Making Sense of Pensions

Angela Burns

The Financial Conduct Authority (FCA) recently produced the results of its DB transfer survey in which it stated it was ‘concerned and disappointed’ at the amount of DB transfers. A statement which, I imagine, is based on the assumption that transfers are not always in the member’s best interests, and a belief that a high number of transfers means that incorrect decisions are being made.

Transfer values can be extremely beneficial for individuals given the right circumstances. Recent low yields will also have made transfer values attractive.

It has been a requirement for some time that individuals have to obtain independent financial advice before transferring amounts over £30,000. This should have helped manage the risk of dubious decision making. However, the concern now is that financial advice is not meeting the mark and poor decisions are being made right, left and centre.

The FCA is working to combat advisers that are not providing advice of the expected standard. They are writing to firms where a potential for harm has been identified, to set out expectations for transfer advice and actions the firm should take to improve the quality of their advice.

This is a great project to tighten up standards across the industry. I expect, however, that it could be a slow process.

Trustees can also take measures now to protect members’ interests by giving them a route to quality financial advice rather than having them rely on the powers of Google. ‘At Retirement’ platforms can be used to ensure individuals are:

  • aware of their options under the scheme
  • understand these options, and
  • have a straight through process to a trusted adviser to provide them with quality, well-considered advice.

This should also help to protect pension scheme members against pension scams which are becoming more complex and imaginative in every iteration.

The issue has to be tackled both from an industry perspective and a scheme perspective to ensure good outcomes for all. An excess of poor financial advice may result in a repeat of the mis selling scandal. It is important that trustees and IFAs make sure they are not in the firing line.

Alan Collins

The ultimate goal of a defined benefit scheme is clear – to ensure that all members receive the benefits they have built up in the scheme. For most schemes, this will involve some form of insured solution at a point in the future where remaining benefits are secured and the scheme is then wound-up. For some that will come sooner; for others it is currently a very distant prospect.

The UK funding regime has historically “ignored” this ultimate end point – rather, we have the somewhat vague construct of technical provisions (ongoing funding basis). This is the liability target required in funding valuations which must be prudent, but need not remove all future risks. Typically, you might see this liability target sitting in the region of 60-80% of the cost of insuring scheme benefits. Therefore, even if a scheme is 100% funded on the technical provisions basis, it will not be able to insure the benefits without significant further investment returns or significant further contributions from the sponsor.

As most of us working in defined benefit pension schemes already know, a scheme’s technical provisions are only a stepping stone towards the ultimate goal. What happens once full funding on an ongoing basis is achieved?

Over recent years, to assist scheme trustees with forward planning, the Pensions Regulator has introduced the concept of the long-term funding target (LTFT). The LTFT is defined as “the level of funding the scheme will need to achieve in order to reduce its dependence on the employer”. To me, this translates as meaning the buyout level funding or a level of funding that can be managed towards buyout without material further contributions from the sponsor.

The LTFT is now a key part of valuation discussions for 2019 and beyond. This is particularly the case for rapidly maturing schemes where the journey time to end point is getting shorter and shorter. The LTFT need not (and in most cases will not) bring about a change to the ongoing funding target or any immediate changes to the investment strategy. What it should do is bring about discussions on journey planning (both in the short and long-term), managing and reducing risk over time and possibly setting triggers that will reduce risk as the funding level improves and/or as the scheme matures.

Yields are returning to very low levels resulting in higher and higher liability values. As such, the funding challenges for pension scheme trustees show no sign of getting any easier. However, I am confident that looking to the future and setting clearly defined long-term targets (and clearly planning for how they will be achieved) will serve trustees well over the years ahead.

Brendan McLean

Since the events of the global financial crisis in 2008/09 most markets have gone up, driven mainly by quantitative easing. This has made it very difficult for any active manager to outperform.

However, following large capital flows from active into passive investing and changing regulations, could active managers outperform in the future?

Investors have moved huge amounts of capital from active to passive funds. This change started in 2006, even before the crisis. According to Morningstar, the size of the passive fund market in the USA now equals the assets in active management. As passive funds buy all holdings in an index indiscriminately, with no sense of value, could active managers now have a better chance of exploiting this? I feel active managers could capitalise on less money chasing market mispricing and outperform over the long-term, although managers would need to hold concentrated portfolios to capitalise on this, which increases the risk. For risk averse investors passive funds will still be preferable as the appeal is in their diversification, where a single holding declining in value would not have a material effect.

