NETHERLANDS - The hard-hit pension fund of photocopier manufacturer Océ has announced it will start cutting pension rights and benefits next year if the economic situation has not sufficiently improved.

Despite having taken all possible measures, the €603m scheme has revealed its recovery plan is unlikely to be enough to rebuild its cover ratio - 79.4% at the end of 2008 - to the legally required 105% within the allocated five years.

The pension fund has already raised its contributions to the maximum of 30% and has also stopped granting indexation, it said in a clarification of its recovery plan, which has now been approved by regulator De Nederlandsche Bank.

The Océ scheme has also based its recovery plan on average yearly returns of 5.5%.

Social affairs minister Piet Hein Donner said earlier this year that pension funds are not required to cut benefits during the next three years.

However, should there be a slow recovery, the two sponsoring Océ companies have agreed to fill in two-thirds of the financial gap. That means the remaining shortfall will come at the expense of the scheme's participants, the pension fund said.

The first assessment of the need for additional measures, such as pension cuts, will be made on 30 June 2010, according to the scheme, although further cuts may be required if the recovery process is slower than anticipated.

That said, officials have stressed the Océ scheme's funding ratio has risen to 85% at present, which is already slightly above the line set out in its recovery plan.

The pension fund reported an overall return on investment of -20.2% last year, with its 22% equity allocation yielding -41.1% last year.

Its 35% fixed income portfolio and 4.3% allocation to worldwide indirect property returned -6.3% and -46.6% respectively, while its 4.9% alternatives investments resulted in a loss of 37.6%.

Derivatives were also applied to a third of the pension fund's assets.

The annual report further revealed that the strategic asset mix consisted of allocations to fixed income, equity and property of 50%, 40% and 10% respectively, following an asset-liability management study in 2006.

However, the pension fund said it had stopped rebalancing after last summer, when its cover ratio - over 124% at the start of 2008 - had dropped to 115%.

The scheme also said it has decided to further hedge its interest risk on liabilities, as its eight-year duration mismatch between investments and liabilities is relatively large.

The Océ Pensioenfonds has 3,825 active participants, 1,860 pensioners and 2,600 deferred members. No total value of the fund was available from Océ officials.