Pensions claw back returns in 2009

European pension funds performed significantly better in 2009 as continued market rallies in the second half of the year allowed schemes to post double-digit returns.
Schemes in the Netherlands reported improvements as pension fund cover ratios pulled back to an average 111% by the end of 2009, according to statistics compiled by consultancy firm Hewitt Associates.

It noted the rise in funding ratios led to a 14% increase in pension plan assets for the whole of 2009. It mainly attributed the increase in the funding ratio to the improved equity markets, noting that only 1.5 percentage points of the improved cover ratio was generated by rising fixed income interest rates. "The recovery is remarkable, given the absolute low cover ratio in March [2009] of 90% on average," said Hewitt.

These figures were supported by the latest statistics from De Nederlandsche Bank (DNB), which show industry-wide schemes and company pension funds recorded an average cover ratio of 107% and 116%, respectively, by the end of Q3 2009. Occupational schemes for professionals, such as lawyers and doctors reached a funding ratio of 121%.

In the UK, pension funds achieved one of the lower average country returns, delivering an estimated weighted average of 14%, according to figures from BNY Mellon Asset Servicing. This still compares favourably with the -13.8% recorded for 2008, and is the highest annual result recorded by the firm since 2005.

It attributed the result to the fact that all key equity markets, except Japan, produced positive returns in 2009. BNY Mellon's data reported Japanese equities returned -5.9%, while emerging market equities produced the strongest result of 58.9%. Pacific (ex Japan) equities achieved 50.7%, and UK equities returned 30.1%. However, UK bonds returned -1.2% in 2009, and overseas bonds fared worse with a return of -9.7%. This was slightly offset by the performance of index-linked gilts which returned 6.4%, but property investments also struggled with a return of -5.6%.

Alan Wilcock, performance and risk analytics manager at BNY Mellon Asset Servicing, said after delivering worst annual return for over 30 years in 2008, "pension funds clawed back most of those losses by the end of 2009, despite the poor start to the year".

Irish managed pension funds produced an average return of more than 20% in 2009, despite an initial drop of 8% in the first 10 weeks of the year. The results of the monthly surveys from Rubicon Investment Consulting and Hewitt Associates showed the average Irish managed fund returned 21.8% and 20.7% respectively. Both of these figures are a significant improvement from the 34.8% loss at the end of 2008.

Rubicon noted that all 10 funds covered by its research produced double-digit returns - ranging from a low of 13.7% by AIB Investment Managers to a high of 29.6% from Merrion Investment Managers. The final figures from Hewitt Associates' index of 23 managed funds reported that schemes ended the year with an average monthly return of 4.4% in December.

Brian Delaney, investment consultant at Hewitt Associates, argued that 2009 had proven to be the best year overall for Irish managed funds since 2005, but warned that they "still have a long way to go to recover to the position that funds held in the middle of 2007".

In Austria, figures from the pension fund association FVPK revealed that the average return of the 17 Pensionskassen was 9% over the year. However, individual fund returns ranged from low single-digit to high double-digit figures, depending on the amount of risk in the portfolio. Some funds with high equity exposure recorded returns of more than 20%.

Hungarian mandatory pension funds also posted an average return of 21.3% in the past 12 months, although the OTP, ING and Generali pension funds said their growth funds returned around 30% thanks to their high equity content.

The past 12 months also brought double-digit returns of 17.7%, on average, for the second pillar mandatory pension schemes in Romania. Data from the Romanian Pensions Funds' Association (APAPR) showed the 12 second pillar pension funds delivered between 10.15% and 19.39% net in 2009. It attributed the improvement to "active management of fixed income investments, a high interest rate environment and efficient equity market timing".


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