The €26.5bn Pensioenfonds ING reported an overall return of 10.5% in 2016, primarily driven by its liability-matching portfolio.

The pension fund’s liabilities holdings – of largely European and US government bonds, loans and interest swaps – yielded 11.1%, exceeding its benchmark by 3.3 percentage points.

It explained that the actual yield had been significantly higher than the benchmark return, as interest generated on bonds had dropped further than the swap rate.

Within the return portfolio, the 9.8% gain on equity fell 1.6 percentage points short of its benchmark, largely caused by low-volatility holdings and emerging markets, it said.

The closed scheme for workers of NN Group and ING Bank decided last year to change the management of its equity allocation from active to passive.

Private equity, which delivered 10.8%, also fell short of its benchmark. The pension fund stopped allocating new money to private equity in 2015, and also divested from hedge funds at the same time.

Credit – deployed as part of the scheme’s inflation-hedging strategy – produced 10.2%, with some emerging market corporate bonds gaining as much as 15.6%.

The pension fund’s property holdings returned 11.4%, an outperformance of 2.3 percentage points, in particular thanks to non-listed real estate, it said.

Last year, its board decided to raise the strategic interest rate hedge from 85% to 90%, and to base its investment policy on a balance of risks.

The scheme said it would aim to grant an inflation compensation of 80% in real terms rather than a nominal indexation. It increased its strategic return portfolio from 27% to 30% as a consequence.

The Pensioenfonds ING also said it was in the process of gradually raising its inflation hedge – comprising French, Belgian, German and American inflation-linked bonds as well as inflation swaps – to a maximum of 25%. At year-end, its inflation hedge stood at 14.4% of the total portfolio.

The scheme has hedged 50% of its currency risk on its return portfolio and said it had fully covered the currency risk on its liabilities holdings.

At July-end this year, the ING scheme’s funding stood at 139.9%, enabling it to grant all its participants and pensioners full indexation.

Last year, the pension fund incurred administration costs of €246 per participant, and spent 0.24% and 0.02% on asset management and transactions, respectively.

It said it would assess whether it could simplify the implementation and communication of its current eight different pension arrangements, to increase transparency to its 71,000 participants and to make its pension plan easier to adjust to a potential new pensions system.

Earlier this year, the board decided to refrain from dividing itself, after ING split into ING Bank and NN Group. It said such a move would reduce efficiency.

However, in the annual report, the visitation committee for internal supervision said the board should pay more attention to alternative future scenarios, rather than just opting for continuing independently.