Since the introduction of MiFID II in January 2018, asset managers have been required to make direct payments for investment research rather than using clients’ trading commissions to cover the cost. Due to the large fees involved, many asset managers do not want to pay for research which was previously free. As a result, many brokerage firms have cut their research personnel. Given that there are fewer analysts covering stocks, could this lead to more mispricing and extra opportunities for active managers (who have their own research capabilities) to add value?

Over the short-term it may not make any noticeable difference due to the depth of coverage particularly for large caps. However, over the long-term we may see fewer research analysts in general which could lead to better opportunities for active managers. Small cap active managers generally have more success in adding value verses their large cap peers, partly due to a lack of research coverage. With MiFID reducing the number of research analysts even more, small caps may become an even greater area of the market where active management can outperform.

With the ever increasing flow of capital from active to passive funds and with less research analysts identifying mispriced stocks, perhaps there is a future for active managers to outperform.

David Davison

This article was originally published in Lexis Nexis on 4th April 2019

Pensions analysis: David Davison, director and owner of Spence & Partners who leads the public sector, charities and not-for-profit practice and heads a team advising third sector bodies on all aspects of pension provision, discusses the recent government consultation which intends to ensure that exit payments paid to public sector employees are ‘value for money for the taxpayer’.

Original news

HM Treasury opens consultation on restricting exit payments for public sector workers, LNB News 10/04/2019 90

HM Treasury has opened a consultation outlining how the government will introduce a £95,000 cap on exit payments for public sector workers. The policy will see UK civil service, local government, police forces, schools and the NHS taking part in the first stage of implementation. The consultation sets out proposed draft regulations, schedule to the regulations, accompanying guidance and directions. The deadline for responses is 11:59pm on 3 July 2019.

What is the background to HM Treasury’s consultation on draft regulations restricting exit payments in the public sector published on 10 April 2019?

There has been government concern for some time about the level of severance packages in the public sector. This issue dates back to May 2015, with the government announcing it would bring forward proposals to end six figure pay-outs, then running an initial consultation with proposals in February 2016 and implementing changes in the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) and amending in the Enterprise Act 2016.

SBEEA 2015 required secondary legislation which had a first reading in the House of Commons in September 2017, with them now consulting on the detail based upon the proposals issued on 10 April 2019. It’s been pretty slow progress, but I suppose no-one should be that surprised by the contents. When this was looked at initially, there seemed to be some high profile severances and a real concern about senior staff in the public service exiting for large severances and then returning to another similar job a short time later.

The proposals follow research they’d carried out which suggested that more than 1,600 highly paid workers received payments of more than £100,000 in 2016/17 costing a total of £198m. They estimate that the total cost of exit payments across the public sector in 2016/17 were £1.2bn. So, the proposed limit will impact less than 17% of total payments and any saving likely to be materially less than that as still some pay-out will be made. The focus is going to be very much limiting large payments at the top-end and not those for the vast majority.

What are the key proposals for change and why are they being implemented now? Are there any specific exclusions or exemptions under the proposals?

The proposals would implement a cap on the value of redundancy lump sums and pension top-up payments to £95,000 in total. Those organisations impacted are specified in the proposals, but it is the ultimate aim that the legislation will apply to all public sector employers at a future date so effectively we have a two-stage roll-out.

Payments made by devolved authorities are exempt, as are payments from secret intelligence service, the security service, the government communications HQ and the armed forces given their unique requirements. Payments from fire and rescue authorities are also proposed to be exempt as they do not increase the actuarial value of the pension payable.

As a general rule, accrued pension entitlements are exempt as they do not incur an additional cost to the public purse however payments which do involve an additional employer cost (such as ‘strain costs’ payable on redundancy) would be included. Other exemptions include death-in-service benefits, incapacity benefits, a payment in lieu of contractual leave not taken, payment in lieu of notice or any payment made by court order or a tribunal.

The proposals provide a standard legal underpin, however they do not prevent employers from applying alternatives.

How would the introduction of the proposals impact on public sector employees and employers?

It is the employer’s responsibility to ensure that a payment is not made in excess of the cap. This will place an additional administrative burden on employers. Clearly for employers it would reduce the overall cost of severance packages. It is also likely to make planning for these costs more certain. For employers there will be a requirement to consolidate all payments to ensure that the cap isn’t breached. This will mean ensuring that ‘strain costs’ are identified early in the process to allow these to be incorporated.

