APW expands inflation bonds margin
NETHERLANDS - The €678m pension fund of media company Wegener (APW) has widened the investment window for inflation-linked bonds, as part of a recovery plan to tackle underfunding.
The pensions board has decided to set the bandwidth for investments in inflation-linked bonds at 0%-30% for now, while keeping the strategic allocation at 20%, officials said.
APW's cover ratio dropped to 93% at the end of November so the fund is required to tell the pensions regulator how it will increase its funding ratio to at least 105% within three years.
As part of that recovery plan, the scheme will also carry out an ALM study and a continuity analysis.
But in the short-term, a reallocation of its assets within the policy margins of the current ALM study, and based on guidelines of regulator De Nederlandsche Bank, could generate yearly returns of 6.3% without extra risk, suggested the board.
APW also said it is expecting returns on government bonds and investment-grade corporate bonds of 4.5% and 8% respectively - a strategy which officials believe will result will add approximately seven percentage points to the cover ratio.
At least 75% of the scheme's assets are allocated to fixed income at present while 25% is invested in equities.
The remaining funding gap can be closed through the margin on the current contributions, the pension fund suggested. Under the current agreement with employer Wegener, the contributions are fixed at 25.7% until 1 January 2010.
The scheme has already raised its interest rate hedge from 85% to 100%, Corné van Bokhoven, director of APW, told IPE.
The bandwidth of the 50% strategic hedge of currency risks is now 25%-100%, while the US dollar and the UK pound have been fully hedged, said Van Bokhoven.
Details of the Wegener recovery plan also stated it will strictly apply its rules for indexation, which do not allow for any inflation compensation as long as its cover ratio is under 108%.
If APW's funding ratio has not recovered sufficiently by 2011, the board will consider decreasing pension claims and benefits if a quick recovery is unlikely at that stage.
Elsewhere, the industry-wide pension fund for housing corporations (SPW) has announced it will not grant any indexation for now, but it will reconsider the issue next summer. It is also raising contributions by 2%.
And the public transport scheme SPOV has announced it will not pay any indexation, "given the present financial position and the absence of the prospect of a quick recovery".