ING’s €25bn pension fund – one of the better-performing pension funds in the Netherlands, boasting a coverage ratio of nearly 140% – is planning to ramp up its inflation-risk hedge to protect the pensions of its 71,500 participants.
According to its 2015 annual report, over the next four years, it plans to increase its inflation cover from 8.5% of real liabilities to 25%.
As part of the strategy shift, it will also increase its matching portfolio allocation from 70% to 75%, at the expense of its return holdings.
Last year, the pension fund reduced the interest hedge of swaps, bonds and loans from 92.5% to 85% and re-invested the proceeds in German, French, Belgian and US inflation-linked bonds.
Credit and hedge-fund holdings took the brunt of the return portfolio’s downscaling; in August, the scheme offloaded its remaining 3.6% hedge-fund allocation.
The pension fund, which closed to new entrants in 2013, said matching and return portfolios of 75% and 25%, respectively, would produce sufficient returns to meet its target of inflation-proof pensions.
The annual report also indicates that the pension fund postponed the creation of separate schemes for staff of ING Bank and asset manager/insurer NN Group.
In 2013, ING, its parent company, was divided into the two new companies, whose staff have since accrued new pension rights in separate collective defined contribution schemes.
The ‘old’ Pensioenfonds ING still offers defined benefit arrangements.
The ING scheme, which returned 32.4% in 2014, reported a 1.2% return last year.
It attributed the performance chiefly to the 10% gain on its return portfolio, noting that developed-market equities – and low-volatility equities in Europe in particular – had produced the best results.
Private-equity holdings returned 20.4%, on the back of “a large number of IPOs as a result of high valuations”, while real estate returned 18.3%, with non-listed holdings returning 19.1%.
As a result of rising interest rates last year, the scheme incurred a 1.7% loss on its matching portfolio of government bonds, credit and swaps.
Credit holdings produced a more or less neutral result, “as the direct return was offset by the depreciation of loans caused by rising interest rates”.
It reported administration costs of €265 per participant and said it spent 0.35% and 0.03%, respectively, on asset management and transactions.