Dutch pensions heavyweight PME has reduced its equity risk by about half ahead of its planned January 2027 transition to the new defined contribution (DC) system, to protect the current high value of the defined benefit (DB) assets which will determine how much scheme participants get on conversion.
Releasing second-quarter results today, the Dutch pension scheme for the electronics and technology industry – the Netherlands’ fifth-largest pension fund – said: “PME is entering the final months leading up to the transition to the new pension system with a strong financial position.”
The funding ratio rose to 127.7% at the end of June from 121.5% three months earlier, it reported, adding that this provided “a solid starting point” for the planned transition on 1 January 2027.
Marcel Andringa, executive board member for balance sheet and asset management at PME, said: “We have opted for a temporary reduction in equity risk.
“This aligns with the phase PME is currently in: We want to continue generating sufficient returns while simultaneously preventing a sudden stock market drop – occurring just before the switch – from having an excessive impact on the funding ratio and thereby jeopardising a balanced transition,” he said.
The now €64bn pension fund has lowered its equity exposure to 15% of its assets from 28%, IPE’s sister news service Pensioen Pro reported.
In its updated transition plan, just published, PME said its board decided on 25 March this year to implement “a linear reduction in equity risk”.
“Historically, PME has consistently viewed and positioned itself as a long-term investor,” it said in the document.
“Given current circumstances – specifically the temporarily shorter (investment) horizons for equities applicable to (near-)retirees – the PME board is currently significantly more risk-averse and places importance on safeguarding the current ‘healthy’ funding ratio,” it said in the new plan.
“The preference was to reduce equity risk in a relatively simple and cost-efficient manner, combining physical divestment with the use of futures,” the pension fund added.
A spokesman for PME told IPE the pension fund was using some futures, “but only for rebalancing and staying within bandwidth”, adding that the cost of doing this had been “within what we expected”.
PME has already hedged its interest-rate risk ahead of the implementation of the new DC system, covering 70% of that risk at the end of 2025 and then increasing that to 80% cover over the first quarter, the spokesman noted.
Many Dutch pension funds have already opted to hedge equity risk ahead of the transition, including BPL, Foodservice, DHL, Gasunie, and the pension fund of the regulator DNB, but PME is by far the largest of the funds to have made this choice so far, according to Pensioen Pro.
ABP, the largest Dutch pension fund overall, last week announced it would not opt for equity protection, with costs cited as one reason.
Pension funds in the Netherlands have often chosen a put option strategy for their equity hedging, allowing them to continue benefiting from share price rises, Pensioen Pro reports.
A PME spokesperson told the Dutch news service that the capital released from its listed equities – valued at nearly €17m – had been temporarily invested in “other asset classes with a low risk profile,” and that the equity allocation would return to around 25% after the transition.
Asked why PME did not choose put options for the risk reduction, the spokesperson said the current approach resulted in “less operational complexity” and avoided “high upfront costs”.
