.com6
We look into the
future and we
see....
7
7
The current system is merely scratched
8
...as despite common myths...
1. DC leads to unpredictable pension2. DC does not contain collectivity and solidarity3. DB has higher returns, because of
intergenerational solidarity4. DC requires participant choices, and thus leads to
errors5. DC is more expensive for it is often executed by
for-profit parties
9
...the underlying trend is unassailable.
2040
0
1
2
3
4
5
6
7
8
9
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Number of workers per 65+
Bron: i-PensionSolutions, United Nations
10
0
2
4
6
8
10
12
14
201
5-0
4-1
62
013-
12-
02
17-
7-2
012
3-3
-201
11
9-1
0-2
009
4-6
-200
81
9-1
-20
076
-9-2
005
22-
4-2
004
9-1
2-2
002
25-
7-2
001
10-
3-2
000
27-
10-
199
81
2-6
-19
972
9-1
-19
961
4-9
-19
943
0-4
-19
931
7-1
2-1
991
2-8
-199
02
0-3
-19
894
-11
-19
872
0-6
-19
865
-2-1
985
22-
9-1
983
10-
5-1
982
24-
12-
198
01
0-8
-19
79
10 Year Dutch bond yield
... the underlying trend is unassailable
Private and Confidential
0
3
6
9
12
15
18
21
Co
st
Cost of € 1 annuity
>33x the price
Bron: i-PensionSolutions
11
...the underlying trend is unassailable.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1999 2005 2010 2014
Number of participants in DC (Netherlands)
0
5
10
15
20
25
1999 2005 2010 2014
AU
M (
€b
ln)
AUM in DC (Netherlands)
12
And now for something completely
different...
• DC has the future• ...as despite common myths..• ...the underlying trend is unassailable
• PPI is the best vehicle• ...supported by massive growth...• ...and now breaking barriers....• ...acting in the interest of participants
• Further improvement is on the way• ...yet myths are tenacious...• ... and participant interests should outweigh
providers’ interest.
13
Rigid expense management
14
PPI is the best vehicle (cost)
Source: LCP [2014] Source: LCP [2014]
Source: Towers Watson [2011 (!)]
15
PPI is the best vehicle
• Proven concept• Lowest cost• Inherently innovative• Participant focused• VAT exempt• Ringfencing • Regulated in The Netherlands
• Suitable for:• DC scheme• Net pension • CDC scheme• Run-off portfolio• Separated account• Europe• (self employed, currently excluded by law)
16
...supported by massive growth
• Significant growth in AUM and premium• Large corporations looking into PPI • (political) perception has changed
€ 113 € 132 € 145 € 171
€ 241€ 291
€ 380
€ 512
€ 658
€ 935
€ 1,241
0
200
400
600
800
1,000
1,200
1,400
2012K2 2012K3 2012K4 2013K1 2013K2 2013K3 2013K4 2014K1 2014K2 2014K3 2014K4
AU
M (
€m
ln)
PPI market
Bron: DNB
17
...and now breaking barriers
Private and Confidential
The first open architecture Premium Pension Institution
18
...and now breaking barriers
• i-PensionSolutions • open platform • serves the interest of participants
• Open platform facilitates:• customers to create and maintain tailor made solutions• asset managers and insurance companies to offer core
business products to their client base, integrated within a total pension offering
• development of (optional) guarantees• next generation DC products to be built
6
19
Strategic choices:
• IPS is set up as a foundation. Its sole purpose is to serve and protect the interests of the pension scheme participants and is a not-for-profit organization
• Only best-in-class partners, • stringent due diligence and compliance
• Operational excellence
• Distribution through partners
• SwissRe offers re-insurance, Credit Suisse capital market guarantees
• Initial start in The Netherlands, European ambition
• Optional guarantees (capital market and insurance)
Core values:
• Protect the interests of the participants
• Transparency
• Integrity
• Independent
• High standards for access to platform
• Strong compliance framework
• Clear governance
• Cost efficient
• Committed for the long term (and strongly capitalized)
...and now breaking barriers
20
Synergy from
cooperation
21
Committed, yet open
22
Best of all worlds
• i-PensionSolutions offers Pension Savings Product• Employer selects asset manager and investment strategy• Employer can select Insurance Company and Insurance Cover
• Pension Administration and integrated communication is executed by i-PensionSolutions
• The employer signs two agreements: • [A] Pension Execution to cover Asset Accumulation (as described before)
and,• [B] Insurance Policy Agreement (Pension Insurance Product) to cover
Biometric Risk insurance with an insurance company
AssetManager
Administrator
Stichting International Pension Solutions (regulated pension entity)
AdministrationAsset
Management
[Employer] (Former) EmployeesPension Agreement
PensionExecution
Agreement
Claim on vested rights
Custodian
Management BoardSupervisory
CouncilExternal Advisors
Order Execution/
Custody
Investment PolicyAdvise on:
Legal, Tax, Actuarial
Investment, Risk Mngt
Investment Committee
Asset Liability Committee
Insurance company
Insurance
Insurane Policy
Agreement
23
... acting in the interest of participants
Independent governance and dedicated products
Standard Tailor made
Plain vanilla
Advanced
- Allocation based
on time to maturity.
