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Impact Investing

IPE special report May 2018

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Steel schemes break mould

When the employers and the trade unions in the Belgian metal industry came together in 1999 to discuss the formation of what was to become Le Fonds de Pension Metal, they were conscious they were breaking the mould. It was the first time that a sector-wide plan had been contemplated to provide an occupation-related pension plan for the blue collar workers, who were not normally included in their company pension arrangements.
“When we started thinking about a pension and insurance plan at the sector level, we saw that this would be difficult as everything was organised at the time on a company or plant level,” says Fritz Potemans of Agoria, the employers association for the industry in Brussels.
In fact, though they could see advantages from both the employers and employees on the tax side in running a pension arrangement, there seemed to be no vehicle available to run an industry-wide or sector scheme.
There was an existing mutual benefit fund in place in the industry, a Fond Securité d’Assistance, which provides supplementary benefits in the event of illness and unemployment. It was found that this legal structure could be used to collect contributions for pensions purposes and to invest them. “So we started to see how the scheme might work, what the level of contributions and payments might be, and what the rights of those participating were.” The result was a collective agreement covering the entire industry, which then had around 160,000 employees working for up to 6,000 companies, to be run on paritarian lines, with a joint committee of five employer and five union representatives.
“At that time, we went to the ministry of social affairs in Belgium, presented minister Vandenbroucke with studies we had done ourselves with the University of Leuven, and suggested how the pensions and insurance laws needed to be amended,” says Potemans. This obviously started the government thinking and, in June 2000, the council of ministers accepted proposals from the minister to modify existing laws, which are now finishing their parliamentary journey. “This includes a new framework to regulate funds organised on a sector level.”
But the metal pension fund went ahead with an asset liability management study conducted by major Belgian consultant Conac, with which a robust software programme for the administration was developed. “This enabled us to see how best to put our procedures in place.”
The scheme is on a defined contribution basis, with an individual account for each participant. The contribution is by the employer only and started at 1% of pay in the first year, which increased to 1.25% in 2001 and to 1.5% in April this year. In addition there was a ‘solidarity payment’ of Bfr6,000 (e150) to the fund for unemployment and sickness. The fund has a guaranteed minimum return of 3.25% a year.
The investment was something both sides wanted to keep within the control of the joint committee, but with advice from three outside experts. Manager selection was organised by Pragma Consulting. Four managers were chosen, each with identical mandates. “Following the ALM study, we opted to have the existing capital collected to be 60% in bonds and 40% in equities, but for new money flowing in, 45% was allocated to bonds and 55% to equities. A new ALM study will be undertaken next year to see if a different investment style is needed.
The managers are KBC Asset Management and Axa Investment Management, which handle a third of the portfolio each, with the remaining third divided equally between Cordius Asset Management and Bank Nagelmackers. The annual income is growing and is now running at E80m–100m and at year-end the fund was around E150m, while the numbers covered have grown to 175,000.
The fund is compulsory under the collective agreement, but initially companies were given the ability to opt out if they could show they already had a scheme in place. Only around 50 firms made the move.
However, once the new law comes into force, the fund will abandon its security fund structure and be reconstituted as a separate legal entity, with its own board. “We are as prepared as we can be for this, but it will take some time to make the change.”
Initially, there was not much interest from outside in what the metal pension fund was doing but that has changed. Other groups are now on the way to setting up sector plans. “We were certainly the first, but we are not the only ones now.”
In fact, they took a leaf from their own book and are now launching a sector fund for the white collar workers in the sector. This was a lot more complicated to put into place, says Potemans.
“We had to make sure that existing company-level plans are not affected by what were are going to do.” Of the 50,000–60,000 white collar workers, Agoria reckons that up to 60% do have some coverage. Another problem is that there is not an existing vehicle to be adapted, like the security fund, which could make the collection of contributions very difficult. “Our idea was to provide something for those with nothing from their employers.”
Once the joint decision to go ahead was taken with the unions, the question was then how was the scheme to be administered? “We decided to make a special offer to insurance companies and banks as to how they saw the development of the scheme – what were their ideas for running it, including the costs and method of contribution collection?” Between 10 and 15 groups were approached, he adds.
In the end, Brussels-based Integrale, which provides multi-employer arrangements, was chosen in February (see right). “This firm had some very good ideas and was very cost-effective, charging just 3%. They have produced some very good returns for investors.” The rate of return guarantee will be 3.75% – what Integrale provides.
In the couple of months following the collective agreement and sectoral pensions rules were put in place. “We had to allow a considerable degree of opting out by employers. The collective agreement applies to employers who did not have a pension scheme in June 2001, so those with nothing for employees or part of their employees were included within the agreement.” The contribution rate was fixed at 0.5% of individual salaries. “All companies without any provision have three months up to this month to opt out and fix up something with an insurance company of their choice.”
But where there is an opting out by an employer with an existing scheme, it must inform the president of the joint committee about the payment of the contribution and the pension rules so that they conformity with the rules in place to protect the rights of individual workers. “Companies with a scheme already must show that they contribute at least 0.5% to their scheme.”
Potemans says that perhaps 7,500 –10,000 could be included. The exact figure will be known by the end of June. “From July onwards there will be the calculation of contributions and hopefully the scheme will start in October.”

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