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Impact Investing

IPE special report May 2018

Sections

Sectors up and running

Metalworkers’ fund:
copper-bottomed?
The fund for the metal workers, with a membership of 200,000 blue-collar employees, is one of the longest-standing sector schemes. It came into being following a collective labour agreement at the beginning of 1999. Active membership is 150,000 employees from 6,500 companies. The fund became operational in June 2001.
Initially, contributions were set at 1% of salary; they have now progressed to 1.5%, and may increase again as a result of the biannual wage negotiations scheduled for the end of this year.
The scheme is now among the largest; not surprising given how long it has been running. It has a yearly cash inflow of about E45m and the fund size is now passing the E200m mark. “Long-term, to guarantee a decent pension to the workers, we will increase contributions to 4% or 5%,” says Fritz Potemans, social adviser to Agoria, the employers’ organisation of the metal working and technology industry, which runs the metal workers’ scheme. “This will produce 60-70% of income, including the state pension.”
The fund works with four asset managers and a custodian; the asset managers run balanced mandates. “We are not working with an insurance company,” says Potemans. “In that sense we are unique as a sector pension fund. It’s a question of control.”
He adds: “That means that we are responsible for the guarantee of 3.25%. It’s not that much and there is no reason for panicking because even after three difficult years we are nearly 100% funded. That’s a pretty good result.”
The fund used to work with Pragma Consulting for advice on asset management but has now engaged its own asset management specialist.
In terms of investment strategy, the metal workers’ scheme is one of the more aggressively managed; being one of the largest funds it has more scope. When the fund started 60% was invested in bonds and 40% in equities. “The aim was then to reverse the proportions but during the last three difficult years we went to 70% bonds and 30% equities. In the last half year allocation was again at 40% equities and 60% bonds,” says Potemans.
The sector also runs a scheme for white-collar workers. This was set up in 2002, and is managed by Integrale. Membership is 13,000 out of 60,000 in the sector. “We accepted opt-outs and took into account existing schemes, which are mostly better,” says Potemans. Contributions currently stand at about 0.5%.

Food production and baking: grist
to the mill
The scheme for food production and baking was established in April 2003; the collective labour agreement followed in November and became fully operational this year. It has an effective membership of 45,000; a further 12,000 belong to a similar scheme at corporate level. The social partners could not reach agreement for a scheme for white-collar employees.
At present employers make a contribution of 0.75% Current indications from the social partners suggest that it might increase to 3-4% over the next six to 10 years.
The fund has been outsourced to an insurance company. “Not because the federations like it so much but because we cannot see how we as employers and employees’ federations will be able to give a financial guarantee,” says Erwin van Doorn of Aon, who was involved in setting up the fund.
He notes that “the biggest challenge is the organisation of the information flow and the financial flow”.
The financial flow operates through an increase in the main social security contribution to take into account the payment into the sector fund. The payment is then passed to the sector fund, which then passes it on to the insurance company. “Matching the individual names and contributions will will be another big challenge,” says van Doorn.
The food industry has opted for the social security system to collect the money and the data. “The fact that it goes through the social security is quite exceptional for sector schemes,” says van Doorn. “The food sector social partners considered this the most efficient way to collect the data.”
In terms of the investments the insurance company has to report on a very regular basis to the pension fund representatives. Van Doorn stresses that “it is not the board’s intention to drive the investment policy.”

Electricians: small beginnings
The scheme for the electricians was set set up at the beginning of 2002. Membership stands at 25,000 blue-collar workers; the size of the fund is about E15m. Currently the scheme takes a contribution of 1% of salary.
“We are a small fund just starting up so we chose an insurance company for the first five years; after that we will start a pension fund to control the whole system more,” says Johan van Buylen, director of the Fonds de Securité d'Existence des Electriciens. “We still have two years but at the end of this year we will have to start developing the structure for our own pension fund.”
The scheme has chosen AXA. The prudence adopted by start-up funds is reflected here with a 100% allocation to bonds. It returned 5.3% in 2003.
The electricians also have a fund which they invest to pay other benefits such as sickness and unemployment. “In future we will try to influence the strategy of the insurance company through what we have learned from managing the other fund,” says van Buylen.

Construction workers: defining the boundaries
At first sight it might seem odd that a sector as large as the construction workers has not yet set up a fund in line with the new legislation.
Ann Devos, investment officer at the Fonds de Securité d'Existence des Ouvriers de la Construction (social fund of the construction sector, says “it is not yet decided when the new fund will start”. When it is up and running the scheme is likely to cater for 25,000 employers with more than 169,000 employees.
In the late 1940s the sector decided to set up a fund to cover, among other things, income lost because of bad weather, which was extended, as from 1964, with an income that continued into retirement. “At the beginning of 2000 the legislator decided that this was a kind of pension benefit so it should fall under the same legislation as other pension funds,” says Devos. “We will keep the existing fund to pay all the other benefits as it used to; the retirement provision will be taken over by the new fund.”
So why is the sector scheme for the construction workers not yet operational? “We are one of the few sectors that already pay out pensions and it is very difficult to adapt it; we don’t want to shut down the old system because we made promises to our workers.”
Employers and unions do not see eye to eye on the matter. “The unions want to keep the current level of benefit,” says Devos. “And employers worry about the total cost. The new law has consequences on both the benefit and cost side. This makes it a difficult exercise to obtain a balanced solution for both parties. Negotiations are still taking place at the Comité Paritaire, the consultative body of the sector.”
Another reason Devos cites for the fact that a sector scheme has not yet been set up is that construction workers already receive a pension. “We are not in a hurry to change,” she says.
The sector’s choice of vehicle also explains the slow progress. “We are taking our time to set up our own pension fund and to get it right,” says Devos. Couldn’t an insurance company be an interim solution? “No, no, no,” she says. “Our strategy is to have as much control over things as possible.” This is great if you have the resources to do so, of course.
The fund seems to have these resources . “We are big, we have the reserves and we already have the know-how,” says Devos. She has a point. The existing fund uses five banks and one custodian. Devos oversees their management of the fund. Reserves built up in the other system will be used as a buffer for the pension fund. The fund also has an internal proprietary IT system to manage data collection and payments. And it has much experience with running a back office for existing benefits.

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