Employee payments will at the higher end be lower which may influence decisions about exiting as it may make them less attractive or indeed unaffordable. This may also make the option of restructuring senior roles more difficult for employers possibly trapping senior employees in roles they are not wholly committed to. That said it may promote greater transferability between roles.

There is some guidance on the order of payments in Section 6 of the draft Restriction of Public Sector Exit Payments Regulations 2019. The legislation also proposes some flexibility in the implementation of the cap. Where there is flexibility—such as the priority between cash payments and pension strain costs—these will have to be clearly communicated to the employee to allow the required decisions to be taken. It’s likely that engagement will be required at a much earlier stage in the process to facilitate this.

One major concern with the proposals is that they would create a two-tier system in the public sector between employees who are in funded pension schemes and those who are in unfunded schemes. In funded schemes the ‘strain cost’ for early retirement would be deducted from the capped figure or benefits reduced. For those in unfunded schemes no equivalent mechanism exists to recoup redundancy/early retirement costs even though the same equivalent cost would be experienced by the Exchequer. This could mean that employees (and in some cases employers) in unfunded schemes benefit from a much better deal than their counterparts in funded schemes.

Employers will also have to be very careful in the implementation period not to take decisions which could result in costs materially higher than the level of the cap when it is imposed.

What is the timetable for implementation of the changes? What are HM Treasury’s next steps?

The consultation will last for 12 weeks to 3 July 2019. Responses to the consultation may be published. Post this, the draft Regulations may be implemented as proposed or revised.

Interviewed by Varsha Patel.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Link to original article –
https://www.lexisnexis.com/uk/lexispsl/localgovernment/document/412012/8V8N-WKK2-8T41-D1GT-00000-00/Capping-exit-payments-in-the-public-sector%E2%80%94a-review-of-the-draft-regulations-for-consultation/31544

David Davison

We have analysed the 2017 Fund actuarial valuations and carried out some analysis of the employer membership in Scottish LGPS to see how this is distributed. From this we can identify what issues Funds and employers might face.

There are 11 Scottish Funds with the share of overall employers shown below.

The numbers are dominated by Strathclyde Pension Fund, Lothian Pension Fund and North East Pension Fund who account for two thirds of the employers with the other eight Funds making up only one third. Borders, Dumfries & Galloway and Shetland all account for only around 2% each.

We identified a total of 544 employers and have classified them in to the six broad Groups as shown below.

Public bodies, such as Councils, Police and Fire Service, account for around 11% of the total number of employers though these bodies will account for the vast majority of the Funds liabilities.

Leisure organisations will tend to have been formed from outsourced agreements from local authorities and will be run as autonomous organisations.  Often this switch however has left these organisations without any protection should they wish to revise their membership of the schemes and has left them saddled them with huge inherited legacy liabilities from the Councils which they do not have the underlying asset base to support. These organisations therefore are effectively trapped in schemes and leaving them without the level of autonomy they believed they had.

Similarly schools and colleges will have evolved out of public entities or be private schools with public sector links. Participation in LGPS tends to be for non teaching staff. Again these organisations will have little if any financial protection and will find any changes to their LGPS membership complex and expensive to achieve. These organisations are also likely to be facing additional financial pressures from rising costs in the teachers pension scheme as well as some having to deal with membership of the University Superannuation Scheme (‘USS’) all putting a strain on already hard pressed budgets.

Private companies will tend to participate as a result of providing out-sourced public sector services and the requirement to maintain equivalent benefits for contracted staff under Fair Deal. Some of these organisations will be protected by Council guarantees or ‘pass through’ arrangements but many will not, often leaving their shareholders oblivious to the underlying risks they are running.

That leaves the vast majority of employers (around 360) as either charities, who account for nearly 60% of the employer membership, or social housing organisations who account for about 7%, so nearly two thirds in total. In liability terms they will probably account for considerably less than 10% of overall fund liabilities. Some of these bodies may have exited the Fund since the 2017 valuation was carried out.

Some of these charities may also be undertaking public sector contracts and therefore have some form of guarantee or transferee admission body status but the vast majority will not.

