There are many ways to skin the pensions cat - but Belgium may have discovered the best one, says Jeremy Woolfe.

There are many ways to skin a cat. Likewise, the pension fund manager has a myriad of possibilities of securities where he can risk the livelihood of future retirees. But nowadays, a good majority will have been scared of being skinned themselves. Many will have been suffering negative returns, if you count in inflation.

Against today's background, investment policy can take one of two major tracks. One is the follow-the-index-method, involving hundreds of stocks. For the fund manager, this may keep the trustees off his back.

In contrast to the index investments system, there is another method - at least there is for workplace-based top-up pensions in Belgium. Under this system, all contributions get passed to a common fund, which is managed independently, under a formula set up under national law.

In fact, this is how it things happen under the nation's 2004 Vandenbroucke Act, which, since 2004, has applied to workplace-based top-up pensions. Its €60bn of funds are made up of approximately €16bn held by work-based pension schemes - all but €500m held by members of the Belgian Association of Pension Institutions (BAPI) - plus €44bn held by insurance-based pensions.

Performance so far? For the first six months of this year, a slight loss, after taking inflation into account (-1.4%). But what other funds announce results taking this devil into account? Over the past 10 years, it returned +5.9%, gross, versus inflation at 2.16%.

Not spectacular, but not bad, and anyway irrelevant, according to Philip Neyt, president at BAPI. Go for a long-term policy and measure by long-term results, is Neyt's position. We'll have to wait at least a decade to know.

What do independent outsiders think? For one, Paul Logghe, head of retirement practice in the Brussels office of Towers Watson, thinks Neyt is right. In the long run, he says, today's gloomy market situation will revert back to normal yields on investment.

Similarly, Charles Cronin, a member of the occupational pensions stakeholder group at the European Insurance and Occupational Pensions Authority (EIOPA), says BAPI's results are in line with the market. He tells IPE that, in these hard times, cats suffer! At present and for the next few years, it will be difficult to achieve a decent return, he adds. After all, in the UK, 10-year gilts are yielding only 2.6%.

But Aon Hewitt has been somewhat more guarded in its assessment of Vandenbroucke. In its Pensions Survey 2010, the consultancy said it wanted to see recommendations relating to the system's "simplification".
Karel Van Gutte, secretary general of BAPI, notes that negotiations taking place to form a new national government include proposals to further strengthen Belgium's workplace-based pensions system.

Back to the cat-skinning analogy, and Vandenbroucke versus the world. And 20 years from now? Will it be y-e-o-w-l? Or will Belgian pensioners be purring? And will Belgium's "cutting-edge" system for the management of investment funds for pensions have been adopted worldwide? Or not?