UK/EUROPE - Pension schemes could be paying above the odds on foreign currency transactions. According to Mercer Investment Consulting and Record Currency Management, foreign currency is often traded at uncompetitive rates. A closer look at these rates could mean significant savings for many schemes.
Head of the European custody group at Mercer, Mark Walker, said: Pension funds often pay little attention to foreign currency transaction costs, and better management of these transactions can enhance returns.
Plan sponsors are often unaware of the surprisingly high volume of foreign currency trading, which compounds the problem of uncompetitive rates.
The issue of transaction costs was pushed to the fore in the UK by the Myners’ Report. But foreign currency transactions - where there is no direct commission - often gets overlooked.
Mercer and Record have joined forces to launch a new currency audit service which claims to allow trustees to gain precise details about the FX rates they pay.
The research showed that typical FX turnover - the volume of deals which a scheme undertakes each year - lay between 50%-100% of international asset allocations. In one case, they found that 50% of fund managers engaged at one undisclosed scheme were trading FX on a competitive basis. The other half cost the fund 43 basis points of turnover, compared to less than 8 basis points for the competitive managers.
It went on to argue that with active handling, a pension scheme could make annual savings of 20+ basis points on its foreign currency exposure, or £1m+ on £500m of international assets.
The Pension Protection Fund (PPF) is consulting on proposals to charge a "risk reflective" levy for commercial defined benefit (DB) consolidation vehicles.
The funding gap across FTSE 350 schemes could be slashed by as much as £275bn if schemes look beyond traditional ways of creating value. Victoria Ticha examines how
There will be "many flavours" of defined benefit (DB) consolidators but consolidation will only be the right answer for a minority of schemes, Alan Rubenstein says.
Work and Pensions Committee (WPC) chairman Frank Field has questioned the regulator on what lessons it can learn from the experience of the Kodak Pension Plan No.2 (KPP2).