Investment policy: a quick introduction
Philips Pensioenfonds intends to offer a retirement income that retains its purchasing power over time. This ensures that your retirement income enables you to buy the same amount of goods and services as you are able to buy now. We call this a real retirement income, which is our ambition. To realise this ambition, we aim to increase your retirement income by increases in prices (for retired and non-contributory policyholders) and wage increases (for active members). This is called ‘indexation’. For the Pension Fund to be able to index your pension in the long term, our investments need to generate a sufficient return.
The investment policy is based on an investment portfolio with a division between fixed-income securities and marketable securities. The distribution at any given moment is aimed at having a good chance of achieving our ambition in the long term, a value-fixed pension for pension recipients and non-contributory policyholders and a prosperity-fixed pension for pension builders, without the risks becoming too great.
The fixed-income securities largely consist of relatively 'safe' investments, which significantly secure part of the future expected pension benefits. Think in particular of government bonds with a spread within and outside Europe. It also invests in slightly riskier fixed income securities, such as corporate bonds and emerging market bonds. The higher risk is compensated by a higher return expectation.
The more 'risky' investments are classified as commercial assets. The aim of these investments is to achieve a higher return than the fixed-income securities. Think of investments in shares and real estate.
Retirement in the Netherlands will look different within a few years. Then a new pension system will come into effect. For our participants, this means that they will receive their own 'pension pot' from 1 January 2024, from which pension is paid. The Board of Philips Pensioenfonds has considered the question of what this change means for the Fund's policy. We are dealing with a new reality in the short term. The Fund's policy is normally long-term. However, due to the upcoming system change, there is reason to deviate from our long-term policy on a number of points. The aim of this is to give our participants a good start in the new pension system.
Among other things, the Governing Board has decided to reduce the risk profile of our investments during the transition to a new scheme by reducing the allocation to equities by 7.5 percentage points and investing the proceeds in government bonds and cash. In addition, it was decided to change the interest rate hedge from a dynamic hedge to an interest rate hedge of 50% of the actual pension liabilities.
As of September 30, 2021, the strategic distribution of the investment portfolio is as follows:
- 67.5% of the assets are invested in fixed-income securities
- 32.5% of the assets are invested in commercial securities.
The pie chart shows how the Fund's invested assets are strategically distributed across the various asset classes. The purple and orange-colored investment categories fall under the fixed-income securities. The blue- and green-colored investment categories fall under the marketable securities.
Would you like to know more about the recent adjustments to the investment policy and the other decisions taken by the Board with a view to the arrival of the new pension system? Click here and read the news item.
In which types of investments does Philips Pensioenfonds invest?
For the second part of the series about our investments the question 'In which types of investments does Philips Pensioenfonds invest?' is answered.
How does Philips Pensioenfonds determine its investment mix?
For the third and last part of the series about our investments the question 'How does Philips Pensioenfonds determine its investment mix?' is answered.