2008 연금적립금운용보고서 후생연금 02

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2008 연금적립금운용보고서 후생연금 02

  1. 1. 2008 ABP Annual Report
  2. 2. Annual report 2008 ABP
  3. 3. Contents Overview 3 Report of the Board of Governors Foreword 8 Core business 10 Reflections on the year 15 Pension fund governance 21 Reports of the Participants’ Council, Employers’ Council and accountability body 28 Financial policy 35 Recovery plan 44 Risk management 49 Pension fund management 59 Investment management 67 Financial statements Consolidated financial statements 84 Notes – general 87 Accounting policies 91 Notes to the consolidated financial statements 99 Other notes 124 Company financial statements 129 Other information Provisions of the Articles concerning profit appropriation 132 Actuarial statement 133 Auditors’ report 135 Management and key representatives 137 Abbreviations and definitions 141 Statistical information on participants 143 One hundred kilometres in under ten hours 17 Ten weeks to reach the summit 27 Nine months on a single painting 43 Six years to get a bonsai ready for sale 57 Forty years to generate clean, sustainable energy 65 One hundred years to create a safe, clean delta 81
  4. 4. General
  5. 5. 4 Annual Report 2008 ABP Mission Participants and pensioners have the right to a sustainable and dependable pension fund that is able to discharge its financial liabilities now and in the future. Objectives To maintain a sustainable pension system We aim to provide an affordable pension that is attractive to young and old and to participants, pensioners and employers. To spread risk widely We operate pension schemes for all sectors and participants so that they feel comfortable with the fund. We provide flexibility and individual choice within the collective framework. To become a more participant-oriented fund We provide relevant information that really helps our participants make the right pension choices. We focus less on older people in our communications and seek to impress upon younger people the importance of a good pension. We really involve our participants in the ongoing development of the fund. We support employers in discharging their duty of care to their employees by relieving them of or assisting them with certain tasks. To provide more than pensions alone We offer products and services that support active aging, thus promoting continued participation in the labour market. To be a professional organisation We offer consistency of policy, focus on specific target groups (public and education sectors) and good pension fund governance. Organisation Stichting Pensioenfonds ABP was separated from the administrative organisation in 2008. The new ABP organisation is shown schematically below. Committees formed by the Board of Governors Independent bodies Audit Committee (AC) Board of Governors Participants’ Council Fund Policy Committee Employers’ Council Executive Office Investment Policy Committee Accountability body Appeals Committee Investment Committee Internal supervision Remuneration Committee Service (external AC members) agreement APG Algemene Pensioen Groep N.V.
  6. 6. 5 Annual Report 2008 ABP The names of the members of the Board of Governors, the committees formed by the Board of Governors, the Participants’ Council and the Employers’ Council are given in the chapter entitled ‘Other information’. The constituent bodies of the Board of Governors are described in the chapter entitled ‘Pension fund governance’. Role of Pension Chamber The content of the pension regulations is determined by the Pension Chamber (Pensioenkamer), in which the employers’ and employees’ organisations are represented by their umbrella organisations. Pension regulations The Board of Governors is responsible for: – determining fundability; – translating it into the pension regulations; – determining the fund’s strategic choices; – managing risk, including internal supervision. The strategic choices encompass inter alia pension policy (pension rights and funding), matching assets and liabilities, investment policy, communication policy and administration policy. Participation in the pension scheme is mandatory for public-sector employees under the Public Servants Superannuation Act (WPA), which affects the relationship between the affiliated employers and ABP. The Act also requires public-sector employers and employ- ees to comply with ABP’s Articles and regulations. It is ABP’s object under its Articles to operate as a sectoral pension fund for the public and education sectors. The Board of Governors oversees the performance of that task, which has largely been outsourced to the administrative organisation. Military personnel participate in the ABP pension scheme pursuant to the Act amending the Military Pensions Framework Act (Kaderwet militaire pensioenen). The reference in the Act to the WPA imposes the above obligation to comply with the Articles and regulations on the Minister of Defence and military personnel. Chapter 4 and chapter 17, paragraph 4, of the ABP pension regulations state explicitly the contributions for which the affiliated employers are liable to ABP and the pensions to which they relate. These chapters also cover the periodicity of contribution payments and the sanctions applied in case of late payment. ABP’s Articles require the fund to operate in accordance with the Actuarial and Business Memo. The Articles also state that the fund’s assets may consist inter alia of those contributions, the available resources and income from investment of the available resources. As regards administration, ABP has entered into a long-term agreement with the admini- strative organisation APG Algemene Pensioen Groep NV (APG). The main tasks performed by the administrative organisation on behalf of the fund are pension fund management, asset management, communication and support services for the Board of Governors.