General set-up
- Allocation based
on time to maturity
- Client specific
- Allocation depending
on (a.o) funding &
standard guarantee
Fully client specific,
both guarantee and
investment scheme
Level of tailoring
Le
ve
l o
f so
ph
istica
tio
n
SME, Corporates]Large corporates, multinationals,
other collectives,
CorporatesMultinationals, large other
collectives
24
And now for something completely
different...
• DC has the future• ...as despite common myths..• ...the underlying trend is unassailable
• PPI is the best vehicle• ...supported by massive growth...• ...and now breaking barriers....• ...acting in the interest of participants
• Further improvement is on the way• ...yet myths are tenacious...• ... and participant interests should outweigh
providers’ interest.
25
...yet myths are tenacious
• Lifecycle invests in equity for young people because of ‘investment horizon’
• A longer ‘investment horizon’ leads to higher return• Flywheel of disbursements• With pension funds, retirees retain investment
exposure• Longevity risk can be mitigated in a collective
26
What will ‘doorbeleggen’ bring us?
27
Prerequisite for ‘doorbeleggen’• Prevent money death• Individual economic ownership• Executable• Tailoring to individual• Flexible
Risk attittude Risk capacityRisk
position
28
... and participant interests should outweigh providers’ interest.
Source: i-PensionSolutions: “Doorbeleggen en verbeteringen in Defined Contribution” 2015. denationalepensioendialoog.nl/item/596
Risk willingness
Risk capacity
High
HighLow
Low
Annuity
Cash / Lump sum
ALDA | Partial annuity
Continue lifecycle
ALDA | Partial annuity
ALDA | Partial annuity
www.ingim.com29
Within the next 5 years, my pension will be
with a PPI
A new road towards modern and innovative pension solutions in Europe
Appendix: Various slides
32
Unfunded plan on
Balance Sheet
Partial buy-out /
LDI solution
Insurance Solutions
Transfer risk to insurance vehicle
Low
Required Initial funding (necessary liquidity for single premium)
HighLow
Ris
k R
ed
ucti
on
High
Cash injection into pension plan/
traditional asset allocation
Change plan benefits
(DB DC)
Traditional full buyout
(Insured annuities)
Close fund to new
entrants and accruals
(hard freeze)
Close fund to
new entrants
Asset Management Solutions
Manage Risk-Return
Cash Injection/
LDI solution
Change in employee benefits
Transfer risk to employees
Insurance SolutionsAsset Management SolutionsPlan Design Solutions
Diagram 1: Illustrative Example of Pension Risk Management Solutions
Current
Cu
rre
nt
... the underlying trend is unassailable
33
A longer ‘investment horizon’ leads to higher return
Private and Confidential
• Longest, reliable data goes back to 1871
• Only nine complete, independent series of 15 year return
• Statistically infeasible to make valid forward looking statements
0
100
200
300
400
500
600
700
800
0 1 2 3 4 5 6 7 8 9
10
11
12
13
14
15 jaars rendementsperiodes
1871
1886
1901
1916
1931
1946
1961
1976
1991
2006
Bron: Robert Shiller, i-PensionSolutions
34
Growth and Inflation are drivers of interest rate
-5
-4
-3
-2
-1
0
1
2
3
4
5
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Real GDP growth (Euro)
Source: IMF World Economic Outlook April 2015
0
0.5
1
1.5
2
2.5
3
3.5
4
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Inflation ( Euro)
Source: IMF World Economic Outlook April 2015
35
Interest rate is rightfully low. But perhaps too low?
• The "Yuppie/Nerd Ratio" compares the number of 25-to 34-year-olds ("Yuppies") to the number of 45-to 54-year-olds ("Nerds").
• This ratio is said to do a good job of tracking the demographic pressures on long term interest rates.
• Nerds buy bonds for retirement, Yuppies borrow to buy houses, cars, cribs, etc.
0
1
2
3
4
5
6
7
8
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
10
yea
r rate
Yu
pp
ie N
erd
Rati
o
Yuppie Nerd Ratio (Netherlands)
Yuppie / Nerd (LHS)
10year rate (RHS)
Regressed value
Source: Datastream, Census Bureau, ING Investment Management
36
Risk of underfunding weighs heavily on sponsors (or whomever bears the risk)
Private and Confidential
0
2
4
6
8
10
12
14
16
18
20
85
87
88
90
91
93
94
96
97
99
100
102
103
105
106
108
109
111
112
114
115
117
118
120
121
123
124
126
Fun
din
g ra
tio
po
ints
Funding ratio
Estimated value 1 year guarantee of additional funding
Bron: i-PensionSolutions
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