Dutch €8.6bn steel scheme cuts complexity to stay independent
The €8.6bn pension fund of Dutch steelworks Hoogovens – part of Tata Steel – has taken several steps to ensure it can continue as an independent scheme.
In its annual report for 2017, it said that it had made its board model future proof by adding an option for workers, the employer and pensioners to be fully represented by external members.
It has also reduced the number of board members by one third to eight, including an independent chair, and removed the rules for the number of board members representing employer, employees and pensioners.
The board said its simple average salary pension plan, without complicated transitional arrangements, would keep the implementation orderly and manageable.
It added that its members were also in favour of keeping the pension fund’s in-house organisation for pensions provision, rather than seeking to consolidate into an industry-wide scheme.
The steelworks scheme saw its financial position improve significantly last year on the back of a 7.1% return on investments. It said almost all asset classes had contributed to the outperformance of 1.2 percentage points relative to its benchmark.
With a return of 27.2%, its infrastructure holdings – representing 1.7% of the portfolio – performed best. As its infrastructure stake was in its final phase, it outperformed its benchmark by 23.9 percentage points, the scheme said.
Hoogovens’ combined property and infrastructure portfolio delivered 15.6%.
Hans van de Velde, the pension fund’s director, said the scheme wanted to increase its real estate holdings to 10%, focusing on property with a low risk profile and diversified across residential, retail, offices and logistics.
Within its fixed income allocation, interest rate swaps and credit gained 0.8% and 5.4%, respectively, beating their benchmark by 2.2 and 1.1 percentage points.
The fund’s equity investments gained 13.3%. Its stock portfolio comprised a combination of index funds and active, long-term, concentrated mandates.
As the pension fund’s coverage rose by 11.9 percentage points to 113.2%, it was able to grant its active members a 1.2% index-linked uplift. Pensioners and deferred members received an inflation compensation of 0.14% based on the consumer index.
However, the Pensioenfonds Hoogovens indicated that the chances of ever granting indexation in arrears, which now totals almost 15% for all participants, were slim.
The scheme reported administration costs of €200 per participant and said it spent 0.27% and 0.1% on asset management and transaction costs, respectively.
At year-end, the Pensioenfonds Hoogovens had 9,440 active participants, 14,970 pensioners and 3,870 deferred members.