The pension fund of ABP, Europe’s largest retirement plan, needs little introduction. A self-administered public pension fund for employers and employees in the government, education and defence sector, at year-end 2002 its customer base consisted of approximately 1.1m active participants, 700,000 inactive participants and 700,000 pensioners.
The insured are employed by approximately 5,000 employers that have set up their pension plan with ABP either on a mandatory or voluntary basis.
ABP runs the pension scheme under criteria defined by the social partners of these government bodies and educational establishments. The scheme itself includes death benefits, pension benefits and disability benefits with the pension payment presently based on final salary. A career average plan will be introduced on 1 January 2004, with ABP considering that such a system is better suited to the trends of individualisation and flexibility.
A key aspect of ABP’s reputation in the pensions world and its selection for the 2003 IPE Silver Award, is its attention to core principles. These include:
q a diversified customised product range;
q high-quality customer service;
q low performance fees;
q high investment returns, and
q use of different external benchmarks to measure the results of the objectives and compares these with other providers.
This accent on customer service prompted the IPE judges to commend ABP’s “very developed investment, communication and corporate governance sites”.
ABP has a board of governors that makes the fund’s strategic choices with regard to pension policy (pension rights and financing), the allocation of assets and liabilities, investment policy, main structure, company costs and communication policy.
The fund’s board of directors, which consists of a chairman, a pensions director, an asset management director and a financial director, is then responsible for the daily management of the organisation and implementation of this strategy.
The majority of the activities connected with pensions and investments are carried out in-house. A small part of the activities of asset management, however, are still outsourced. In 1996 this applied to all foreign investments; however, at present only 25% is outsourced. All other activities are carried out by the fund’s front offices in Amsterdam and New York, both for the share and fixed income securities asset categories and alternative investments. Some management activities are still outsourced due to cost factors (index management) and specific knowledge requirements for relatively small markets (emerging market shares and debt). This set-up enables asset management at ABP to be carried out at lower costs and allows the fund to tailor investment processes to the horizon of its liabilities, which in general have a much shorter horizon than commercial products.
In terms of investment, the IPE Awards judges hailed ABP’s “good thinking about appropriate asset allocation”.
ABP offers a group DB pension plan, a sector top-up pension plan and an individual top-up pension plan (the ABP supplemental pension plan).
Participants are also offered the possibility of saving within the scheme for a premium-related supplemental pension.
This attention to members prompted one judge to note: “The focus on each client’s ‘life events’ is admirable, combined with relevant member communications. Their investments are each tagged with a clear purpose, and their approach to shareholder voting rights is also admirable.”
Certainly ABP has been a pioneer in its work to increase the awareness of both national and international investors with respect to corporate governance in the wake of the Enron and Ahold affairs.
ABP’s quarterly report was the first of its kind in the Netherlands – an idea that has since been copied by other Dutch pension funds. The fund also established a network of ‘contact counters’ where members can enjoy one-on-one interaction with experienced personnel about the state of their pension and get information on products.
The fund’s investment policy focuses on the highest possible return through the indexation of the accrued pension rights (active participants, inactive participants and pensioners). The aim of the investment policy is a return that allows the adaptation of the accrued pension rights to the general wage developments at the government level and in the education sector.