The key SPPA findings were that:-

  • There were 530 employers with at least one active member. Of these 422 were admission bodies (covering both transferee and community admission bodies) of which 223 had no guarantor and so were at some point likely to be liable for a cessation payment. Of these 102 had 5 or fewer members where a cessation payment could be deemed to be payable in the short term.
  • Worryingly of the 102, 60 remain open to new members and are therefore building further liabilities which suggests either a lack of understanding of their position or a position forced upon them as a result of the Scottish LGPS Regulations.
  • Of the 121 with no guarantor and more than 5 members 94 remained open to new members.
  • There are 41 employers at greatest risk as they have fewer than 5 members and are closed to new members which mean that a cessation is imminent.
  • The cessation deficit associated with the ‘at risk’ group of 41 was estimated to be in the region of £12m-£15m (i.e. and average of around £300,000 per body). Two LGPS Funds looked at the financial position in their schemes which showed that for organisations with 5 or less members the funding position moved from around £1.93m in surplus on an on-going basis to around £9.4m deficit on a cessation basis. This very much resonates with my experience.
  • The total liabilities for the 223 admitted bodies with no guarantor were in excess of £350m and the cessation deficit could be in excess of £150m.
  • The cessation position could be materially worse now given falls in gilts yields since 2014 which highlights the issue with the cessation basis being adopted.

Based on these numbers I would expect that the position in England and Wales would be 8-10 times greater, so these issues could affect in the region of 2000 other charities and account for deficits approaching £80-£100m. A material proportion of this will relate to liabilities transitioned surreptitiously from local authority to unsuspecting charities.

Changes to Scottish LGPS Regulations in 2018 looked to provide additional flexibility to look to manage these issues however they haven’t been widely adopted by the Funds.

More research needs to be carried out to understand the pension position fully in relation to the covenant position of the organisations concerned and to look to develop solutions, and potentially further update Regulation, to allow this issue to be effectively managed.

Angela Burns

This guide is intended to be a useful reference for companies preparing their 31 March 2019 pensions accounting disclosures, whether under FRS 102 or IAS 19.

In this guide, we will review the changes in the investment markets over the last 12 months and consider the impact these will have had on a typical pension scheme. We will also review recent developments in the area of pensions accounting, highlighting issues that you should be aware of.

With the wealth of corporate advisory experience available at Spence, we are well placed to provide you with guidance in how to best manage your pension scheme liabilities.

The implications of the recent developments should be considered to help you avoid any surprises. Spence can help guide companies through these complexities and have a proven track record in navigating to the best outcomes for our clients.

We would be happy to discuss the options available to you in reaction to the market trends discussed above, including:

  • How to lock in asset gains;
  • Decrease future risk;
  • Reduce funding level volatility.

To discuss these topics further, please contact Spence through your usual contact or connect with our Corporate Advisory practice associate, Angela Burns, at angela_burns@spenceandpartners.co.uk  or by telephone on 0141 331 9984.

David Davison

On the 8th May the Ministry of Housing, Communities & Local Government issued a policy consultation entitled “Local Government Pension Scheme: Changes to the Local Valuation Cycle and the Management of Employer Risk.” This comes following the publication in September of the “Tier 3 employers in the LGPS” research findings. The consultation closes on the 31 July 2019.

The first proposal is to change the actuarial valuation cycle in LGPS, from every 3 years to every 4 years, to coincide with the 4 yearly valuations of LGPS as a whole. I do have some concerns that for admitted bodies in the Schemes this will mean that they receive less information and ultimately the information provided will have to have a much longer shelf life. I suspect this is driven more by the inefficiencies in administration and a drive for cost savings than it is for any drive for valuation consistency.

I think to make this change work Schemes should be supplying annual updates on the funding and cessation position (perhaps linked to the provision of FRS102 information) which would allow organisations to be better informed about their position and options.

Of greater importance to charity participants are a series of proposals primarily aimed at looking to help employers better manage exits from the Schemes.

The document recognises that “for some employers a significant issue is the cost of exiting the scheme which can be prohibitive.” The consultation seeks views on two alternative approaches:-

  • To introduce a ‘deferred employer’ status that would allow funds to defer the triggering of an exit payment for certain employers who have a sufficiently strong covenant. Whilst this arrangement remains in place, deferred employers would continue to pay contributions to the fund on an on-going basis. This is looking to broadly replicate the ‘deferred debt arrangements’ (‘DDA’) brought in by DWP to deal with Section 75 debts in multi-employer schemes and the suspension arrangements implemented in Scottish LGPS in 2018;
  • To allow an exit payment calculated on a full buyout basis to be recovered flexibly – i.e. over a period of time providing this is deemed to be in the interests of the Fund and other employers. This is designed to put in to regulation a framework to provide flexibilities on a more formal and consistent basis to those being utilised ‘informally’ by some funds via alternative arrangements.