  7. 7. Report of the Board of Governors
  8. 8. 8 Annual Report 2008 ABP Foreword 2008, an extraordinary year Stichting Pensioenfonds ABP started the year in a strong financial position. Full indexation was applied to pensions in 2008 and there was scope to make up for indexation missed in previous years. Taking this indexation into account, the funding ratio as at year-end 2007 was 140 per cent, so 2008 started well. By the time of the presentation of ABP’s half-year figures in June, the outlook was less promising. The impact on the financial position of the credit crisis that broke in the summer of 2007 did not become fully apparent until the second half of the year. The entire financial sector was suffering from falling share prices and interest rates and confidence among financial institutions evaporated. The Board of Governors and the administrative organisation constantly monitored and evaluated developments in relation to the fund’s position and took corrective action where necessary. Despite these efforts, ABP’s assets shrank and its liabilities grew – in common with many other pension funds – and the funding ratio declined. ABP’s financial position deteriorated to such an extent that, by the end of the year, the funding ratio had fallen to 90 per cent, below the required minimum of around 105 per cent. In the light of ABP’s financial position and the situation at the end of 2008, the Board of Governors, while fully appreciating the disappointment and concern it would cause to participants and pensio- ners, took the painful decision not to apply indexation to the pensions this year. ABP has now submitted a recovery plan to the regulator, showing how the fund proposes to restore its financial position. The recovery plan also explains how ABP will monitor the recovery process and manage scenarios both better and worse than expected. 2008 was also exceptional in another sense: it was the year in which the ABP pension fund was separated from the administrative organisation. This enables the pension fund to focus fully on its ambition and objectives, while performing its core function of providing a sustainable pension scheme, based on the principles of collectivity and solidarity, which is attractive to all participants and pensioners. The administrative organisation is responsible for pension fund management, asset management, communication and other services, operating under agreements that define the expenses charged and tasks performed. The Board of Governors of the pension fund is, of course, still ultimately responsible. Theme of this annual report: In the midst of the current unrest on the financial markets, driven by sentiment that changes the long-term view from day to day, there is a risk of losing sight of the fact that pension funds take the long- term view because they have long-term liabilities. Participants just entering the labour market and starting to build pension rights will be entitled to a pension that pays out in forty years or so. ABP has to look far ahead in its planning and calculations. ABP takes the same long-term view of the credit crisis. It has to address the problems the crisis is creating and their consequences, including a substantially lower funding ratio and a diminished asset base. Financial markets have experienced crises and extreme volatility in the past that also had an impact on ABP’s position, but the reserves were soon repleni- shed in the years thereafter and under-indexation was made up. Whether that will be the case this time is by no means certain. The familiar warning still applies: ‘Past results give no guarantee of future performance’.
