PMA, the €3bn Dutch sector scheme for pharmacy staff, said it reduced its strategic equity allocation from 50% to 40% in favour of its fixed income holdings, in order to reduce its risk profile.

In its annual report for 2018, it explained that the change followed an asset-liability management study that focussed on the social partners’ wish to limit the chances of forced pension rights cuts in the coming years. 

As a consequence of its fixed income portfolio increasing to 60%, the pension fund’s required funding level dropped from 126% to 121%.

PMA also raised the interest hedge of its liabilities from 22.5% to 40%.

In 2018, the pension fund started simplifying its investment policy, replacing four actively managed specialist equity funds with passive mandates. At year-end, 97% of its equity holdings were passively managed investments.

It also merged two actively managed European bond mandates into a single passive one.

It said an additional agreement with asset managers on costs had also contributed to a reduction of asset management costs from 51 to 37 basis points.

The pension fund of Dutch telecoms corporate KPN also recently reported having scaled back its strategic equity allocation in favour of fixed income. 

Alternatives perform best

The scheme’s investments fell 0.8% in 2018, fixed income gaining 1.2% and its equity holdings down -5.8%.

It said it lost 1.1% on its 10.3% property allocation, with listed real estate 4.5% lower. Its holdings of listed property had gained 9.7%.

The pension fund said it had sold its holdings in retail, residential property and office funds.

With a profit of 5.4%, alternatives were the best performing asset class, largely thanks to one of its private equity investments entering its “harvest phase”, according to the scheme.

The board said that the pension fund’s scale justified it continuing independently, arguing that it had a niche position in the healthcare sector, and that the number of members – currently around 55,600 – had remained stable.

It said other company schemes in the pharmacy sector were welcome to join, and that it was considering setting up its own administrative bureau for board support.

Pension cuts ahead 

PMA indicated that, given its funding level and a disappointing pace of recovery, it expected that it would have to cut pension rights and benefits in 2021.

At the end of last June, its coverage ratio stood at 100.8%.

On its website, PMA announced that it would adjust its pension arrangements next year to be prepared for the effects of a lower interest rate environment. 

The scheme said it had agreed with its social partners to create the possibility of increasing contributions – currently 24.5% – by 2% annually over the next three years, and to switch from a salary-based indexation to inflation compensation based on the consumer index.

The parties had also agreed to the option of a temporary reduction of the current annual pensions accrual of 1.76%.

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