Improvements in global markets from March 2009 resulted in the majority of European pension funds posting double-digit investment returns by the end of the year.
Finnish pension funds in particular appear to have performed consistently well over the last 12 months, with the Finnish Pension Alliance (TELA) reporting an average return of 19% to claw back a 14% loss in 2008.
TELA said the average equity allocation among Finnish funds is now 48% - 15% higher than at the end of 2008 - while total occupational pension assets rose by €20bn to €125bn.
These figures are supported by the results of individual schemes, with returns ranging from the lowest 10.1% from Eläke Fennia to a more positive 18.9% from the Local Government Pensions Institution (KEVA).
Irish pension funds have also bounced back from the disappointing losses of around 34% in 2008. Figures from investment consultancies suggest there were average returns of between 20-22% for the year. However, the National Pension Reserve Fund (NPRF) posted a lower overall return of 11.6%. This is because the 20.9% return on its discretionary portfolio was reduced by the NPRF's direct investments in two banks, following a recapitalisation programme in the first half of 2009.
And despite this overall improvement, the Pensions Board estimated in February 2010 that around 80% of Irish defined benefit (DB) schemes remain in deficit. Many of these are believed to have "substantial deficits".
The Pensions Board's chief executive, Brendan Kennedy, said: "The Board is concerned the investment and funding of too many DB schemes is based on aggressive investment return assumptions and do not take enough account of investment risks and downsides. DB funding needs to be sustainable for the long term, and trustees must therefore consider realistic costs, investment risks, and the ability and willingness of the employer to support the scheme."
Dutch pension schemes also benefited from positive investment results, with most of the funds so far showing a solvency ratio above the 105% requirement.
In particular, the €1.8bn Protector scheme run by Exxon Mobil produced the highest return reported so far of 23.5%, leading to a solvency level of 168% up from 122.4% in 2008. The scheme partly attributed the result to a rise in long-term interest rates that reduced liabilities by €51m, and additional payments of €704m from its sponsoring companies over a 12-month period. It also confirmed it had decreased risk in the final quarter of 2009 by increasing its fixed income allocation by 10% at the expense of equity holdings.
Other Dutch schemes performed well, with ABP showing a return of 20.2% and solvency level of 109%, while PFZW returned 17.6% to reach a cover ratio of 108%. Stichting Algemeen Pensioenfonds KLM was an additional surprise performer, posting the second highest cover ratio so far of 130.1%, with a 2009 return of 17.7%.
Danish pension funds produced reasonable returns over the year, with ATP posting a figure of 8.5% for 2009. ATP's strategy of splitting its investment portfolio into alpha and beta sections continues to pay off. The alpha portfolio returned 5.8% while the beta portfolio - which is divided into five risk categories of interest; credit; equities; inflation and commodities - returned 8.6%. This was driven primarily by the 22.5% return on equities, within which Danish equities returned 51% in 2009. In addition, the SP fund managed by ATP, which has seen around 88% of its assets withdrawn by members, achieved a return of 10.4%.
Danica Pension's' assets rose by 10% over the year to €34.4bn. This was driven primarily by good returns on its market-based products - Danica Balance and Danica Link - which returned 22% and 25% respectively. The Danica Traditionel product, which provides a set interest rate for policyholders, also showed a marked improvement with a return of 7.1%, against a loss of 1.2% in 2008.
Swiss pension funds mainly kept to the trend of double-digit returns, with only Swisscanto suggesting a single-figure average return of 9.6%. Elsewhere, the Migros Pensionskasse (MPK) revealed it was back to full funding of 103.8% after a return of 10.9% in 2009. Christoph Ryter, head of MPK, said the results of an ALM study in 2009 had found "the fund can stick to its current strategic asset allocation with a few changes".
Ryter explained: "While 85% of the portfolio will be in core investments, 15% will be satellite investments and the international diversification of the equity portfolio will continue."
Meanwhile, survey findings from BNY Mellon Asset Servicing and State Street in the UK revealed that the weighted average return for UK pension funds was 14% and 15% respectively. This compared favourably against a return of -13.8% in 2008. The improvement is attributed to strong returns from emerging market equities over the year.