The €70bn Dutch metal industry scheme PMT registered an overall gain of 8.4% last year, as its investment return of 4.1% was boosted by a 4.3% drop in liabilities due to rising interest rates.
In its annual report for 2017, PMT said its long-term goal for additional returns was 1.5%, initially to aid its recovery and rebuild financial buffers, and later to finance inflation compensation.
PMT’s 35% equity allocation, including private equity, was the best-performing asset class, returning 13.5%.
High-yield bonds and property yielded 3.8% and 5.3%, respectively, contributing to an overall result of 10.2% of its return-seeking portfolio.
In contrast, its matching portfolio (46% of its overall investment portfolio) lost 2.8% due to rising interest rates.
PMT said it would take no more risk than was necessary to achieve its return goal. As a consequence, it had set its interest rate hedge at 50%, with a bandwidth of 5 percentage points.
As the scheme’s funding – 102.1% last April – was still short of the required minimum of 104.3%, it couldn’t grant indexation.
Inflation compensation in arrears had increased to more than 16% for active participants and almost 14.5% for deferred members and pensioners, PMT said.
On top of this, the pension fund had to implement two rights cuts of 6.7% in total during the past few years.
PMT said that, in order to reduce the chances of unconditional rights cuts at the end of next year, it had used €374m of money set aside for equalising premiums to increase its funding by 0.5 percentage points,
It had established the pot in 2015 to hold surplus cash from a set of contributions that were fixed for a five-year period. At the end of last year, the money set aside amounted to €423m.
The metal scheme reported administration costs of €80 per participant and said it had spent 0.49% on asset management.
It added that its performance fees had increased from 0.12% to 0.14%, largely due to private equity, international direct property and infrastructure.
PMT also said it planned to improved online portals for both members and employers. It also said it would actively seek contact with workers approaching retirement to alert them to the available options and to guide them with their choices.