Latest news with #financialreform
Telegraph
2 days ago
- Business
- Telegraph
Millions of pensions at risk from savings raid
The pensions of nine million savers are at risk from reforms allowing companies to raid their retirement schemes, the Government's impact assessment has admitted. Proposed changes to final salary pension schemes could mean that more of them run out of money, civil servants warned, leaving them unable to fulfil their financial obligations to members. The comments were seized on by critics of the proposed change, which would allow companies that manage these so-called defined benefit pension schemes to take out 'surplus' money as profit or for reinvestment. But supporters of the move downplayed the risks, saying that pension trustees would typically be given a say on any money handed back. Rachel Reeves, the Chancellor, and Liz Kendall, the Work and Pensions Secretary, are championing the reforms, which are contained in the Pension Schemes Bill. Any money paid out as profit would be subject to tax for the Treasury as it struggles to balance the books. The impact assessment for the proposed changes, written by civil servants at Department for Work and Pensions, said: 'If schemes choose to modify their rules to enable surplus extraction, this adds an indirect cost to members in terms of the increased likelihood of members not receiving their pension benefits in full. 'A scheme surplus can act as a financial cushion for members, to absorb unexpected costs or investment losses for the scheme. Without this cushion, the scheme may be more likely to struggle to meet its obligations to members, especially in times of financial stress or economic shocks.' Defined benefit pension schemes guarantee members a set portion of their final or career average salary after retirement. They are funded by money paid in while members are working. Schemes are in surplus if they are judged to have more money than they need to meet all promised payments to members. Lower interest rates after the financial crisis plunged many schemes into deficit by wrecking their expected investment returns, forcing the companies that sponsor them to make up the gap by pumping in billions of pounds extra. Now interest rates have risen again, schemes have mostly returned to surplus – and companies are seeking to extract some money that they say funds no longer need. The Bill creates new rules allowing employers to remove this cash. But critics are concerned about the risks if another economic crisis sends rates plunging again. This possibility was acknowledged in the 400-page impact assessment, although it added: 'Overall, it is assumed this increased likelihood of members not receiving their benefits in full to be very low given the important role trustees will play in overseeing any decision. The Pension Security Alliance (PSA), which includes Silver Voices, the independent senior citizens group, and John Ralfe, a pensions consultant, raised concerns about the assessment. The PSA said: 'The Government's own analysis proves that the Government's plans pose a risk to the retirement incomes of millions of members of defined benefit pension schemes. It's shocking to learn that civil servants have told ministers that if these plans go ahead, some pension schemes could struggle to meet their obligations to pay pensions. 'Pension scheme members have worked to earn their pensions and the money in pension schemes is there to provide them with a secure income in retirement. This official assessment, prepared by independent civil servants, shows that the Government's plans put those retirement incomes at risk. 'Pension schemes are not a piggy-bank that politicians can dip into or a cash-cow for employers. Pension schemes exist to benefit members and this is official confirmation that the Government's plans could actually harm members. That can't be right.' Among critics of the change are figures in the pensions insurance industry, which buys defined benefit pension schemes. The proposals do have supporters, including Steve Webb, a partner at pension consultant LCP who was pensions minister in the coalition between the Liberal Democrats and the Tories. Mr Webb said: 'The funding of company pension schemes has been transformed in recent years. The majority of schemes now have surplus funds which can be used in a responsible way to benefit scheme members, through improved benefits, as well as the companies who have paid so much in for so long. 'The plans have plenty of safeguards, including the judgment of trustees who will be seeking to ensure that using surplus funds does not undermine the security of member benefits. This is a positive initiative which should be supported.'
CTV News
3 days ago
- Business
- CTV News
Can an American pope apply U.S.-style fundraising and standards to fix troubled Vatican finances?
