NETHERLANDS - ABP, the large civil service pension fund, saw its assets increase to a record level of €220bn in 2009, on the back of a return of 20.2%, and an additional 6% in the first four months of 2010. The fund is also to tighten its risk management and will focus on extreme risks.
However, its cover ratio rose no further than 104% due to increasing liabilities. This was the result of a drop in long-term interest rates as well as continuing market uncertainties, the scheme indicated during the presentation of its annual report.
"The ABP board is worried about this development," Xander den Uyl, vice-chairman, commented.
The downward trend continued during 2010, leading to a cover ratio of 102% at the end of April, the scheme added. At year-end, ABP had factored in a new prognosis for longevity risk, equating to 5.8 percentage points of its funding ratio.
Despite the fact that the scheme is still short of the required cover ratio of 105%, its board is satisfied that it has stuck to its long-term investment policy, stressed Joop van Lunteren, ABP's co-vice chairman.
ABP's strategic investment plan is aimed at reaching a cover ratio of 124% in 2023.
However, Van Lunteren also made clear that his scheme has tightened its risk management and is now paying more attention to extreme scenarios and liquidity management, as well as counterparty risk through spreading its investments.
Equity was ABP's best performing asset class, with developing and emerging markets returning 30% and 74.1% respectively, it said.
Fixed income holdings of 38.7% generated 12.7%, with corporate bonds and inflation-linked bonds returning 16.1% and 11.2% respectively. With a return of 23.2%, commodities also performed well.
The pension fund reported negative returns on infrastructure (-4.8%) and liability hedging alternatives (-9.9%).
ABP will make the resoration of faith in the pension fund a key element of its policy by improving its communication, for example through providing accessible information through films, as well as an interactive website for its participants, explained Nicole Beuken, director at the scheme.
During the presentation, Xander den Uijl criticised social affairs' minister Piet Hein Donner's proposal to decrease the parameters - the upper limits pension funds are allowed to apply when calculating their future returns.
"The new figures will lead to a contribution increase of 20% if pension funds keep the present prudence margin," he said, advocating a national debate between social partners, which also takes into account other proposals for changes in the pension system.
"Donner's proposed parameters will make it much more difficult to reach a funding ratio that allows for full indexation," added Van Lunteren.
Last November, ABP granted its participants price indexation of 0.45%. At the same time, it decided to keep its contribution almost unchanged, but premiums might need to be raised after a review later this year, the vice-chairman indicated.