The board of the €6.7bn pension fund for steelworks Hoogovens has said it would adjust its risk profile and pensions target as it can no longer fully achieve its current long-term targets.
In its 2013 annual report, the pension fund conceded it was unlikely to meet its self-imposed six-year limit on suspending indexation during “lean years”.
Currently, the indexation in arrears totals 9.63% for workers and 12.7% for pensioners and deferred members.
The pension fund has decided to grant all participants a 1% indexation on 1 July, as its funding – 118% at April-end – had been above the required 117.1% for three consecutive quarters.
The Hoogovens scheme reported a net return of 3.5% for 2013, with a 3.5% loss on its matching portfolio being more than offset by the 11.5% of its return portfolio.
Both main portfolios are almost equally divided between the scheme’s assets under management.
Its matching portfolio suffered from the effect of rising interest rates on AAA government bonds and interest swaps, but also from negative results on inflation swaps.
However, its positions in covered bonds delivered a positive result due to a falling risk premium on Spanish paper, according to the pension fund.
It attributed the result of its return portfolio – consisting of equity, fixed income and property – mainly to equities, which returned 16.1%, as well as “strongly performing” hedge funds.
Over the course of last year, the pension fund replaced part of its fixed income and property holdings with equities.
It also reported a combined return of 1.9% on property and infrastructure, adding that the fixed income investments on its return portfolio returned 7%.
Funding at the Hoogovens scheme improved by 6.1 percentage points to 117.3% in 2013.
The board said it decided to keep the pensions contribution unchanged at 29% of the pensionable salary, including 4.4 percentage points for indexation purposes.
Costs for pensions administration increased by €26 to €165, as the board had to adjust its IT systems to new pension arrangements.
Asset management costs also increased – by 0.11 percentage point to 0.38% – as a consequence of performance-related fees for a number of external managers, the pension fund said, adding that it spent 0.08% of its assets on transactions.
The Stichting Pensioenfonds Hoogovens has 9,605 employees, 4,070 deferred members and 15,500 pensioners.