A view of the empty St. Peter's Square as Pope Francis is delivering the Angelus noon prayer from his studio, at the Vatican, Jan. 6, 2021. (AP Photo/Andrew Medichini, File) VATICAN CITY — As a bishop in Peru, Robert Prevost was often on the lookout for used cars that he could buy cheap and fix up himself for use in parishes around his diocese. With cars that were really broken down, he'd watch YouTube videos to learn how to fix them. That kind of make-do-with-less, fix-it-yourself mentality could serve Pope Leo XIV well as he addresses one of the greatest challenges facing him as pope: The Holy See's chronic, 50 million to 60 million euro (US$57-68 million) structural deficit, one billion euro ($1.14 billion) pension fund shortfall and declining donations that together pose something of an existential threat to the central government of the 1.4-billion strong Catholic Church. As a Chicago-born math major, canon lawyer and two-time superior of his global Augustinian religious order, the 69-year-old pope presumably can read a balance sheet and make sense of the Vatican's complicated finances, which have long been mired in scandal. Whether he can change the financial culture of the Holy See, consolidate reforms Pope Francis started and convince donors that their money is going to good use is another matter. Leo already has one thing going for him: his American-ness. U.S. donors have long been the economic life support system of the Holy See, financing everything from papal charity projects abroad to restorations of St. Peter's Basilica at home. Leo's election as the first American pope has sent a jolt of excitement through U.S. Catholics, some of whom had soured on donating to the Vatican after years of unrelenting stories of mismanagement, corruption and scandal, according to interviews with top Catholic fundraisers, philanthropists and church management experts. 'I think the election of an American is going to give greater confidence that any money given is going to be cared for by American principles, especially of stewardship and transparency,' said the Rev. Roger Landry, director of the Vatican's main missionary fundraising operation in the U.S., the Pontifical Mission Societies. 'So there will be great hope that American generosity is first going to be appreciated and then secondly is going to be well handled,' he said. 'That hasn't always been the circumstance, especially lately.' Reforms and unfinished business Pope Francis was elected in 2013 on a mandate to reform the Vatican's opaque finances and made progress during his 12-year pontificate, mostly on the regulatory front. With help from the late Australian Cardinal George Pell, Francis created an economy ministry and council made up of clergy and lay experts to supervise Vatican finances, and he wrestled the Italian-dominated bureaucracy into conforming to international accounting and budgetary standards. He authorized a landmark, if deeply problematic, corruption trial over a botched London property investment that convicted a once-powerful Italian cardinal. And he punished the Vatican's Secretariat of State that had allowed the London deal to go through by stripping it of its ability to manage its own assets. But Francis left unfinished business and his overall record, at least according to some in the donor community, is less than positive. Critics cite Pell's frustrated reform efforts and the firing of the Holy See's first-ever auditor general, who says he was ousted because he had uncovered too much financial wrongdoing. Despite imposing years of belt-tightening and hiring freezes, Francis left the Vatican in somewhat dire financial straits: The main stopgap bucket of money that funds budgetary shortfalls, known as the Peter's Pence, is nearly exhausted, officials say. The 1 billion euro ($1.14 billion) pension fund shortfall that Pell warned about a decade ago remains unaddressed, though Francis had planned reforms. And the structural deficit continues, with the Holy See logging an 83.5 million euro ($95 million) deficit in 2023, according to its latest financial report. As Francis' health worsened, there were signs that his efforts to reform the Vatican's medieval financial culture hadn't really stuck, either. The very same Secretariat of State that Francis had punished for losing tens of millions of euros in the scandalous London property deal somehow ended up heading up a new papal fundraising commission that was announced while Francis was in the hospital. According to its founding charter and statutes, the commission is led by the Secretariat of State's assessor, is composed entirely of Italian Vatican officials with no professional fundraising expertise and has no required external financial oversight. To some Vatican watchers, the commission smacks of the Italian-led Secretariat of State taking advantage of a sick pope to announce a new flow of unchecked donations into its coffers after its 600 million euro ($684 million) sovereign wealth fund was taken away and given to another office to manage as punishment for the London fiasco. 'There are no Americans on the commission. I think it would be good if there were representatives of Europe and Asia and Africa and the United States on the commission,' said Ward Fitzgerald, president of the U.S.-based Papal Foundation. It is made up of wealthy American Catholics that since 1990 has provided over $250 million (219 million euros) in grants and scholarships to the pope's global charitable initiatives. Fitzgerald, who spent his career in real estate private equity, said American donors — especially the younger generation — expect transparency and accountability from recipients of their money, and know they can find non-Vatican Catholic charities that meet those expectations. 