High-quality service and investment performance
This fund is a Polish mandatory, defined contribution, open pension fund. The state-owned Social Insurance Institution (ZUS) collects and allocates pension contributions to open pension funds, with each individual member contributing 7.3% of their gross salary on a monthly basis.
The main aims of the fund, which was established in 1999, are to deliver high-quality administration services and investment performance above the industry benchmark. Members are free to move their funds to other open pension funds at any time.
It is managed by a private company – ING Nationale Nederlanden Poland Pension Fund Society – and, with more than E2.2bn under management and over 1.92m members, the fund is the second largest Polish pension fund on both counts.
Both the fund and the society are strictly regulated by law, so almost any changes in their activity have to be endorsed by legal acts. The parliament recently passed a new bill requiring the societies to lower their fees.
At the top of the society’s management structure is the Supervisory Board, which has eight members – four of whom are independent, reputable lawyers and economists. The Management Board of the society consists of two people who have been working at the society since it was first established. Senior management of the society consists of nine division managers. Each one is responsible for one of the following divisions – investment management, finance, marketing , sales, client service, operations, IT, legal and human resources.
The society employs only 55 staff because many areas of its activity are outsourced. Staff turnover is low, and most of the employees have been with the the society since it began.
In the Polish pension funds system, most investment decisions are made internally – Polish funds do not use advisers or consultants to the same extent as institutions elsewhere. But in the coming years, the society plans to look for managers for its international mandates, and for alternative and property investments in local markets once regulations have been approved allowing the fund to diversify.
Every year, the society publishes a prospectus with the latest information about its holdings, new investments and performance. Members can also go to its web site to see the investment guidelines, financial statements, unit price values as well as general information about the Polish pension fund system.
Members have access to the fund’s services via 2,000 agents, more than 350 ING Bank branches and the internet. They can check account balances through a dedicated call centre, the internet, SMS, fax and ATM network.
The fund is promoting the multi-funds approach with differing levels of risk exposure. It believes a broader scope of investment options will give members a better understanding of investing for the future.
Asset liability modelling
There is no ALM in place, as this is not a typical ALM type of scheme. But within the ALM framework and processes, the fund is managed and monitored as a product with a guarantee.
Polish pension funds’ investments are strictly regulated by law, and there is a range of investment limits which the fund has to stick to. Now, most of the assets are invested in local financial instruments, with some 70% invested in Treasury fixed income securities. About 29% is allocated to local public equities and the rest in convertibles issued by public companies.
Given the current stage of local market development, there is little room for alternative investments. Corporate bonds, mortgages, property and other alternatives are either of negligible size of not directly accessible via public markets.
But the fund is the first pension fund in Poland to invest in international equities. In the next few years, it aims to use all of the 5% limit available for international investment, focusing on equities. In the meantime, it plans to promote the development of local alternative investment markets.
There are strict internal controls over investment management, and numerous standard tools of risk and performance monitoring in place to help fund managers. The fund’s middle office and the custodian provide an extra layer of control. On top of this, ING Investment Management performs a regular external review of the fund’s compliance with the stated investment guidelines.
The society has a carefully developed business continuity plan in place. This has been rigorously tested to assure the continuation of the main business areas in case of unforeseen events.
It is also in the process of implementing the operating risk management framework covering risk identification, measurement, monitoring and management. As well as this, the society has developed and implemented internal control procedures for all individual business areas – here both operational and financial audits are performed regularly by the ING Group internal audit.
Highlights and achievements
The pension fund’s investment performance has been virtually unrivalled since it started three years ago. At the end of June 2003, it outperformed the pension industry benchmark in the following periods: total return since inception (where it came first out of 13 funds); three-year return (first out of 16); two-year return (second out of 16 – or first excluding additional guarantee payments in the industry); one-year return (first out of 16) and year-to-date (second out of 16)
The fund has been ranked among the top three best performing pension funds in six out of nine official investment performance rankings published by the Pension Funds Supervision Office. The fund’s excellent track record has been praised by the two largest national daily papers in Poland which ranked it as the top Polish pension fund in their latest four-year summary ranking of the Polish pension fund system.
Members have voted with their feet. In 2000, 2001, 2002 and the first half of 2003, the fund signed the largest number of new members among all pension funds. It has the most loyal membership when judged by the proportion of clients who left the fund during all transfer sessions.