  9. 9. 9 Annual Report 2008 ABP The short-term outlook is extremely weak, but improvement in the fund’s financial position depends primarily on the investment results and the interest rate trend in the long term. The global economy is expected to recover eventually, but the pace of that recovery is an unknown factor. The Board of Governors will continue critically to review the principles of financial policy, taking into account the experiences of 2008. The short-term measures have been defined in a recovery plan, but responsibility for the long term goes far beyond that. ABP’s primary object is to provide a good and affordable pension for the participants and maintain the pension system based on the principle of collectivity, with all the benefits that brings. HCJL Borghouts, Interim Chairman of the Board of Governors of ABP
  10. 10. 10 Annual Report 2008 ABP Core business Funding ratio The credit crisis hit the fund hard. The funding ratio was severely affected by lower prices sharply lower and significantly lower market interest rates, falling 50 percentage points in 2008 from 140 to 90 per cent. There was a reserves shortfall at the end of the third quarter and a funding shortfall arose in the fourth quarter. The Pensions Act requires the fund to submit a recovery plan showing how it expects to eliminate the reserves shortfall and funding shortfall within the statutory periods. Given the exceptional situation, the Minister of Social Affairs and Employment extended the period allowed for rectification of the funding shortfall to five years. ABP has submitted a recovery plan which meets these requirements to the regulator, the Nederlandsche Bank. Table 1.1 analyses the funding ratio in terms of available resources and liabilities. Table 1.1. ABP’s funding ratio in 2008 (at nominal market interest rate) ABP’s financial position 2008 2007 change (%) Fund capital (in € billion) 172.9 216.5 - 43.6 Pension liabilities (in € billion) 192.9 154.7 38.2 General reserve - 20.0 61.8 - 81.8 Funding ratio (in %) 89.6 140.0 - 50.4 The investment results were far lower than in previous years, with a return of 20 per cent negative in 2008. The fund’s capital decreased to € 173 billion as at year-end 2008 (2007: € 217 billion) and liabilities increased from € 155 billion to € 193 billion, mainly due to the capital market interest rate relevant to the valuation of the liabilities falling from 4.85 to 3.57 per cent. Negative effects The 50.4 percentage point decline in the funding ratio is analysed as follows: - decrease in capital due to investment return: - 27.3 - increase in liabilities due to addition of interest: - 6.2 - increase in liabilities due to indexation: 0.0 - increase in liabilities due to lower capital market interest rate: - 24.8 - other effects: 7.9 - net effect on funding ratio: - 50.4 The other effects relate to contributions, benefits, value transfers and expenses. With a funding ratio of over 100 per cent, capital growth of 1 per cent translates into an increase in funding ratio of more than 1 per cent. Growth in the liabilities has the opposite effect.
  11. 11. 11 Annual Report 2008 ABP Market interest rate The liabilities are valued separately from the investments. The valuation of the liabilities is exceptionally low and not based on the expected but not yet realised investment returns, which depend largely volatile on the investment mix. Instead, the valuation is calculated at a nominal market interest rate that matches the maturity of the liabilities. This prudent approach gives more reliable results in normal circumstances. With confidence not yet restored to the market, despite the action by central governments and central banks to limit the consequences of the credit crisis, the market interest rate is low and extremely volatile. Fluctuations in the funding ratio of up to 10 percentage points in one month were witnessed on more than one occasion in 2008. The arithmetic result of the liabilities valuation process should therefore be viewed with some reservation, even though the average interest rate has dropped significantly since October 2008. The volatile course of the funding ratio and the underlying causes are illustrated in the figure below. The black lines show the position at quarter-end. The coloured bars show the factors causing the change in the funding ratio over the period, distinguishing between the effect of interest rates on the liabilities, the effect of the return on the assets and other effects. Figure 1.1 Changes in funding ratio and underlying causes in 2008 150% Q1 Q2 Q3 Q4 Q1-Q4 140% 130% 120% 110% 100% 90% funding ratio 80% investment return interest-rate change interest addition other effects