Whilst I welcome the sentiment and the objective to formalise any additional flexibilities offered the consultation proposals stop well short of fully recognising the issues and finding a full range of workable solutions to deal with them.

  • The DDA legislation and the changes to the cessation position in LGPS in Scotland brought in in 2018 have both been damp squibs with schemes choosing to ignore the changes and to continue to plough their own furrow. The fundamental issue seems to be that schemes are using any request to use the new regulations as an opportunity to re-negotiate security arrangements with the participant. This is hugely short-sighted as it ignores the lack of security on the benefits already built up and that it cannot be in the interests of the organisation, or indeed the other organisations participating, to build further liabilities. This stance in most cases therefore forces organisations to stay in the Scheme which is exactly the result the changes were looking to avoid! The proposals in this Consultation just seem re-inforce this issue referring to employers who are “sufficiently strong” being the only ones who avail of the proposed funding flexibilities – exactly the employers who can probably afford to exit or even potentially continue in the Scheme;
  • The proposals need to consider what options are available for less “sufficiently strong” employers. It cannot be sensible to force employers in to insolvency as a result of their pension liabilities but instead find a better way to manage these. In the interests of the impacted employer and others in the Scheme it would seem more productive to identify methods where the fund can obtain the maximum possible amount, even if this amount is less than the full cessation position. Some LGPS have already pioneered work in this area and the proposed changes are well behind the curve in terms of effective solutions;
  • The gilts based cessation methodology is flawed. Over the past 10 years gilt yields have fallen from over 5% to well below 2% which means that exiting employers are subjected to something of a lottery in exit terms. Currently high cessation values based on low gilt yields make exits less affordable keeping employers tied to the scheme – again counter-productive. Funds feel their hands are tied in investment terms forcing them to either invest very long term liabilities in poorly performing gilt assets or some funds remaining invested in the same way effectively just taking the cross subsidy benefit from their charity participant to help fund public sector liabilities. A more equitable system could be to look at the rolling average gilt value over a period or based upon the expected local authority borrowing costs;
  • There continues to be no recognition of the issue of legacy liabilities within LGPS. It is wholly inequitable for public sector bodies to expect admitted bodies in their Funds, often charities, to cross subsidise the public entity for benefits built up by staff while working for them. These liabilities should continue to be held by the public body in the same way as they were pre a transfer and new employers should be fully protected from these. Benefits reverting back to a prior employer for service linked to that employer just means that they continue to be dealt with on an on-going’ valuation basis (as they were initially) and not converted to a cessation basis. This is a solution which is also likely to make exits more affordable.
  • The suggestion that the steps proposed are linked to protecting the remaining employers in the Funds and this is repeated here. This whole issue of residual risk has been over-egged. The risk is already there and rising – what is needed is an affordable way to minimise the associated risk with the accrued liability and limit any future accrual. How can it be sensible to have 2 employers where one has one active member and one has no active members and yet they are both treated in vastly different ways.

The proposals in this consultation paper are a hugely disappointing response to the issues and in my view provide a wholly inadequate range of options to address the major issues faced. You’d have thought having sat on its hands over this issue for such a long time that the response would have been more comprehensive and considered.

I will be preparing a more detailed response to the consultation which I will share in a future Bulletin. I would also suggest that if you are a charity affected by these issues that you also respond to the Consultation.

Matt Masters

Have I Got EUs for EU

When a single issue starts to dominate headlines, it can become a little tedious. Whether we like it or not, Brexit will continue to be front page news for a while longer.

However, it’s important we keep Brexit in perspective. While Brexit may lead to a period of disruption, a number of economists believe that, in the long run, it’s unlikely to make a significant difference to GDP growth. For global investors there are bigger issues:

  • the price of commodities;
  • weakness in emerging market economies;
  • concerns over the future strength of the Chinese economy;
  • President Trump’s unpredictability;
  • the USA trade war with China;
  • and rising interest rates.

So, while turbulence, be it the result of Brexit (and there is near unanimity in a recent Centre for Macroeconomics survey that the Brexit question will increase financial volatility) or other factors, can be unnerving, it also offers opportunities. The key is to keep calm and remember that volatility is part and parcel of investing over the long term and a normal function of healthy markets. The moral of the tortoise and the hare story is that you can be more successful by being slow and steady than quick and careless.

