Calpam Pensioenfonds: Proud independence
One thing is certain for the Calpam Pensioenfonds (CPF): it wants to remain independent for as long as possible. “Given our financial position, liquidation isn’t in our participants’ interest. Only the fallout of a large natural disaster or a war might change our minds,” says Karel van Cappelle , the €67m scheme’s chairman.
van Cappelle, whose scheme has 307 participants, knows he is in a luxury position. Recently, CPF won the award for best scheme in the Netherlands from IPE’s Dutch sister publication Pensioen Pro. The Calpam pension fund – housed in a modest wooden office just outside the town of Gorinchem – can pride itself on a funding ratio of 160%.
It can afford to pay the employer’s contribution from its own assets and has been able to grant indexation over recent years. In short, it is an example of a toddler fund that can sustain itself without consolidation.
The pension supervisor, the DNB, once added the organisation to its list of “vulnerable schemes”, but it now seems to have changed its mind. “Actually, the DNB wanted us to cease operating,” says Alexander Foursoff, the scheme’s treasurer. “But we have indicated that we don’t want to liquidate. Since then, the regulator doesn’t rattle our door.”
In fact, the pension fund has had some tailwind. When Calpam – a specialist in fuels and lubricants – was taken over in 1989, CPF received a substantial dowry. “We have always resisted the temptation to target returns through equity investments,” notes van Cappelle. “We have consistently focused on our coverage ratio rather than on returns.”
According to van Cappelle, CPF has consistently held on to its “moderately defensive” investment policy, aimed at cashflow-matching from its fixed-income investments plus a surcharge for a 3% assumed inflation level.
• Location: Gorichem
• Assets: €67m
• Participants: 307
• Funding ratio: 160%
The fixed-income portfolio is almost 75% government bonds, sufficient to fully cover nominal liabilities. The remainder of the investment portfolio consists of conservatively managed equity – for return and indexation. “We mainly invest in stable equities that don’t necessarily have to generate the highest returns,” says van Cappelle. “To further spread our risks, we are currently looking into the options of increasing our allocation to index funds,” adds Foursoff. The scheme’s equity portfolio delivered 13.4% last year.
The investment portfolio consists of a 2.8% property allocation, invested in real estate funds to spread risks. The listed funds returned 2.2% over 2014.
The fund’s board aims to continue its existing investment policy. An asset-liability management (ALM) study in 2012 suggested that amending its current approach could increase risk and the board expects that an on-going update of the study will produce a similar outcome.
The board of the scheme makes asset management decisions in-house; these are implemented by ABN Amro Mees Pierson in consultation with an adviser employed by the same manager. This is not a problem, Foursoff says, as the board is ultimately responsible. Investment costs of 17bps of asset under management are acceptable; this also also applies to transaction costs of 6bps.
That said, the administration costs of €1,616 per participant are high. However, van Cappelle and Foursoff point out that a large part is fixed expenses, such as the costs of the ALM study, supervisory levies and the implementation of new legislation. In the opinion of the chairman, the end result in terms of pensions is what counts.
Although van Capelle expects fixed expenses to decrease in 2015, he does not see a drastic fall in the long term. “Every year there are new developments,” he says. “Last year, it was the implementation of new governance legislation, and currently we are busy implementing the new financial assessment framework as well as new legislation on communication.”
Both board members describe the on-going current of new legislation as “a heavy burden”, which includes mandatory reporting on a growing number of issues. “It looks like an unlimited stack of checks and balances,” says Foursoff. “And for whom do we need to do this? Certainly not for our participants.”
Van Cappelle recalls that the frequency of board meetings has increased from three afternoons to six full days a year. “And nowadays, we need to deal with a code of conduct, systems for incidents and complaints and an accountability body,” he adds. “Our regulations now total 180 pages.” This burden is reflected in the latest annual report, which has doubled in size to 80 pages.
Despite regulatory pressure, the board is able to cope, in the opinion of van Cappelle and Foursoff, who both also represent the management of Calpam. The pension office of the scheme is run on a part-time basis and consists of the chairman, the treasurer and a secretary employed by the sponsor. The board knows all 307 participants personally.
The external visitation committee has confirmed that the scheme is functioning properly. Following its 2013 inspection, it concluded that the scheme complied with the principles of good pension fund governance. Nevertheless, the board has adopted its recommendation to draw up formal job profiles for individual trustees, which may result in additional education. Also, following suggestions from the supervisory body, the fund has improved the specification of its investment policy.
However, implementing an objective benchmark for the return on investments has turned out to be difficult, as the investment policy focuses on liabilities rather than on return. But van Capelle emphasises that the scheme’s target is the most important: “And we have plainly delivered on this.”
This seems to be a watertight case. According to van Capelle, the pension fund has always been able to grant inflation compensation, although sometimes in arrears the following year. The scheme is still financially sufficiently well off to enjoy an employer premium holiday, nowadays a rare phenomenon in the Netherlands.