Dutch giant ABP may need to cut rights again despite strong 2012 returns
NETHERLANDS – The €297bn civil service scheme ABP may have to implement a second pension rights cut this year to lift its coverage ratio to the required minimum level of 104.2% by year-end.
During the presentation of the scheme's annual report for 2012, chairman Henk Brouwer said there was a "significant chance" the recently applied cut of 0.5% was not enough.
Despite last year's return of 13.7% and a 3.6% first-quarter return, the scheme's current funding stands at less than 100%.
ABP attributed the slow recovery to ongoing low interest rates and increasing life expectancy.
Meanwhile, the pension fund's equity holdings returned 14.3% over 2012, with emerging and developed markets returning 17.2% and 16.1%, respectively.
The fixed income portfolio returned 10.5%, while the loans-based alternative inflation portfolio was the best performer, returning 14.9%, thanks to a re-valuation, rising inflation and increasing interest income.
Credit and inflation-linked bonds returned 10.4% and 11.9%, respectively.
The scheme's property holdings returned 16.1%, largely due to its tactical real estate investments in listed property and funds.
ABP further reported that commodities, infrastructure and hedge funds returned 4.4%, 4.9% and 7.1%, respectively, while private equity and global tactical asset allocation returned 11.2% and 0.2%.
Following a recent annual asset-liability management study, ABP said it saw no reason to change its current strategic allocation of 60% securities and 40% fixed income.
It added that it would also stick with it strategic interest hedge of no more than 50%, which it said was the best position to guarantee purchasing power for its pensioners in the event of a sharp increase of inflation.
ABP further indicated that it would decrease its inflation hedge to direct inflation-linked investments and increase its currency hedge against the pound, while lowering its cover against the US dollar, the Japanese yen and the Swiss franc.