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ING pension fund slashes allocation to return portfolio

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ING’s €29bn pension fund in the Netherlands has scaled back its return-portfolio allocation by 15 percentage points, from 45% to 30%, in favour of its fixed income allocation.

The pension fund hopes to achieve an indexation of 80% of the consumer index.

The move, cited in its annual report for 2014, bucks the norm, as many other Dutch pension funds are planning to increase their equity allocations for higher returns.

However, the Pensioenfonds ING differs from the average pension fund in that it has been closed to new entrants.

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Since 2014, ING staff have accrued pensions through the new ING collective defined contribution scheme.

The pension fund’s official coverage ratio was reported at 145%, while the average for Dutch pension funds last year was 108%.

Thanks to an additional contribution from the employer, as well as a full hedge of the interest risk on its liabilities, the scheme’s coverage increased by 17 percentage points over 2014.

Last year, the ING scheme adjusted its targets after surveying its participants on their risk appetite.

The survey showed they preferred certainty on their nominal pension over full indexation. 

The new target places the odds that its funding will fall short of 109% within a year, based on market rates, at less than 1%.

It also stipulates that the probability the scheme will miss its indexation target of at least 80% of the consumer index within a 15-year period should not exceed 30%.

The pension fund said its goals should be achievable if its ‘market funding ratio’ is approximately 130%, and 70% of its assets are invested through its matching portfolio. 

The remaining 30% should be placed in its return portfolio, consisting of credit, equity, property and private equity.

The pension fund said it reduced its equity allocation from 20% to 16% and its interest hedge from 105% to 92.5%.

It also plans to increase investments in inflation-linked bonds and swaps.

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