UK roundup: NEST, Mercer, Aviva, PIC

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UK - Members of the National Employment Savings Trust (NEST) will be offered a Sharia-compliant investment option as part of the funds' makeup, it has been confirmed.

The confirmation came as the scheme released a tender notice for a Sharia-compliant global equity fund, stating it welcomed applications from either passive or active fund managers as part of its alternatives to the default fund.

Other alternatives are likely to include high risk and low-risk options.

NEST's predecessor, the Personal Accounts Delivery Authority, first mentioned the idea of a fund compatible with Islamic law in a 2009 consultation.

At the time, it stated that any such fund would be likely to exclude products where returns were gained from interest payments, as well as exposure to products banned under Islam, such as pork and alcohol.

The scheme today confirmed that the successful bidder would have to see its product approved by the Board of Sharia Scholars, although NEST itself would not be seeking approval for the fund option at this point.

While it was long believed the new defined contribution scheme, which will be launched later this year as part of the UK's new auto-enrolment policy, would offer a religious-compliant fund, the tendering of a Sharia-compliant global equity fund is the first official confirmation.

As with its socially responsible mandate and five previous tenders unveiled last year, bidders are asked to complete an initial questionnaire, followed by a more in-depth form if the company passes the initial screening process. Successful applicants will then be shortlisted and asked to give a presentation.

A request for proposal can be found on the Department for Work and Pensions online portal and should be submitted by 4 February.

Meanwhile, Mercer has argued that public-sector schemes, currently being reviewed by former Work and Pensions secretary Lord Hutton, must be granted the flexibility to apply reforms as they best fit individual schemes.

Paul Middleman, who oversees public-sector schemes at the consultancy, said a risk-sharing approach, modeled around a core career-average benefit, should be introduced and designed individually for schemes' requirements.

He added: "Although currently particular benefit structures apply fairly consistently throughout the sector, individual schemes have evolved different design characteristics to reflect the nature of their membership," he said.

"A single 'Unified Public Service Scheme' design, identical in application for all, is not appropriate. Flexibility to apply and adopt overall design principles by each of the main public-sector schemes must be allowed."

Middleman went on to caution that increases in employee contributions could end up shifting too much of the burden onto workers unable to afford the costs, damaging schemes in the long term.

"It might be necessary to create some form of protection from high contributions for lower paid public-sector workers," he said.

"This would prevent many people voluntarily withdrawing from their schemes because they cannot afford the contributions."

In other news, Aviva announced a £1.3bn reduction in its pension deficit between December 2009 and last November.

Reporting preliminary figures for the last year, the insurer said a number of measures led to the reduction, including a one-time payment of £350m and revised mortality assumptions.

It also cited the closure of both the Aviva and RAC final salary pension schemes to future accrual as a positive step toward addressing its deficit, and that the additional reduction in scheme deficit since then added 35p per share in net asset value to the company.

Finally, Pension Insurance Corporation has announced the reinsurance of almost £500m of its longevity exposure since December.

The company, which provides buyouts as well as buy-ins, now says it has insured 70% of its total longevity exposure.

Rob Sewell, chief financial officer, said: "These transactions build on our active longevity reinsurance policy and allow us to efficiently manage our capital."