'We would expect transparency before we would start to solve the problem,' he said. That said, Fitzgerald said he hadn't seen any significant let-up in donor willingness to fund the Papal Foundation's project-specific donations during the Francis pontificate. Indeed, U.S. donations to the Vatican overall have remained more or less consistent even as other countries' offerings declined, with U.S. bishops and individual Catholics contributing more than any other country in the two main channels to donate to papal causes. A head for numbers and background fundraising Francis moved Prevost to take over the diocese of Chiclayo, Peru, in 2014. Residents and fellow priests say he consistently rallied funds, food and other life-saving goods for the neediest — experience that suggests he knows well how to raise money when times are tight and how to spend wisely. He bolstered the local Caritas charity in Chiclayo, with parishes creating food banks that worked with local businesses to distribute donated food, said the Rev. Fidel Purisaca Vigil, a diocesan spokesperson. In 2019, Prevost inaugurated a shelter on the outskirts of Chiclayo, Villa San Vicente de Paul, to house desperate Venezuelan migrants who had fled their country's economic crisis. The migrants remember him still, not only for helping give them and their children shelter, but for bringing live chickens obtained from a donor. During the COVID-19 pandemic, Prevost launched a campaign to raise funds to build two oxygen plants to provide hard-hit residents with life-saving oxygen. In 2023, when massive rains flooded the region, he personally brought food to the flood-struck zone. Within hours of his May 8 election, videos went viral on social media of Prevost, wearing rubber boots and standing in a flooded street, pitching a solidarity campaign, 'Peru Give a Hand,' to raise money for flood victims. The Rev. Jorge Millán, who lived with Prevost and eight other priests for nearly a decade in Chiclayo, said he had a 'mathematical' mentality and knew how to get the job done. Prevost would always be on the lookout for used cars to buy for use around the diocese, Millán said, noting that the bishop often had to drive long distances to reach all of his flock or get to Lima, the capital. Prevost liked to fix them up himself, and if he didn't know what to do, 'he'd look up solutions on YouTube and very often he'd find them,' Millán told The Associated Press. Before going to Peru, Prevost served two terms as prior general, or superior, of the global Augustinian order. While the order's local provinces are financially independent, Prevost was responsible for reviewing their balance sheets and oversaw the budgeting and investment strategy of the order's headquarters in Rome, said the Rev. Franz Klein, the order's Rome-based economist who worked with Prevost. The Augustinian campus sits on prime real estate just outside St. Peter's Square and supplements revenue by renting out its picturesque terrace to media organizations (including the AP) for major Vatican events, including the conclave that elected Leo pope. But even Prevost saw the need for better fundraising, especially to help out poorer provinces. Toward the end of his 12-year term and with his support, a committee proposed creation of a foundation, Augustinians in the World. At the end of 2023, it had 994,000 euros ($1.13 million) in assets and was helping fund self-sustaining projects across Africa, including a center to rehabilitate former child soldiers in Congo. 'He has a very good interest and also a very good feeling for numbers,' Klein said. 'I have no worry about the finances of the Vatican in these years because he is very, very clever.' Franklin Briceño contributed from Lima, Peru. Associated Press religion coverage receives support through the AP's collaboration with The Conversation US, with funding from Lilly Endowment Inc. The AP is solely responsible for this content. Nicole Winfield, The Associated Press
Reuters
4 days ago
- Business
- Reuters
Shaken by crises, Switzerland fetters UBS's global dream
BERN, June 6 (Reuters) - Switzerland announced reforms on Friday to make its biggest bank UBS (UBSG.S), opens new tab safer and avoid another crisis, hampering the global ambitions of a lender whose financial weight eclipses the country's economy. UBS emerged as Switzerland's sole global bank more than two years ago after the government hastily arranged its rescue of scandal-hit Credit Suisse to prevent a disorderly collapse. The demise of Credit Suisse, one of the world's biggest banks, rattled global markets and blindsided officials and regulators, whose struggle to steer the lender as it lurched from one scandal to the next underscored their weakness. On Friday, speaking from the same podium where she had announced the Credit Suisse rescue in 2023 as finance minister, Switzerland's president Karin Keller-Sutter delivered a firm message. The country would not be wrongfooted again. "I don't believe that the competitiveness will be impaired, but it is true that growth abroad will become more expensive," Keller-Sutter said of UBS. "We've had two crises. 