| Dutch pension scheme managers facing growing costs from legislation and regulation |
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| 26/09/2004 | |
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The growing body of legislation and regulation are leading to higher costs for pension funds according to research by SEI, a provider of asset management and technology solutions. "The changes in the international accounting rules and Dutch PVK regulations have shown some unfavourable and unintended consequences for Dutch pension funds. These consequences include reduced benefits for employees and increased costs for them and their employers", commented Bart Heenk, managing director of the Nordic and Benelux regions at SEI. The research demonstrates that 64% of respondents expect that the companies for which they manage pensions will demand greater involvement in their investment and risk management policies, because the valuation of pension liabilities under IFRS leads to increased volatility in annual corporate financial results. The same proportion of respondents stated that their pension funds assets and liabilities would increasingly be included in their corporate finance decisions. Against this background, both a better balance between assets and liabilities and a bigger share of alternative investment instruments are expected to emerge. Liabilities and risk To restore the pension liabilities coverage ratio, more than half of the pension funds surveyed have implemented or are considering implementing a number of measures that range from increasing employee and employer contributions to adjusting their indexation policies. The sample does not exclude the possibility that future or existing pension benefits may be reduced or that greater investment risks may be taken in the future in order further to improve the coverage ratio. Most of the surveyed pension fund managers are also dissatisfied with the current level of risk management and the investment process. The principal factors specified in this context are excessive costs stated by 56% of the managers, the "wait-and-see" attitude of external advisors detailed by 49% of them and inadequate options to intervene in the investment process in a timely manner mentioned by 70% of the respondents. New management schemes are adopted to face this new environment. Among others, many pension executives are now opting for a manager-of-managers approach, in which a group of specialised fund managers is selected and tracked to act as a benchmark against the active managers. Underperforming managers can then be eventually replaced by stand-by managers. Dutch pension funds making little gains in tough conditions Dutch pension funds are struggling to post significant returns amidst difficult conditions. The total return of the WM's company Dutch Pension Fund Index for the year through 31 August is 5.1 percent. Those positive returns were made possible thanks to a good performance of bond yields, pushed higher due to inflationary expectations. Market conditions led to a sell-off on equity markets, with pension schemes moving away from sensitive sectors. "These defensive moves convey a broad sense that institutions seem to be taking a less optimistic view of the investment climate," said Robert Rijlaarsdam, general manager of the WM Company in the Netherlands. Real estate, in which Dutch funds are heavily invested, was on the up over the period, with indirect real estate returns standing at over 21 percent for the year to-date. This has fuelled high returns for real estate as an asset class, which is up to 10.3 percent for the year through 31 August. J.L. |
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Articles of the same Topic : Pension funds Western Europe
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