• Invested assets: €194m (Dec 2010)
• Cash balance plan

Before the Vandenbroucke law came into force in 2004, the Belgian construction sector distributed some of its reserves to its retiring ex-workers. However, this practice did not conform to the new OFP (organisation for financing pensions) system, leading to the creation of the new sector pension fund, Pensio B, in 2007.

The growing fund - with currently €194m in invested assets - is open to all construction industry workers, these number at present around 250,000 active and passive members. Employer contributions vary according to a progressive rate, starting from 20 basis points, up to 2.5% of the wages, depending on the seniority of the individual in the sector. On average, contributions make up 1% of the wages.

The development of the pension fund was split into two stages - the start-up phase between 2007 and 2009 and the cruise-speed period from 2010.

"Initially, we moved defensively and tactically, and had a lot of cash," says Bernard Caroyez, manager investments at Pensio B. "We then began to gradually invest in the most attractive assets year by year and from 2010 we started to implement our new strategic asset allocation, which was defined by an ALM study in 2009. We have to generate a minimum annual rate of return of 3.25%. If we fail to achieve that, our sponsor needs to make up the deficit at the end of each year to ensure the pension fund meets the required funding level. However, our fund has already accumulated a buffer over the last four years, which will help us in the event of lower returns."

The pension fund began to diversify its founding 100% cash position in 2008 by investing with an insurance company and in a Constant Proportion Portfolio Insurance (CPPI) product mixing a majority of bonds with equities. The following year, it added further investments in equities and corporate bonds rated higher than ‘A', although the majority of assets remained in the insurance and CPPI products.

"We decided to go for the CPPI product in the starting phase because we wanted to minimise downside risk and did not know what our long-term strategic asset allocation would look like," explains Caroyez. "It was easier to have one product where we could delegate the tactical asset allocation decisions to the CPPI manager. The main reason to work with an insurance company, however, was that pension funds in Belgium have to report their investments at market value but as an insurance company you can report part of your investments in book value, which reduces some volatility on your figures. With this insurance product, we also have the possibility to take some money back if we require liquidity."

The fund's long-term strategy is relatively defensive, consisting of 50% bonds, 13% equities, 6% real estate and infrastructure and 30% invested in insurance products and cash.

Real estate was included in the ALM study because of the fund's representation of the Belgian construction sector. "At the moment we are still analysing several possibilities to invest in real estate," says Caroyez. "But in order to be supportive of our sector we intend to stay local. We have also diversified this asset class by investing part of it in infrastructure projects. On top of that, we want to optimise our tactical asset allocation and will work with tactical asset managers over the coming months who will take over this responsibility."