There is a move towards alternatives at the moment. Are you exposed to these types of assets?
We do have some in the portfolio, but it is not a big thing for us. Because we are on a journey to 2025, we have to look carefully at our liquidity. We look at every asset that we have as being realisable in that timeframe. Infrastructure, for example, is quite difficult for us because a lot of those investments are much longer term. We do have some allocation to hedge funds and some private equity.
In private equity we look at the secondary market rather than the primary market, again for liquidity reasons. We have a little private market exposure in renewable energy and reinsurance, so we have quite a broad spectrum, we just have that liquidity constraint.
What percentage of your fund is in these assets?
Our total return-seeking portfolio is around 35%. We have about 8% of global equities. There is not going to be a huge amount in alternatives, again because of the liquidity constraints we have.
What happens in 2025?
Our plan is that the MNOPF will be 103% funded on a gilts basis by 2025. We have agreed that we are going to look to insure the liabilities, which would normally mean buy-ins. When the fund is fully bought-in the trustee will have to take a view – buy-out and wind-up or carry on running the fund to pay the benefits as they fall due?
You would, however, have to ask yourself why would the trustee want to keep running the fund at this point, but they will do what is right for the members. No doubt the 300 employers in the MNOPF would like to see it bought-in, bought-out, woundup and gone, as that extinguishes their liabilities. Whether that is the right thing for the trustee and in the interest of the members is something that the trustee will have to look at.
What else can we expect from the MNOPF in the coming years?
When we closed the MNOPF to future DB accrual, we had an existing DC scheme called the Merchant Navy Officers Pension Plan. We decided to introduce a new product called the Ensign Retirement Plan, a DC master trust for all employers and employees in the maritime industry. It’s not just for officers; it’s for ratings and shore-based staff too.
In 2015, when the joint member and employer contribution rate for active members was due to increase from 30% to 42.5% in the DB Section, the industry said: “Ouch, that’s a big increase for a pension scheme with an accrual rate of 1/80th for each year of pensionable service, based on average re-valued salary throughout the membership. What are our options?” The option I proposed to the unions and employers was to close the scheme to future accrual and instead switch all members into a defined contribution arrangement.
When we proposed joint DC contribution rates of 30%, employers said: “That’s outrageous. We can’t afford to pay 30%.” The alternative option though was to leave them in DB and pay 42.5%. The unions were not happy with 30% because employees could stay in DB and get 42.5%, but in the end both sides agreed to close, leaving a group of members with 30% contribution rates in DC, which is a pretty good deal. So, we negotiated an arrangement where we have a group of members with great contribution rates in the Ensign Retirement Plan that is currently inside the MNOPF. We have another replica scheme outside of the MNOPF, although we are currently looking at consolidating these two arrangements. The legacy is this new master trust, the Ensign Retirement Plan, designed specifically for the maritime sector that is fit for the next 100 years of pension provision. It has a simple goal of improving the retirement outcomes for people in the maritime industry and boasts good investment options, good contribution rates, good communications and low charges.
The Ensign Retirement Plan is the future, the MNOPF is the past. That is the way we see it. Whilst the MNOPF is the past, we still have obligations to make sure members get the pensions they have been promised, as the remaining members are heavily reliant on it. So that’s the birth of the Ensign Retirement Plan. It is Pensions Quality Mark Ready, has Master Trust Assurance and is delivering high quality pension provision at low cost for the maritime sector.
If the two Ensign Retirement Plan’s are consolidated, there will be some 80 to 90 employers and over £50m of funds in the plan. Our aim is £250m in the next three to five years. The plan will be self-sufficient and not-for-profit so it will be as low cost for members as it can be, with Blackrock our partner on the administration and investment side. It is a quality scheme and we are looking for every employer in the maritime sector, including those beyond the merchant navy, to get behind it.