2008 and 2023," she said. "If you see something that is broken, you have to fix it." During the global financial crisis of 2008, UBS was hit by a losses in subprime debt, as a disastrous expansion into riskier investment banking forced it to write down tens of billions of dollars and ultimately turn to the state for help. Memories of that crisis also linger, reinforcing the government's resolve after the collapse of Credit Suisse. For UBS, which has a financial balance sheet of around $1.7 trillion, far bigger than the Swiss economy, the implications of the reforms proposed on Friday are clear. Switzerland no longer wants to back its international growth. "Bottom line: who is carrying the risk for growth abroad?" said Keller-Sutter. "The bank, its owners or the state?" The rules the government proposed demand that UBS in Switzerland holds more capital to cover risks in its foreign operations. That move, one of the most important steps taken by the Swiss in a series of otherwise piecemeal measures, will make UBS's businesses abroad more expensive to run for one of the globe's largest banks for millionaires and billionaires. Following publication of the reform plans, UBS Chairman Colm Kelleher and CEO Sergio Ermotti said in an internal memo that if fully implemented, they would undermine the bank's "global competitive footprint" and hurt the Swiss economy. The reform would require UBS to hold as much as $26 billion in extra capital. Some believe the demands may alter the bank's course. "It could be that UBS has to change its strategy of growth in the United States and Asia," said Andreas Venditti, an analyst at Vontobel. "It's not just growing. It makes the existing business more expensive. It is an incentive to get smaller and this will most likely happen." Credit Suisse's demise exploded the myth of invincibility of one of the wealthiest countries in the world, home to a global reserve currency, and proved as unworkable a central reform of the financial crisis to prevent state bailouts. For many in Switzerland, the government's reforms are long overdue. "The bank is bigger than the entire Swiss economy. It makes sense that it should not grow even bigger," said Andreas Missbach of Alliance Sud, a group that campaigns for transparency. "It is good that the government did not give in to lobbying by UBS. The question is whether it is enough. We have a banking crisis roughly every 12 years. So I'm not really put at ease." UBS CEO Ermotti had lobbied against the reforms, arguing that a heavy capital burden would put the bank on the back foot with rivals. The world's second-largest wealth manager after Morgan Stanley is dwarfed by its U.S. peer. Morgan Stanley shares value the firm at twice its book value, compared with UBS's 20% premium to book. On Friday, the bank reiterated this message, saying that it strongly disagreed with the "extreme" increase in capital. But others are sceptical that the government has done enough. Hans Gersbach, a professor at ETH Zurich, said there was still no proper plan to cope should UBS run into trouble. "The credibility of the too big to fail regime remains in question."
Telegraph
30-05-2025
- Business
- Telegraph
Final salary pensions at risk from Labour tax raid
Labour is set to remove restrictions that currently protect pension savings from being funnelled into risky investments. Under new plans the Government will allow pension funds to draw down money that is surplus to the amount required to cover a scheme's liabilities. But critics have warned the move would put millions of final salary pensions at risk, and may even see businesses dipping into pension pots to improve their cash flows. The reforms, announced on Thursday, will allow 'surplus' funds to be invested back into businesses, removing existing safety measures that protect pensions from riskier investments. Approximately 8.8 million people are members of defined benefit schemes, which currently have a collective surplus of £160bn, according to consultants Hymans Robertson. Under the plans, any money drawn down by businesses would instantly be hit with a 25pc tax charge, providing a much-needed boost for the Chancellor as she seeks to avoid breaching her own fiscal rules. If the full £160bn were drawn down using the new freedoms it could raise as much as £40bn for the Treasury. Critics have urged ministers to rethink the plans. Dennis Read of Silver Voices, part of the new campaign group Pension Security Alliance, said: 'If a company has cash flow problems it will be tempting to raid the pension fund, claiming that the purpose is investment, so leaving the scheme underfunded and unstable if the company collapses.' Options for using the cash include paying more to shareholders, increasing spending on their business or making investments elsewhere. Schemes can already distribute their surpluses, but strict rules designed to protect pensions at all costs make it rare. However, any access to surplus funds must first be approved by the trustees, who in turn will need to ensure actions are in 'members' best interests' which could place a high bar on when the new powers can be used. The Pensions and Lifetime Savings Association welcomed the announcement, adding that surplus release by schemes could provide an opportunity to improve member benefits, boost contributions into defined contribution schemes, and support new types of investment. However, the association said measures needed appropriate protections for savers. A former pensions minister, Sir Steve Webb, now a partner at firm LCP, said the changes could result in spare cash being used to improve benefits for existing members, for example by providing better inflation protection on schemes relating to service before 1997. John Ralfe, independent pensions consultant and chair of two pension schemes, added: 'The detailed regulations that ministers are proposing must make sure member security is the absolute priority. 'Surpluses must be defined on a tough basis. Scheme assets must also match liabilities to minimise the risk of market movements causing any future deficit.' The Government's plans were set out last year in a Department of Work and Pensions paper that said ministers would consult on the details of surplus extraction plans. The reforms come as the Government announces it is legislating for a reserve power within the upcoming Pensions Schemes Bill that will allow it to mandate pension scheme investments to drive capital into UK assets and boost growth. The Treasury was approached for comment.
