NETHERLANDS - The €380m industry-wide pension fund for the Dutch hairdressing industry saw its coverage ratio drop by more than 35 percentage points to 74.9%, following a delay in implementing a hedge strategy for the interest risk on its liabilities.
According to its 2011 annual report, the fund decided to postpone hedging measures following the Pensions Agreement last year, which focused on a discount rate for liabilities based on expected returns.
It said its certifying actuary had previously drawn attention to the fund's a disproportionately large interest risk, as the duration of its liabilities was considerably longer than the duration of its investments.
It added that the board planned to discuss further measures with F&C Netherlands, its new asset manager as of 1 April.
Contrary to most other schemes, the Bedrijfstakpensioenfonds voor het Kappersbedrijf has no interest hedge through derivatives in place, nor has it strategically covered the currency risk on its €67m of non-euro-denominated investments.
Despite the absence of an interest hedge, 'Kappers' returned 1.2% on its investments last year, outperforming its benchmark by 0.3 percentage points.
Its 63.5% fixed income holdings returned 4.1%, with mortgages generating almost 7%, it said, adding that its alternatives and property investments returned 0% and 3%, respectively.
Equities delivered a 6.7% loss, whereas its liquid assets returned 5.1%.
The scheme has already announced a 7% rights cut on 1 April 2013, as well as an additional discount at the end of the same year, to achieve the required minimum funding of 105.3% at year-end.
In addition, it has raised the contribution from 7.2% to 8.6% of the pensionable salary and frozen the premium-free pension accrual for unemployed participants under 40.
However, the board indicated that the social partners could not agree on other recommended measures, such as a 1% recovery levy, a temporary decrease of the yearly pension accrual from 0.85% to 0.68% or an increase of the retirement age.
Last year, 'Kappers' renewed its contract with Syntrus Achmea for pensions administration and property management, but decided to outsource its asset management to F&C, which has also been appointed as fiduciary manager.
The pension fund for hairdressers had 21,945 active participants, 35,165 deferred members and 2,130 pensioners, affiliated with 6,250 employers.