NETHERLANDS - The €5.3bn Pensioenfonds DSM Nederland (PDN) increased its total returns by 1.5% in 2007, thanks to its overlay strategy.
Details of its annual report reveal the scheme's combination of currency overlay, basket put-options and inflation-linked ‘swaptions' added 1% to the overall returns, exceeding the benchmark by 0.2%.
PDN's cover ratio at the end of the year also rose to 150%, based on an accounting interest rate of 4.8% so the scheme has granted a 1.5% indexation to all its participants from June.
In order to decrease its administration costs, PDN's board has decided to offer its deferred participants the option to buy-out pension claims worth less than €400 a year - a possibility provided by the new Pension Act.
This claim criterion applies to approximately 30% of its deferred members, the scheme indicated.
With yields of 3.6% and 3.7% respectively, equity and absolute returns were PDN's best performing asset classes, it reported while inflation-linked bonds returned 0.8%.
Fixed income and property delivered negative returns of -0.5% and -24.2% respectively, the scheme added.
According to PDN, its long-term returns of 8.1% have outperformed the periodical ALM study, which targets a yield of 6.3%. The ALM's main parameters are returns of 5% for fixed income and a 3% risk premium on equity.
The PDN scheme has partly hedged its currency risk through currency forward contracts, which are actively managed by external managers.
PDN is the organisation created following the merger of DSM's scheme PDC with PGB, the pension fund of DSM Gist-Brocades, last year.
The new scheme has 41,550 participants of whom 14,585 are pensioners and 9,795 are deferred members. Its 40 different pension arrangements are carried out by DSM Pension Services (DPS), which provides all services.