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Luzern fund recovery gets go ahead

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  • Luzern fund recovery gets go ahead

SWITZERLAND - The city of Luzern has agreed to a recovery plan for the CHF1bn (€660m) fund which will see CHF10m flow into the fund immediately.

The pensionskasse for employees of the city of Luzern (PKSL) had seen its funding level drop to 85.3% from just over 100% over the last year and final calculations for 2008 showed a -11.72% return.

The package of recovery measures, as suggested by the pension fund, was passed by the city council in its entirety and will come into effect from January.

"It has been accepted as proposed," said Pius Schumacher, responsible for insurance and pensions at the PKSL.

Active members will see the interest on their accrued benefits being set to 1% below the legally required minimum rate.

Indexation of pensions already being paid out will be set at 1% below the indexation for benefits of active members.

The city of Luzern will pay 1% of the assets all its employees accrued in the PKSL as well as a further 2% of the assets belonging to already retired members (currently CHF621m).

The duration of the recovery measures is limited to five years or a return to full-funding status, whichever is soonest.

The PKSL explained that the additional recovery payment by the employer was necessary because the lump-sum paid in 2000 to bring the fund up to full-funding level "was a bit scarce".

In its annual report the pension fund had noted that even the broad diversification introduced in 2006 in the course of an asset allocation review "did not offer the expected protection, by far".

"Only (directly held) real estate and mortgage investments proved to be solid pillars."

Nevertheless, the fund's pension commission ha decided not to change the strategic asset allocation and is sticking to a maximum equity exposure cap of 24%.

"We will keep our investment strategy," confirmed Schumacher.

It was noted in the annual report that limiting investments to risk-free (low-interest) asset classes would keep the funding level low and even reduce it over the coming years.

The PKSL has a CHF34.72m passive domestic equities mandate with CSAM, CHF10.49m in active and foreign equities funds with Global Invest Zürich, CHF27.88m in passive foreign equity with State Street, CHF14.98m in sustainable equities global actively managed by Sarasin & Co, and three active global absolute return mandates with Reichmuth & Co, (CHF23.74m), Bank Vontobel (CHF22.94m) and UBS (CHF21.82m).

The res of the assets, including directly held real estate, are managed internally.

In total, the fund had 29.93% in receivables, including bonds (both domestic and foreign) and currency futures, at the end of 2008, along with 22.23% in equities, 33.61% in domestic real estate and 1.77% in foreign real estate, 2.94% in hedge funds, 1.21% in commodities and 10.22% in mortgages. (See earlier IPE story: Structured products least of worries - pk-head)

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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