NETHERLANDS - The hybrid pension scheme of Dutch telecoms provider KPN is altering the asset allocation strategy of its lifecycle fund from April, in a bid to improve the risk control of members' assets as they head towards retirement.

Roelie van Wijk, chief investment officer at TKP, said the intention is to shift the asset allocation away from a 75% bonds and 25% equities strategy in the years prior to retirement, as recent market activity has shown investors can be hit by a loss on supposedly low-risk asset classes, such as bonds, just as they need to move assets, either because interest rates have risen or credit spreads have increased.

"To mitigate the risk of losses on fixed income, in the period just before switching to the least risky mix, low-risk money market funds were chosen to replace some of the bond investments in the mix preceding the final mix," said van Wijk.

Under the new format, the hybrid scheme will alter its defined contribution lifecycle fund in the ‘age bucket' 5-7 years ahead of retirement, and allocate 40% to bonds, 25% to equities and 35% to money market funds.

Looking further inside the asset allocation, officials have also reworked the bonds allocation to reduce risk by altering its holdings from 50% European government bonds, 16.6% European markets debt (EMD), 16.6% EMU Convergence debt (as a subset of EMD) and 16.6% European credits to 40% European government bonds, 40% European credits and 20% European government inflation-linked bonds.

Its money market strategy will be to invest in very short-term bank deposits, and these will be selected by following a strict set of limits and ratings scrutiny, said van Wijk.

At retirement, assets are converted to a defined benefit strategy based on a fixed conversion factor, so members are not exposed to interest rate at that stage. In the final few years before retirement, KPN members move to 10% equities and 90% money market funds, as currently directed.

The KPN hybrid lifecycle fund, made up of average salary pension and defined contributions, has approximately 10,000 members. They are part of the 17,000 active participants and of the total 50,000 members of Pensioenfonds KPN.

Participants can choose to use the life cycle product or adopt a "free" investment option, which does not carry a guarantee. Pensioenfonds KPN leaves the management of its pensions to TKP, owned by Aegon.

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