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UWV scheme ups risk profile in favour of liquid assets

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The €7bn pension fund of UWV, the Dutch social security agency, said it would increase the risk profile of its investments, following an extensive survey into the risk appetite of its participants. 

The planned adjustment is to focus on reducing the current 43% strategic allocation to fixed income by 10 percentage points in favour of liquid assets, including equity, convertible bonds as well as residential mortgages, according to Frans Lemkes, the scheme’s secretary and chairman of its investment committee.

At the same time, the strategic asset allocation to liquid assets is to be increased from 37% to 47% of the pension fund’s assets.

The current strategic allocation to alternatives – the portfolio is still under construction – would remain at 17%, and include 10% of indirect property, said Lemkes.

He added that the alternatives portfolio would ultimately also consist of infrastructure (3%), commodities (2%) and private equity (2%).

According to the secretary, the exact composition of the investment portfolio still needed to be fleshed out, and the new allocation would be implemented after the summer.

He said that the outcome of the survey among its participants confirmed the higher risk profile that the board already had in mind, following a recent asset-liability management study (ALM).

Although the “average participant” was slightly risk-averse, he or she nevertheless supported a modest increase of the scheme’s risk profile, the researchers concluded.

They found that active participants favoured an investment mix with 40-65% of equity, whereas pensioners preferred a portfolio with 30-50% of stock.

However, they noted that the interpretation of the results should also factor in the pension fund’s overall policy as well as its specific characteristics. As a consequence, the scheme should engage in additional communication about the chosen investment policy, they recommended.

Pensioenfonds UWV has scheduled several debates with its participants about the survey’s conclusions for June.

The study also made clear that a “large number” of participants were prepared to make additional contributions – 5.7% of their net income on average – for their pension, and that many participants expected to receive 77% of their net income in benefits at retirement.

The survey was conducted by Hay Group in co-operation with Rotterdam-based Erasmus University. The conclusions were drawn from 5,600 responses. The pension fund has approximately 52,000 participants in total.

At the end of April, the UWV scheme’s official policy funding level – the twelve-month average of the actual funding, as well as the criterion for rights cuts and indexation – stood at 102.3%.

As the required minimum funding is 105%, the pension fund must submit a recovery plan to regulator De Nederlandsche Bank (DNB).

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