ABP has done it again. The giant Dutch public pension fund, Europe’s largest with some €150bn under management, thanks to its swift action in introducing a policy of cohesion to protect and redevelop its defined benefit scheme, has won the IPE Gold Award for Best European Pension Fund 2004. “ABP who, like other pension funds around Europe has gone through turbulence, has wasted no time redesigning its DB plan and preparing the pension fund for the future,” comments one judge on the speed and determination ABP has shown in implementing the changes it has drafted in the past year and a half.
ABP’s cohesive policy is designed to bring together the fund’s pensions commitments and the way they are financed, whereby making each pension contract explicit and transparent and significantly improving the management of its funds. What is remarkable is not just the cohesion of the policy but also the speed of implementation and the manner of communication with respect to participants, pensioners and member employers. What was involved here was a radical modification of the content of the scheme in conjunction with an increase in premiums, a reduction in indexation and the introduction of new supplementary products. This was aimed at a huge target group of 6,000 employers, 1.2m members and almost 700,000 pensioners.
Between 2000 and 2002, ABP’s financial position was considerably weakened due to the downturn in the markets and higher than expected increases in salaries. ABP recognised the need for action and joined forces with its social partners to put their own ambitions into action, modernising the pension scheme for the professional public authority and education sectors at the same time. This has led to the revised plan and pensions agreement. A cohesive premium and indexation policy mean the defined benefit system can remain in place. A balanced, but essentially explicit, distribution of risks and benefits covering the employers, employees, pensioners and deferred members lies at the heart of this. Since January 2004 the level of coverage of the fund has formed the basis for ABP’s financial policy. The starting point for this is that a contribution which covers the costs will always be levied, such that if the position of the fund comes under pressure then the level of the contribution will be increased by a supplement, whilst, at the same time, the indexation will be reduced, and vice versa. This system is known as the stepped policy. The mid-career salary plan was introduced at the same time. This does not focus on saving but on establishing a contemporary, competitive and fairer system of building up a pension and is therefore a completely new pensions contract.
The implementation of the new financial policy and modifications to the pension scheme took place from January this year. The modifications, which comprised more than just a simple transition from a DB to a mid-career salary basis, were phased in over time and completed by June.
The smooth implementation of such an extensive package of modifications being accomplished in such a short time is a testament to ABP’s investment and commitment to a modern pensions system. The guiding principle in the company’s restructuring and organisation centres on the events during the life of its members, such as the time they started work, changing career, gaining a partner, divorce, death or retirement. ABP’s new generic pensions system means modifications to the provision of an individual’s scheme can be made swiftly and efficiently. Moreover, a permanent link has been made between the payroll departments of employers and local authorities such that ABP has constant access to client data online, meaning ABP can reflect any changes in lifestyle as they occur in an individual’s pension. The facility also enables ABP to inform clients personally and proactively of their pensions positions at any time.
ABP’s hands-on approach meant getting the message out about the new contract consisted of one quickly coordinated campaign between November 2003 and March 2004 and the means ABP used to do this were perfectly complementary. The message basically contained information about the consequences and benefits the new package implied for different groups and individuals. ABP says this was vital because for the first time in its history the fund had limited indexation for pensioners and the accumulation of member assets. Previous blind faith in unconditional indexation has been replaced by the more pragmatic principle of aspiring to full indexation.
The new cohesive policy and redesigned pension’s package will inspire faith and confidence in the survival of defined benefit schemes across Europe, one judge believes. “ABP has structured and implemented a clear, intuitively understandable and transparent DB plan. An inclusive plan, ABP’s DB model – while waiting for the test of extended times good and bad – strengthens the general credibility of the funded scheme of occupational pensions, which was seriously dented by the crash. Moreover, there is hope for more defined benefit plans on the continent to survive through comparable rapid evolution.”