The Dutch pension fund for pharmacy employees (PMA) has sold more than €100m of assets, primarily equities, to fund an increase in its interest rate hedge ahead of its transition to the country’s new pension system.
PMA increased its interest rate hedge from 55% to 80% in 2025 to reduce funding ratio volatility before moving to a solidarity-based defined contribution (DC) arrangement on 1 January 2028, according to its annual report published this week.
The €3.3bn scheme said it wanted to make its funding ratio “less volatile” in the run-up to the transition. To achieve this, it used interest rate swaps, which required additional collateral.
PMA sold around 3.5% of its assets to fund the transaction, reducing its equity allocation by 2.5 percentage points and its bond allocation by 1 percentage point. The move also reduced equity risk and provided additional protection for the funding ratio.
PMA declined to comment on whether this formed part of the rationale behind the decision.
Unusual transaction
According to market participants, it is unusual for a pension fund to sell such a significant portion of its portfolio to increase interest rate hedging.
“Pension funds usually have enough bonds or liquid assets to pay for an increase in interest rate hedging. On the other hand, this is a very substantial increase,” said a pension consultant who requested anonymity.
Jan Willemsen, LDI specialist at Columbia Threadneedle Investments, noted that purchasing additional bonds instead of using swaps would likely have required an even larger asset sale.
Alternatives to swaps
Willemsen suggested that pension funds seeking a temporary increase in interest rate hedging could consider futures instead of swaps.
“You can also increase the interest rate hedge with futures. You need less collateral for this and you can let it expire on the transition date,” he noted.
Unlike futures, swaps need to be unwound following the transition to the new pension arrangement. For schemes transitioning later in the process, such as PMA, this may prove more challenging.
“Funds that have made the transition so far have often been able to easily sell excess swaps to other pension funds that were yet to make the transition to DC. Funds that switch in 2028 will no longer have that possibility,” Willemsen said.
He added that swaptions could also provide an alternative or complement to swaps and government bonds for schemes seeking greater interest rate protection.
Several smaller corporate pension funds have recently adopted swaptions, although many schemes still regard options-based fixed income strategies as too complex to implement, according to Willemsen.