  12. 12. 12 Annual Report 2008 ABP If we calculate the liabilities at a fixed interest rate of 4 per cent, as an example of a prudent long-term interest rate consistent with the maturity of the liabilities, the funding ratio as at year-end 2008 was about 95 per cent (2007: about 125 per cent). This also reflects the effect of the credit crisis, albeit less prominently because, with a notional fixed interest rate, only the falling prices are a factor. No scope for indexation With effect from 1 January 2008, full indexation was applied and the indexation shortfall accumulated in past years was made up. Since then, however, the fund’s financial position has deteriorated to such an extent that the Board of Governors did not consider it appro- priate to apply indexation to benefits and accrued pension rights with effect from 1 January 2009. Current pension benefits The provision for pension liabilities relates to all accrued pension rights, not just those of unchanged pensioners, but also those of active participants and former participants. Despite the low funding ratio, the disbursement of pensions in payment will continue unchanged for the time being and movements in prices and interest rates will have no effect. These factors do, however, affect the funding ratio and hence our progress with the recovery plan. Future indexation will depend on how the funding ratio improves during the recovery phase. If the funding ratio does not improve fast enough and there is no other way for ABP to rectify the funding shortfall within the set period of five years, it may not be possible to avoid curtailment of pension rights in the future. Investment policy The return for 2008 was 20 per cent negative, reducing the average nominal return for the still focused on the period since 1993 to 5.9 per cent as at year-end 2008 (2007: 7.9 per cent). The average long term return for the past ten years has been 2.9 per cent. Apart from necessary short-term corrections, ABP remains firmly committed to the strategic objectives of its investment policy in the long term. The average real return, adjusted for wage inflation, for the period since 1993 declined to 3.7 per cent as at year-end 2008 (2007: 5.8 per cent). To put this in perspective, the contribution rate is set on the basis of a prudent estimate of the long-term real return of 3.0 per cent. 2009 contribution rate In the first half of 2009, the contribution rate for retirement and surviving dependants’ pensions was 20.0 per cent, 0.4 percentage points higher than in 2008. In principle, ABP sets cost-covering contribution rates, which are not raised by reference to an indexation matrix. In other words, contribution rates do not depend on the financial position. The contribution rates for 2009 have been set on the basis of the cost-covering contribution rates at the end of 2008, without taking account of the recovery plan submitted in respect of 2009. To increase ABP’s recovery capacity, the recovery plan provides for this con- tribution rate to be increased during the funding shortfall period by the addition of a recovery surcharge. This recovery surcharge will be 1.0 per cent1 for the second half of 2009. The sector-specific contribution rates for disability pension (AOP) remain at the 2008 level and the average AOP contribution rate stays at 0.5 per cent. 1 The recovery surcharge with effect from 1 July relates to the expected reduction in the early- retirement/flexible pension contribution rate.
  13. 13. 13 Annual Report 2008 ABP High service score ABP also measures its performance by the quality of its internal operations. The objective is a high level of service at competitive administration cost. With effect from 2008, the entire administration has been outsourced. ABP measures its performance against those of other leading pension funds, as monitored by the Cost Effectiveness Measurement (CEM) Institute. This benchmark comprises 77 pension funds around the world. Table 1.2 compares the service score obtained by ABP’s pension fund management with the CEM world average. CEM improved the method of calculating the service score in 2008 by basing it on current performance in terms of pension fund management. The service scores for previous years in the table have been restated to facilitate comparison. Table 1.2. Service score compared with CEM world average (max = 100) 2008 2007 2006 2005 2004 ABP 89 88 84 80 77 CEM world average tba 68 70 69 68 The service improved by 1 point to 89 points (max = 100), placing ABP among the highest-scoring pension funds worldwide. The CEM figures for 2008 will not be available until mid-2009. Competitive cost Table 1.3 shows the pension administration expenses per participant compared with the per participant CEM world median (in €) 2008 2007 2006 2005 2004 ABP 90 74 65 63 62 CEM world median tba 79 77 78 85 The pension administration expenses (according to the CEM definition) rose in 2008 to € 90 per participant, due inter alia to higher compliance, communication and ICT expenses. Expenses were also higher in 2008 because pricing under the service agreement with the administrative organisation is at arm’s length. The object is still to keep costs low.