The Independent
29-05-2025
- Business
- The Independent
What Rachel Reeves' pensions revamp means for your retirement pot - and will you really see £6,000 more?
Government proposals over changes to how pensions are run were released on Thursday, with headlines around £6,000 boosts to workers and £25bn megafunds painting a positive picture for the future. Chancellor Rachel Reeves said the 'reforms mean better returns for workers' and pointed out extra investment for businesses in the UK could push economic growth. But it's all rather abstract for workers - especially on the back of a recent study looking at whether pension contributions were subject to tax - who might simply want to know: what's happening to my pension now? What's happening and what may change? Currently, many pension providers are in operation across the UK, large and small. The plan is to combine many of them into 'megafunds', with your employer-defined contribution (DC) pensions - those are workplace pensions you automatically pay into from your salary, before tax - being pooled with others to create giant funds worth at least £25bn. Local government pension schemes will be consolidated too, from 86 authorities down to six groups. The plan is for this to happen over the next five years, with any funds which don't achieve that figure being given extra time if they can provide the pathway for how they'll get there. Industry body the Society of Pension Professionals has given its approval to the scheme, as have many of the UK's largest existing pensions companies, with deputy prime minister Angela Rayner saying the money in these pension pools will drive 'growth and opportunities in communities across the country for years to come'. 'The Pension Schemes Bill hopes to achieve this revolution through a combination of consolidation of workplace schemes in the private sector and across local authority schemes into 'megafunds', with voluntary agreements by those schemes to boost their allocation to UK-based investments, with a significant emphasis on private equity and 'productive' assets,' pensions expert Alice Guy told The Independent. 'The UK pension system is incredibly fragmented with thousands of small schemes, which adds complexity and costs for pension providers. 'Having fewer, bigger schemes should make it easier for regulators to keep an eye on performance and underlying fees,' Ms Guy added. 'Practically speaking, most of this will happen behind the scenes - your money is protected and ringfenced. Most pension schemes are broadly similar, so there won't be much obvious impact on pension savers.' Pooling pension money into megafunds is likely to mean that your pension provider may change or merge with others, but this could yet be years down the line. £6,000 each? Sort of So, this six grand benefit. The government report cited the example of an average pension pot, with its value under current conditions and then adding in changes through lowered fees and costs and an expected two per cent uplift from the benefits of new investment options. As a result of those changes, they estimate a £5,900 positive change to the average pension pot. Ms Guy explained: 'The estimated £5,900 saving is based on providers passing on cost savings to pension savers. An average 22-year-old earner is expected to save £2,500 on pension fees over their working life and enjoy a £3,300 investment boost due to better investment performance. Ministers hope that bigger funds will have more resources to invest in a wider range of assets, including private equity.' So, you're not exactly going to see an extra chunk of cash in your bank account, or indeed appear in your pension fund. But that's the expected benefit per person after the reforms. This is a many-year approach, of course, and actual pension value will depend not just on how much you earn and the fees you pay, but also on the market value of those investments at the time of your retirement. Reason for caution Tom Selby, director of public policy at AJ Bell, points out a few notes to be aware of, including no guarantee of any long-term benefit at all. Most of all, for some there will be the danger of chasing government policy plans over investor benefit. 'Many of the claims about the benefits of these reforms to pension savers and retirees need to be taken with a fistful of salt,' Mr Selby said. 'While there may be some efficiency benefits to consolidation, these are difficult to quantify with certainty and reducing competition in the market may stifle incentives to deliver innovation. 'In addition, private equity investing is notoriously high cost and high risk, meaning it is entirely possible people will end up worse off if those investments fail to perform over the long term. 'There is a clear danger that conflating government policy goals – namely driving higher levels of investment in the UK and ultimately economic growth – with those of savers and retirees means the latter will be risked in pursuit of the former. 'It is vital the needs of pension scheme members remain the priority, rather than the needs of a government focused primarily on its growth agenda and ultimately to bolster its chances of re-election.'
