As we have regularly pointed out, despite all the issues and delays in receiving increases in our pensions, we are extremely lucky in the quality of the management of our crucially important RTÉSA. Our funds have been carefully and astutely nurtured by our Trustees for which we are very grateful. We should add, lest there is any confusion – as seems likely from the wording in one small reference in the enclosed article – this website is that of the membership of the Retired Staff Association and is entirely, robustly, independent of the Superannuation Scheme and its trustees. That does not mean we cannot celebrate the work of the Trustees and, in particular, the Chair, Conor Hayes. His stewardship has been first class and the excellent investment history bears witness to this. We hope you find this article of interest.
RTÉ’s pension fund now makes more from investments than its stations from advertising
An RTÉ legacy pension scheme generated returns equivalent to the public broadcaster’s entire commercial revenue last year – and is on course to grow a significant surplus into the future. But how?
5th Aug, 2022 – 6 min read
Thomas Hubert Senior Correspondent
A billion-euro pension fund with a comparatively small broadcaster attached: This is the picture painted by the accounts included in RTÉ’s annual report for 2021 and released a few days ago.
At first glance, “pension assets” already appear as a significant part of the public broadcasting group’s balance sheet. They account for €147.7 million, which accounts for the majority of RTÉ’s fixed assets of €219.6 million. For all the periodic talk about the value that could be unlocked from land at the Montrose campus, pension assets are worth more to RTÉ than double its property, plant and equipment.
Yet this is only the tip of the iceberg, expressed in net terms. Turn to footnote 19 on page 132 of the annual report and the rest becomes visible.
The assets in RTÉ’s pension funds had a fair value of over €1.2 billion at the end of last year – “funds” plural, but there is only really only one that counts. That’s the RTÉ Superannuation Scheme, a funded, contributory, final salary defined benefit pension scheme into which no new employees have been admitted since 1989
The RTÉ Superannuation Scheme has €1.19 billion in assets. By contrast, the current RTÉ “50/50” Risk-Sharing Scheme holds only €32.8 million in assets. Smaller schemes, which represent no significant risk to RTÉ, are not detailed in the accounts.
The RTÉ Superannuation Scheme was established by dedicated legislation in 1960, separately from the general public servants’ pension system. It is a massive business in itself and has its own website carrying a mix of financial information and social news concerning its 1,700 members.
While no staff have been allowed to join the RTÉ Superannuation Scheme for the past 33 years, an RTÉ spokesperson told The Currency that 69 active employees were still currently enrolled in it (compared to 401 in the “50/50” scheme). The rest of superannuation members – more than 1,600 – are mostly retired RTÉ staff but also include over 250 spouses and a small number of dependent children of former RTÉ employees.
Every year, some members of the scheme retire and others pass away. On balance, this has so far led to a gradual increase in the annual sum of benefits paid to members. Last year, they shared €47.2 million in pensions, up more than €2 million on 2020. Meanwhile, contributions paid into the scheme are dwindling as its last members approach the end of their active careers. They and RTÉ together paid less than €1 million into the superannuation scheme for the first time last year. The employer expects its own contribution to fall by more than half to just €200,000 this year.
Irish Life, Blackstone and Morgan Stanley
The money in this pot, meanwhile, is invested. This is the responsibility of a board of trustees chaired by Conor Hayes, RTÉ’s former chief financial officer who retired ten years ago, having built a solid cost-cutting reputation. They have hired a number of external firms from Dublin to Wall Street to manage their billion-euro pot of money:
“The investment managers engaged by the RTÉ [Superannuation Scheme] include: Irish Life Investment Managers Limited; The Blackstone Group LP; Morgan Stanley; IPUT PLC and Atlantic Bridge, the trustees reported in their latest annual report to the end of 2020;
Mercer Ireland was its actuary;
Northern Trust was the custodian of the scheme;
RTÉ itself provides day-to-day administrative support but the RTÉ Superannuation
Scheme is an independent entity. Under current rules, RTÉ bears the cost of this administration. The broadcaster has requested a change of rules to charge it back to the scheme, but the Department of Tourism and Culture rejected the request in May, according to recent correspondence. The trustees of the scheme are happy to cover the administrative costs and have estimated this at €20 million over the lifetime of the scheme.
The trustees and their investment managers have looked after RTÉ pensioners’ money very well. Last year’s performance, in particular, was exceptionally good. The superannuation fund generated €144.1 million in returns – a rate of over 13 per cent. In other terms, it added three times as much to the value of its investments than it paid out in pensions.