  14. 14. 14 Annual Report 2008 ABP Historical review 2008 2007 2006 2005 2004 Financial data (€ million) pension investments 197,408 223,236 208,905 190,215 164,867 insurance investments 2,259 2,228 2,048 - - other assets and liabilities -24,044 -6,651 149 400 3,184 A. Total investments2 175,623 218,813 211,102 190,615 168,051 retirement and surviving dependants’ pensions 189,400 150,844 152,199 150,208 130,740 disability pensions 3 1,993 2,188 2,350 2,521 2,706 flexible pensions 1,402 1,512 1,761 6,434 5,132 ABP ExtraPensioen 133 131 104 78 50 B. Provision for pension liabilities 192,928 154,675 156,414 159,241 138,628 insurance liabilities for own account/risk 2,532 2,102 2,023 - - insurance liabilities for policyholders’ account/risk 213 198 191 - - C. Provision for insurance liabilities 2,745 2,300 2,214 - - D. General reserve (A–B–C) -20,050 61,838 52,474 31,374 29,423 E. Funding ratio of pension fund (A–C)/B (%) 90 140 134 120 121 nominal market interest rate (in %) 3.57 4.85 4.25 3.70 4.20 F. Numbers (at year-end) in active service 1,133,000 1,122,000 1,106,000 1,102,000 1,113,000 former participants 872,000 848,000 816,000 792,000 761,000 pensioners 750,000 742,000 735,000 727,000 697,000 total 2,755,000 2,712,000 2,657,000 2,621,000 2,571,000 affiliated employers/sub-employers 3,985 3,999 4,091 4,187 4,317 employed by ABP (in the Netherlands) 9 2,489 2,387 2,389 2,385 employed by consolidated entities 4,082 778 796 521 490 G. Other information (%) contribution rate for retirement and surviving dependants’ pension (non-military)4 20.0 19.6 19.8 21.4 19.0 disability pension contribution rate (average)5 0.5 0.8 1.2 1.6 1.8 contractual salary increases 4.73 2.05 3.66 0.38 0.15 indexation 0.00 4.056 2.82 0.17 0.12 pension administration expenses per participant (CEM definitions7 in €) 90 74 65 63 62 service score (CEM definition 2008, max = 100) 89 88 84 80 77 Z score (norm: ≥ –1.28 over a 5-year period) -3.1 0.6 1.0 0.4 0.6 return total (= direct + indirect, in %) -20.2 3.8 9.5 12.8 11.5 total return 10-year average (in %) 2.9 6.5 7.3 7.5 7.9 H. Solvency margin for insurance activities8 (%) 242 245 228 - - 2 Presentation changed slightly compared with 2007 5 Until 2007: disability and redeployment benefits contribution rate (high) 3 Until 2007, disability and redeployment benefits only; 6 Including post-indexation since 2007 including ABP disability benefit (AAOP) 7 Except in relation to spreading of project expenses over three years 4 Including general surviving dependants’ pension 8 As from 2008, including Cordares Verzekeringen (ANW) contribution
  15. 15. 15 Annual Report 2008 ABP Reflections on the year Overview Financial position Stichting Pensioenfonds ABP (ABP) aims to index the participants’ pensions fully and has deteriorated sustainably at an affordable price. Unfortunately, ABP was unable to fulfil that ambition in 2008. In the wake of the credit crisis that manifested itself strongly from September onwards, ABP’s capital buffers were rapidly depleted and its financial position, which had still been excellent in June, suffered the consequences of the turmoil on the financial markets. Falling prices and interest rates eroded both the assets and the funding ratio. By 31 December 2008, the funding ratio had dropped to 90 per cent, down 50 points on year-end 2007. In the light of ABP’s weakened financial position, the Board of Governors decided not to apply indexation to pensions as from 1 January 2009. ABP has since submitted a recovery plan to the regulator, which is discussed in greater detail in Chapter 6. The recovery plan is expected to eliminate the reserves shortfall within the period of fifteen years required by law. The period allowed for recovery from the funding shortfall has been extended by the Minister of Social Affairs and Employment to five years, which can be met by the recovery plan without additional measures. To increase ABP’s recovery capacity, however, the Board of Governors has decided to apply a recovery surcharge to the (cost-covering) contribution rate during the period allowed for recovery from the funding shortfall. Policy developments Communication given high High priority was given in 2008 to ABP’s communication policy, which complies with the priority requirements of the Pensions Act. The principal objectives of the communication policy are to fulfil the expectations of ABP’s participants and report progress towards the achieve- ment of the pension fund’s mission and objectives. Management activities As well as its normal duties, ABP’s Board of Governors devoted considerable attention in 2008 to pension fund governance, the separation of the ABP pension fund from the administrative organisation and, of course, the credit crisis and its consequences and the pension fund’s (financial) risk management. Pension fund governance New structure for ABP Following separation from the administrative organisation, ABP configured and imple- mented its new structure in 2008, in compliance with the Pensions Act and the principles of good pension fund governance formulated by the Labour Foundation (STAR). The Board of Governors endorses and will comply with the principles of good pension fund gover- nance adopted by STAR in December 2005. The issues relating to the governance of the pension fund which were still open as at year- end 2007 have now been resolved. Separation of pension fund from administrative organisation Separation of pension fund The decision to undertake the restructuring was adopted by ABP’s Board of Governors at the from administrative end of 2007 and the ABP pension fund and the administrative organisation became separate organisation entities with effect from 1 March 2008. This enables ABP to concentrate on achieving its principal ambition and objective: to provide a good, affordable and sustainable pension. With this separation, the ABP pension fund relinquished its self-administered status.
