ABP opts for rise in premiums and lower risks
NETHERLANDS - ABP will temporarily increase contributions by 1% as of July and by another 2% from 1 January 2010, in a bid to restore the underfunded civil servants' pension scheme to its required regulatory funding level.
The industry-wide pension fund has also decided to reduce the risk profile of its investment portfolio slightly in order "to decrease the likelihood of a downward divergence from the recovery plan and thus, additional measures", explained ABP in the document presented to the pensions regulator De Nederlandsche Bank.
As a result of these changes, the pension fund expects to achieve the minimum cover ratio of 105% in 2013 but expects to do so without needing to cut pension benefits.
The civil servants fund, just like PfWZ and PME, is using the flexibility granted by social affairs minister Piet Hein Donner to extend the maximum recovery period where schemes are less than 105%-funded from three to five years.
The extra recovery charge equates to 3% in total, and brings total contributions to 23.3% of salaries in 2010, but shortens the time needed for recovery by eight months, the fund clarified in its plan.
ABP expects to rebuild its reserves to a funding ratio of 125% within 12 years and nine months, if developments in the markets unfold as currently envisaged, and this period has again been cut down by eight months thanks to the lower risk profile of its investments.
When calculating the future development of the cover ratio, which stood at 89.5% by the end of 2008, ABP used a 3.6% long term interest rate as prescribed by DNB. However, a spokesman explained "to determine the contributions we took a more prudent approach than required by the regulator".
Although the current asset mix would result in an long-term investment yield of 6.8%, when following the parameters set by the Dutch financial regulator, the fund now calculates it should generate a prudent return of 6.1% on average over the next 15 years.
If ABP's funding ratio stands at 105% after four years as planned, the scheme intends to pay indexation again of 0.7% in 2013, up to 2.7% by 2023.
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email firstname.lastname@example.org