NETHERLANDS - The €889m pension fund for pharmacies' staff PMA expects to recover from its reserve shortfall within 15 years by adjusting its yearly indexation and changing its asset allocation strategy.

Contributions can be maintained at 24.8% of the participants' salaries, and its asset mix will need no further changes once it switches from a dynamic asset allocation to a strategic asset mix over the next two years, the scheme claimed in its recovery plan.

PMA's cover ratio was 111.9% at the end of 2008, down 96% compared to the end of 2007, while its required funding ratio is 128.7%.

Officials attributed the sharp drop of the cover ratio mainly to the decrease of the long-term interest rates, through a combination of the long duration on its liabilities and the short duration on its fixed income investments.

PMA's figures also revealed that last year's 24.7% negative return on investments was also a key factor in the downward shift of its funding ratio.

The scheme will, in principle, stick to its indexation policy of following the salary index during the recovery process, although the board said it wants to review the situation every year based on the actual financial position of the pension fund.

After an 2% indexation over 2008, compensation for inflation will not be granted in 2009, but PMA has factored-in indexation for the following years which will gradually rise from 1.5% in 2010 to 2.5% in 2023.

PMA will also raise its fixed income allocation by 3% to 33% over the next two years, and decrease its equity investments by 5% to 45%.

At the same time, the scheme will decrease its indirect property allocation by 1% to 17% and the remaining - in part liquid - assets will be shifted into commodities.

The pension fund said it will also apply a 35% interest rate hedge against its liabilities.

Based on the 10-year forward interest swap rate of 4.3% after four years, PMA expects to generate yearly returns of 6.1% on average during the recovery process. And long-term returns on its fixed income investments are expected to yield 4.1%, officials said.

The pension fund has 21,510 active participants, 8,375 deferred members and 3,485 pensioners. The scheme has over 1,900 affiliated pharmacy sponsors.

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