  16. 16. A Greek runner, Spyridon Louis, won the first modern Olympic marathon in Athens in 1896. The Olympic marathon was inspired by the legend of the messenger Phidippides, who ran from the town of Marathon to Athens in 490 BC to announce the Athenian victory in the Battle of Marathon. The day of the race in 1896 was very hot and Louis stopped midway for a glass of wine. When told how far the others were ahead, he said he would still overtake them. At 32 kilometres, the leader Lermusiaux (a 1500m runner) dropped out. The lead was taken by the Australian Flack, who had already been victorious in the Olympic 800m and 1500m events. A few kilometres fur- ther, he also retired, giving Louis the lead. In the Olympic stadium, the crowd waited anxiously for news. Cycle messengers were dispatched to the stadium to report the current positions and a police messenger was sent as soon as Louis moved into the lead. When he arrived at the stadium, Louis was met by Crown Prince Con- stantine and Prince George of Greece. Louis finished in 2:58:50, fuelled along the way by wine, milk, beer, Easter eggs and orange juice. His victory was celebrated in an extravagant fashion. After winning the marathon, Louis never ran another race. As well as the Olympic Sta- dium in Athens, many Greek sports clubs are named after this national hero. The marathon has become very popular. There were only seventeen competitors in the first Olympic marathon, but over 38,000 runners took part in the 39th New York marathon in Spy r idon ( SpY roS) loui s 2008. Winner of the first Olympic marathon in 1896.
  17. 17. One hundred kilometres in under ten hours Abdelkarim Machichy is a committed long-distance runner. He has already run dozens of marathons in almost every continent of the world and is not scared to take on the challenge of ultra-marathons over distances of 100 kilometres. The last time he did that he recorded a time of 9 hours and 50 minutes. It was around twenty-five years ago that Abdelkarim ran his first marathon, having previously taken part in various eight or ten- kilometre races and several half-marathons. He estimates that he has since completed around seventy marathons in cities such as Beijing, New York, Rotterdam, Amsterdam and Dubai, as well as three in Marrakech in Morocco, his country of birth. He has also run several ultra-marathons, including the Comrades Marathon in South Africa (one year running 89 kilometres downhill and the next year 87 kilometres uphill) and the 100-kilometre Winschoten Run on two occasions, as well as the Haarlemmermeer Run several times and the 70-kilometre run around the island of Texel on three occasions. “My personal best for a marathon is 2 hours and 51 minutes,” as Abdelkarim explains. “I’m not getting any better now, though. That’s because I do too many marathons each year, and also the longer distances, which mean I have to do lots of training. Before you start doing 100-kilometre runs, you first have to spend a few months doing a 70-kilometre run at least once a week. That’s when I go for early-morning runs from Katwijk to Noordwijk, Sassenheim, Hillegom, Heemstede and Haarlem and then back via the boulevard in Zandvoort. That’s 72 kilometres, all on my own as no-one else is mad enough to run such long distances.” Just keep on going During a race, Abdelkarim is far more focused on his body and general condition than on the distance itself, his time or the result. “You never know beforehand how the race is going to go,” he explains. “You train for it and you know you can do it, but you still never know how it’s going to turn out. You always get a dip after 70 to 75 kilometres and then you really start seeing what you’re made of, but you shouldn’t spend time thinking about it. Even the runners leading the race have problems. You just have to keep on going. If you can get through your dip, it will be fine.”