With another €2 million in interest and returns on assets owned by the “50/50” scheme last year, income from RTÉ’s two main pension funds was hot on the heels of the €148.3 million the broadcaster generated in commercial revenue over the same period, from ad sales to mast transmission fees and sales of the RTÉ Guide all combined.
The licence fee, meanwhile, provided just under €200 million to RTÉ last year.
The RTÉ Superannuation Scheme alone generated returns much larger than the group’s advertising and sponsorship income of €120.5 million. Only once in the past decade, in 2014, did returns from pension investments come so close to catching up with RTÉ’s overall commercial revenue.
Over the past decade, returns on investment have roughly doubled the value of the superannuation fund. So, how do the scheme’s managers invest its money to achieve these results?
Rule number one is that they always keep half of the funds in safe cash and bonds. That’s the no-risk part of the investment, mostly parked in government bonds and collecting interest. But this does not generate the kind of returns the RTÉ Superannuation Scheme has enjoyed, especially over the past ten years of low interest rates.
The second half of the money is invested in riskier products – investment funds backed by equity, property and other assets. Up until 2017, traditional equity funds formed the vast bulk of this higher-risk, higher-return tranche, with property funds another significant component.
Then 2018 happened – it wasn’t a great year on global stock markets but it was a really bad one for the equity funds picked by the RTÉ Superannuation Scheme’s investment managers. They dragged the entire value of the pension fund down for the only year in the past decade.
Since then, the scheme’s assets have become more diversified and its investment strategy bolder. Yes, equity funds are still the largest category after bonds, but their share of the pot keeps shrinking.
Instead, the money of RTÉ pensioners is increasingly invested in hedge funds and, more significantly, private equity funds. The RTÉ Superannuation Scheme now has more than €100 million invested in private equity, and another €65 million in hedge funds.
Smaller liabilities than assets – despite revised inflationary assumptions
Actuaries at Mercer, meanwhile, calculate the liability arising from all the pensions to be paid out by the scheme until its last member dies. In January 2021, they valued it at €949.2 million. By December, this amount ultimately owed to pensioners was reduced by the €47.2 million in pensions paid out during the year, but increased by €136.2 million as a resut of changes in the financial assumptions used in the forecasts.
Although the financial model used by Mercer is secret, its assumptions are published and reflect the increasingly inflationary environment. Last year, the RTÉ Superannuation Scheme
expected to operate in a future where salaries increase by 2 per cent each year and pensions by 2.5 per cent – double the rates expected in 2020. The discount rate applied to the scheme’s future cash flows increased from 0.9 to 1.1 per cent.
To forecast its pension liability into the future, Mercer also needs to estimate how long its members will remain alive across a range of categories. These range from a male pensioner born in 1957, expected to live to the age of 88.6, to a 1967-born woman yet to retire, who is set to reach 91.4 years.
After feeding all these financial and demographic assumptions into its computers, Mercer estimated in December that the RTÉ Superannuation Scheme was now set to pay €1.05 billion in pension benefits.
The firm also provided a sensitivity analysis for any changes in these assumptions. For example, actuaries estimate that RTÉ pensioners will live one year longer than the expectancy shown in standard tables. Each year’s difference in the life of its members’ population represents a €47.2 million difference for the RTÉ Superannuation Scheme. Meanwhile, each 0.25 percentage point in the pace of salary and pension increases or in the discount rate is equivalent to a swing of over €30 million.
If the current assumptions are confirmed, the RTÉ Superannuation Scheme alone is set to generate a surplus of €146.8 million – mostly attributable to its strong investment performance in 2021 alone. With smaller numbers from the “50/50” current scheme, this surplus is the net pension asset appearing on RTÉ’s own balance sheet.
Stock market performance this year has arguably been a lot less rosy, but with its more varied portfolio including private equity and hedge funds, the scheme is well placed to ride out periods of volatility. It also has enormous firepower in cash and bonds to purchase cheap equity assets during a market downturn. And with decades yet to run, it is in no hurry to sell out any investments that may take a short-term battering.
As its performance improves and members get older, the RTÉ Superannuation Scheme will also become increasingly safer in actuarial terms. If it remains as well-run as it is today, its ultimate surplus is on course to crystallise into a much larger sum than one full year of RTÉ’s commercial revenue.
Whether any such windfall is used to give pensioners more generous benefits or to support the public broadcaster – or to do something entirely different – has yet to be decided. “There is no policy in relation to the distribution of future scheme surpluses,” a spokesperson for RTÉ told The Currency.
Declaration of interest: The Currency’s Editor Ian Kehoe is Deputy chair of RTÉ’s board. He is currently on annual leave and did not edit this article.