Following a recent study into the changes in average life expectancy, Stichting Pensioenfonds (ABP) has made an upward revision to its liabilities. The adjustment has resulted in a one-off impact on its coverage ratio causing it to decrease from 109% to 104%. The decision to make the adjustment follows nine months of a powerful market rally which helped improve ABP’s coverage ratio from 98% to 109% in the second half of 2009. During this period, ABP realised a 15.1% return or €27bn, giving it room to increase projected liabilities and take a one-time adjustment to its coverage ratio.

ABP’s coverage ratio, which reflects its total assets divided by projected liabilities, has been volatile in recent years as a result of the turmoil in financial markets. The coverage ratio stood at 140% in 2007, allowing for full indexation for its members. It eroded to 132% in the first half of 2008 even as ABP outperformed the MSCI World Country Index by a wide margin. In the months that followed the collapse of Lehman Brothers, the coverage ratio fell dramatically to 83%, below the 105% minimum solvency requirement decreed by law. At the time, the fund communicated that it would reduce the risk of its investments during a recovery period and promised to return to the 105% minimum funding requirement within five years helped in part by a combination of higher contributions. Since then, the most important factor helping to improve the coverage ratio has been the global market rally which began in March 2009 and continues unabated. As a result, the recovery has taken less time than the anticipated five years even as ABP makes more conservative assumptions regarding the impact of longer life expectancy on its projected liabilities.  

The €200bn pension fund for Dutch civil servants used newly released life expectancy forecasts by Centraal Bureau voor de Statistiek (CBS) which indicate life expectancy is increasing faster than forecasts listed on the longevity tables of the Actuarial Society. The average life expectancy increase of 2.3% for men between 60 and 69 could actually be closer to 3%. CBC estimates the average life expectancy of a Dutch male born in 2008 at 73.3 and for a female at 77.2. ABP made the adjustment as part of its three-year review. If one takes the increased life expectancy into account, then ABP’s liabilities increase from €190bn to €201bn. Other Dutch pension funds such as PfZW are also making upward adjustments to employee contributions to reflect new longevity assumptions.

New investment policy

The fund has also adopted a new investment policy for the period 2010-2012 in order to provide a better picture of its liabilities. A number of strategic asset allocation changes are being made to limit risk in certain areas. This has led to a small decrease in the overall weighting factor of equities from 29% to 27% for 2010-2012. The investment mix within the equity segment is also shifting significantly from shares in developed countries in favour of shares in emerging markets, reflecting better growth prospects in upcoming markets. The strategic allocation to developed country equity has been cut to 20% from 24% while emerging markets have seen an increase from 5% to 7%. Other important changes in the strategic portfolio will result in a decrease in corporate bonds from 21% to 16% and an increase in inflation-linked bonds from 9% to 12%. Alternative investments in commodities, infrastructure and real estate will each receive a 1% increase while the hedge fund allocation will remain unchanged at 4%.

Diese E-Mail-Adresse ist gegen Spam Bots geschützt, Sie müssen JavaScript aktivieren, damit Sie es sehen können