  18. 18. 18 Annual Report 2008 ABP A structure was chosen in which ABP holds 100 per cent of the capital in the administra- tive organisation. The pension fund has entered into a long-term contract with the admi- nistrative organisation which safeguards the continuity of the pension fund and keeps costs under control. Their relationship is governed by a system comprising a master contract, subsidiary con- tracts and a service level agreement (SLA) for the coming year. When negotiating this first SLA, the Board of Governors was advised by external consultants on the selection of effective key performance indicators (KPIs). It is the task of the Board of Governors to verify the correct implementation of this contract, in accordance with the requirements of the Pensions Act. The Board of Governors monitors the functioning of the contractual arrangements on the basis of status reports and checks. An Executive Office has been set up by the pension fund to ensure close monitoring of the administration and risk management functions on a continuous basis. Effective cooperation between the Executive Office and the administrative organisation is essential for the effi- cient functioning of the pension fund. Where necessary, the Executive Office has recourse to external assistance and advice. In the coming year, the Executive Office will focus inter alia on placing the assessment of the fund’s risk management on a more independent footing. Merger with Cordares The merger between the administrative organisation and Cordares as announced in the previous annual report was finalised in 2008. Credit crisis The credit crisis occupied much of the Board of Governors’ attention in the second half of 2008, and particularly in the last four months. The financial position deteriorated very rapidly and, while the long-term strategic aim of investment policy remains unchanged, corrective action has been taken where necessary. For example, the Board of Governors has made several tactical changes to lower the risk profile to some extent and extended the duration of the portfolio of fixed-income investments to hedge against the effects of a further fall in long-term interest rates. The consequences of the credit crisis prompted the Board of Governors to consider the possibility of adjusting the balance between pension affordability and ABP’s ambition to apply full indexation on the one hand and the associated risks on the other. Risk policy Integrated risk framework Risk management is a priority issue for ABP, given its mission, the growing complexity of the business processes, the increasingly discerning client base, the new legislation and regulations and the higher risk management standards demanded by the regulators. The multitude of internal and external developments make effective internal management more important than ever. Raising risk-awareness is high on the agenda. A strategic approach was taken to risk assessments conducted in the context of risk workshops in 2008, not only dealing with the statutory requirements but also identifying risks that are relevant to day-to-day operations. Discussion and assessment of the strategic risks results in an integrated risk framework that helps to determine how ABP runs the risk control and management functions.
  19. 19. 19 Annual Report 2008 ABP Compliance Compliance with legislation Because ABP attaches great value to its integrity and reputation, compliance with internal and regulations and external standards and values is closely monitored. As well as observance of legislation and regulations, compliance also refers to the integrity of people and processes and how that is embodied in the organisation. ABP is subject to various forms of supervision, both prudential supervision (Nederlandsche Bank or DNB) and business conduct supervision (Authority for the Financial Markets in the Netherlands or AFM). In order to demonstrate to regulators that it complies with the legislation and regulations, ABP in turn has to verify that the activities of the pension administrator also comply and has to demonstrate compliance by its own Board of Governors and staff. In discharging its responsibilities in this area, ABP has conducted an in-depth analysis of its compliance tasks and responsibilities. The relevant legislation and regulations requires ABP to distinguish between its own tasks and those that have been outsourced to the compliance function of the administrative organisation. Its own tasks relate primarily to business conduct supervision and the outsourced functions are mainly concerned with prudential supervision, in which ABP’s Board of Governors performs a monitoring and oversight role. As well as the Pensions Act and the Financial Supervision Act (Wft), other legislation comes within the scope of the compliance function, such as the Occupational Pensions Scheme (Obligatory Participation) Act 2000 (WBPF) and the Personal Data Protection Act (WBP). Internal control The Board of Governors of ABP is responsible for the fund’s financial position and, in that context, for the existence, configuration and functioning of the internal risk management and control systems. The purpose of these systems is to monitor progress towards the pension fund’s strategic, operational and