Market volatility has undoubtedly caught out some over the years, causing them to panic and sell, losing money in the process. However, investors who have been able to stay the course are likely to reap the rewards. By way of illustration, over the past 30 years or so (incorporating Black Monday, Black Wednesday, the Dot.Com crash, Lehman’s collapse, the Global Financial Crisis and the like) £1,000 would have grown to over £18,000 if invested in the FTSE All-Share Index. Indeed, adding to existing positions at attractive valuations has been a cornerstone of Warren Buffett’s success.

Where does that leave trustees and sponsoring employers of DB pension schemes?

  • Factor Brexit in as a managed risk, keep an eye on covenant and be mindful of members with EU bank accounts.
  • When it comes to investing, don’t panic. Brexit is a known unknown. This means that it’s impossible to accurately predict how various scenarios will ultimately unfold. As a result, it would be prudent to consider exposure to a variety of economies and asset classes; as well as ensuring there is sufficient available cash to meet (potentially unpredictable) benefit outflows.
Andrew Kerrin

1,193. The number of world ranking places that Tiger Woods has climbed in just over a year. A comeback to rank amidst the finest sporting comebacks. A story of resilience. A lesson in positivity triumphing over adversity.

Normally when I sit down to write an introduction to Spence’s latest Quarterly Update I struggle to find a current event that may have some (often tenuous) link to the topics in the report, or that are ripe for making (even more tenuous) puns. Well, not this quarter!

All week the front pages of my usual news feeds have had images of this sporting legend draped in his new (but fifth) green jacket. Like many of you reading this, I had given up hope of seeing the halcyon days of Woods’ return to golf. Yet, from the nadir of a personal life implosion, numerous surgeries and a world ranking of 1,199, hope and positivity were still retained by Tiger, if not by the rest of us. Now, the news bulletins are awash with congratulations from sport stars, world leaders and people from all across the globe, hailing the return of this thrilling force of nature. Pessimistic talk of an irreversible slide has turned to optimistic predictions of more major championships to come.

The first quarter of 2019 has seen a different type of slide for DB pension funds, with scheme funding levels falling considerably towards the end of March, driven by falling gilt yields. UK pension schemes were once at the top of the world rankings too, but have seen their standing slip in recent years. Yet in the midst of these chastening times there are positives to be had. Like the reaction of Tiger Woods, there is resilience. There is a desire to learn and prepare, to come back stronger, healthier and more secure.

This Quarterly Report discusses progress made to protect members from pension scams, with the new cold calling ban. There are features on the Regulator’s new guidance on scheme data and how to better value DB schemes going forward. We’ve also included a summary of the government’s approval of Collective Defined Contribution schemes, as a means for members’ benefits to be better protected as a result of pooling contributions and risk together.

No matter how disheartening an image may be – an icon of sport in ruins, or the increasing size of a scheme deficit – there are always actions we can take to find positives and come back stronger. Hopefully our Quarterly Report assists in that effort and helps schemes get back into the swing of things (I couldn’t resist at least one golf pun!).

Click on image above or this link to download.

Brendan McLean

All major equity markets gave a positive return over the quarter. This was mainly driven by the Federal Reserve (Fed) confirming it would not increase interest rates (as previously indicated) due to declining economic growth and easing of concerns over the China/US trade dispute.

UK equities rallied over the quarter in line with global equities. Investor sentiment improved as it became clear that there was no majority in the House of Commons for a ‘no-deal’ Brexit. A number of domestically-focused equities increased following the delay to Brexit beyond March 2019 as hopes that a disorderly exit from the EU could be avoided. Sterling increased versus the Euro and US dollar. UK long-term inflation expectations were unchanged over the quarter.

US equities were the best performing region as investors responded positively to the Fed stating it will not increase interest rates. Emerging markets equities performed well over the quarter led by China. The US administration’s decision to suspended tariff hikes on $200 billion of Chinese goods, together with ongoing government support for the Chinese domestic economy, was all supportive.

The price of Brent crude oil increased by 27% over the quarter as OPEC followed through on promises to cut production.

Corporate bonds performed well due to the Fed signalling it will not raise interest rates and that quantitative tightening will end in September.

UK gilt yields decreased over the quarter as investors flocked to safety due to fears of slowing growth. All else being equal, this acts to increase the value placed on pension schemes liabilities.

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