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Defined Benefit

The Weekly Wrap: July 26 edition

By Lisa Botter | July 26, 2013

A round-up of the pensions industry stories published across the FT Group, from the effect of Detroit's filing for bankruptcy on its pension scheme, to a UK Supreme Court ruling on pension claims during insolvency proceedings.

Detroit warns that pension fund shortfall likely to be understated

FT: Detroit may have significantly underestimated its $3.5bn (£2.8bn) pension fund liabilities included in the city’s bankruptcy filed last week. This was due to overly optimistic assumptions and questionable investments, according to Kevyn Orr, the city’s emergency manager. The shortfall could affect the total amount of recovery for other claimants and creditors.

Week in numbers 

  • Detroit's £2.8bn pension liabilities may be underestimated
  • 61 US municipal pension plans are underfunded
  • £543m of UK Coal liabilities taken on by PPF

Supreme Court rules pension plans do not rank above other creditors

FT: The Supreme Court ruled this week that claims from a corporate pension scheme should not rank above other creditors in insolvency proceedings, overturning a lower court judgment. The original case was brought by administrators for Lehman Brothers and Nortel Networks, which challenged the Pensions Regulator’s right to stand along other creditors to stake a claim on the proceeds after a corporate insolvency.

Detroit may shape fragile pensions' investments

FundFire: Legal wrangles over Detroit’s pension obligations could set a precedent for other troubled public plan sponsors. According to US think-tank Pew Research Center, 61 cities across the US have underfunded schemes worth a collective $217bn (£141.7bn). Detroit’s bankruptcy could allow the city and its emergency manager to reduce pension liabilities and municipal contributions, and force the pension plans to adjust asset allocations and investment managers.

PPF responds to criticism of UK Coal pension deal

FT: Martin Clarke, executive director for financial risk at the Pension Protection Fund, responded to allegations that the UK Coal restructure, which saw the PPF take on £543m of pension liabilities, was a bad deal for levy-payers. He said: "Concerns about our ability to fund compensation as a result of this latest, not unexpected, addition to our liabilities, are misplaced.” The PPF reported a surplus of £1bn in its latest annual report.

Frontier asset managers face fight to woo wary investors

MandateWire: Although interest in frontier markets has increased, UK pension schemes are less convinced of the region’s benefits than schemes on the continent. “For many of our pension clients, investing in emerging markets is daunting enough and investing in frontier markets is simply a step too far,” said Paul Gibney, investment partner at consultancy LCP.

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This week's social media comment

In response to Pensions Week's story on how schemes can manage cash flows, Redington's Dan Mikulskis tweeted:

 
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