News
Welcome to the ITB Online News Page.
This page contains our latest news and information for our members.
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Further Buy-in purchased for the Open Fund
As the Trustee of the Open Fund, one of our main responsibilities is ensuring the security of the benefits payable to Open Fund members and their dependants. We have taken steps over recent years to greatly improve this security by investing in four “buy-in” policies. On 21 July 2023 an agreement was reached with the insurance company Just Group for a further buy-in policy to secure members’ benefits. Following this latest buy-in policy all the benefits payable from the Open Fund have now been insured.
To secure this buy-in policy, the Trustee has paid a premium in exchange for Just paying amounts to the Open Fund that match the benefits payable from the Fund, including any benefits which might be payable to your dependants and other beneficiaries on death. Securing benefits in this way reduces the risk that the Open Fund is adversely affected by movements in investment markets or other external factors beyond the Trustee’s control.
Securing the Fund’s benefits with a regulated insurer such as Just Group is very much viewed as the gold standard for UK pension schemes. It removes the reliance we have on the participating employers to support the Open Fund if it was to get into financial difficulties due to the factors mentioned above. The financial strength of Just Group was a key consideration for the Trustee in choosing it as the insurer.
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Closed Fund Pensioner Trustee Appointment
The Funds' Office is now able to announce that Mr Maurice Alston was the only nomination received for the Closed Fund Pensioner Trustee position and is therefore appointed with effect from 4 April 2023, for a period of three years.
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The ITB Open Fund and Current Market Volatility
You will no doubt have seen and heard the headlines about the problems the current market volatility is causing pension schemes. This is primarily about pension schemes that have liability driven investment (LDI) strategies to help stabilise the overall funding level, that use derivatives (also called swaps) extensively. Swaps are used by schemes to achieve higher levels of interest rate and inflation hedging than they can achieve with the assets they have available – i.e. they are using leverage. Thankfully, in 2018 following the latest buy-in, the Open Fund achieved a position whereby it had enough physical assets to run the Fund’s LDI strategy almost entirely using government bonds and almost all the swaps held at that time were sold. A small number of Limited Price Index swaps were kept as they are very good value and match some of our pension liability cashflows very well – however they only account for about 5% of the LDI portfolio. As the LDI portfolio is almost entirely government bonds there is very little need to provide cash collateral for swaps, therefore the short-term liquidity issues about selling government bonds and other assets to provide collateral being reported in the press do not apply to the Open Fund. There is an explanation for the need to provide collateral below. The Trustees will be monitoring this position very closely to see if any action is necessary, but at the moment it is well managed. As the Closed Fund is entirely insured, the current market volatility has no impact for that Fund.
Background about swaps and collateral
A swap is a contract between two counterparties over many years, although it can be traded at any time. There are swaps that are linked to interest rates and swaps linked to inflation (e.g. RPI) and the principles about how they work are the same. Under an interest rate swap one counterparty is contractually obliged to deliver value based on a fixed interest rate, whereas the other must deliver value based on a floating interest rate – these are referred to as two “legs”. As interest rates change the floating leg changes in value and the contract takes on a value reflecting the difference between the fixed and floating legs. As a risk management measure, there is a contractual obligation for the counterparties to set aside collateral on a daily basis, in the form of cash, for the value of the swap when it is negative on their side to reassure the other counterparty that they are good for the value owed if for any reason the counterparty could not otherwise meet its obligation – e.g. went bust. Swaps are valued daily, and collateral calls are also made daily, so that the collateral amount is always sufficient to match the value of the swap. Now that floating rates are going higher than many of the fixed rates set out in the contracts, pension schemes are having to sell assets to provide cash collateral to match the value they must deliver under the contract, and this is a daily exercise. One of the main assets that provides daily liquidity is government bonds – hence the large sell-off of government bonds by pension schemes even though their value is falling, and that’s why the government has entered the market to buy them.
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ITB Open Fund - Appointment of Pensioner Trustee
The Funds' Office can now confirm that Mr Peter Austin won the ballot for the Open Fund Pensioner Trustee position and is therefore appointed with effect from 1 April 2022, for a period of three years.
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DC Funds and market volatility
The spread of COVID-19 has contributed to a significant fall in share prices which has meant, for many members, a reduction in the value of your pension pot. This can be worrying but needs to be seen in the context of long-term returns. It’s to be expected that the value of individual pension pots will go up and down from time to time and it’s important to take a long-term view. The ITB Pension Funds lifestyle options aim to protect members pots from falls in share prices to a certain extent, by switching assets to less risky investments as each member comes closer to retirement. See the latest DC Section Newsletter for details of how the lifestyle options’ assets are allocated.
For comprehensive information about what DC Section members should consider when assessing their pension pots in the light of the impact of COVID-19 see L&G, the DC Section investment manager’s website at https://www.legalandgeneral.com/workplace/campaigns/covid-19/.
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ITB Pension Funds and Coronavirus Update
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Master Trust Authorisation
It has been confirmed that The ITB Pension Funds has been authorised as a Master Trust by the Pensions Regulator.
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SIPS and Chairman's Statement 2019
The Statements of Investment Principles and Chairman’s Statement, which is included in the Report & Accounts, are available on this website – follow Useful Links from the home page then look in the Library. -
GMP Equalisation
GMP Equalisation
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General Data Protection Regulation (GDPR) – Important Announcement
With effect from 25 May 2018 the European General Data Protection Regulation (“GDPR”) will come into force. It will implement a number of significant changes in relation to the way personal data is held and processed.