financial objectives and enable reliable financial reporting. The administrative organisation is responsible for the management of the risks associated with outsourced processes. The outsourcing risk incurred by ABP is controlled inter alia via periodic reporting by and consultation with the administrative organisation. In the in-control statement included in the chapter on risk management, ABP affirms inter alia the quality of the internal risk management and control systems with respect to financial reporting on the outsourced investment and pension fund management pro- cesses. This statement is based in part on an in-control statement issued to ABP by the administrative organisation in that regard. Corporate social responsibility Contributing to For over 85 years, ABP has been helping to build a secure future for its clients, now a secure future numbering 2.8 million participants and 4,000 employers in the public and education sectors. Dependability and a long-term view are central to ABP. The fund is an important player in the community, both directly through its activities on behalf of employers and employees in the public and education sectors and indirectly via its investments. That is why ABP is focusing increasingly on the effect of its activities on people, both outside and inside the organisation, and on the environment. Solidity, dependability, humanity and transparency are its core values. In a society and economy that are constantly changing, ABP has the strength, the duty and the ambition to continue discharging its social and economic responsibilities. Corporate social responsibility (CSR) is therefore a priority for ABP at all times. CSR is about the balance between people, planet and profit – society, environment and economy.
  20. 20. 20 Annual Report 2008 ABP With capital comes influence, and with influence comes responsibility. As a major investor occupying a prominent position in the capital market, ABP is well aware of that respon- sibility. With some of its investments it exerts significant influence and with others come social responsibility. ABP’s Board of Governors pursues its own policy on environmental, social and corporate governance (ESG) aspects with regard to the asset management function. National and international regulations Growing influence of ABP stays abreast of new legislation and regulations, both national and international. ABP regulations does not shrink from exercising influence where necessary in the interests of sustaining the collective pension system. It was partly due to ABP’s efforts that the period allowed in the Pensions Act for recovery from a funding shortfall was ultimately set at three years instead of the original one year. International regulations have also threatened to make an increasingly profound mark on the Dutch pension system. International legislation is often tailored to individual pension systems, which are far more common around the world than our collective system. Some European politicians, for example, have argued in favour of extending Solvency II, the regulatory framework for insurance companies, to pension funds. This would have set far higher standards on pension fund capital, the minimum required funding ratios would have been higher and the period allowed for recovery from a funding shortfall would have been reduced to one year. This argument ignores the fact that collective pension funds have more levers at their disposal than insurance companies to limit their risks, making it unnecessary to apply Solvency II. One of the principal attributes of collective pension funds is solidarity between generations. Fortunately, most European politicians are now persuaded of these differences, but we must be on guard. There was also some debate in 2008 on the international (IAS 19) and national (RJ 271) accounting rules for pension funds. These accounting rules wrongly stated that employers had to account for all pension risks if the collective was exposed to any risk. In the Dutch system, pension risks are shared by the active participants, pensioners and employers. The national accounting rules have now been amended and, in the new draft guideline (RJ 271), has moved from a risk approach to a liabilities approach. This means that a distinc- tion is no longer made between defined-benefit and defined-contribution schemes and they are covered by the general rules for the recognition of provisions. Employers are only required to include a liability in the balance sheet if there is de facto or de jure a liability to the pension administrator and/or employees on the balance sheet date. In view of the administrative savings that can be made in many cases, the Council for Annual Reporting has explicitly permitted the new draft guideline to be applied to the 2008 financial statements.
  21. 21. 21 Annual Report 2008 ABP Pension fund governance General Objectives ABP aims to provide a sustainable pension fund, based on principles of collectivity and solidarity, which is attractive to all participants. The Board of Governors of the pension fund is ultimately responsible for ensuring optimum quality, accuracy and openness in implementation of the pension scheme agreed by the employers’ and employees’ organisations. The Board of Governors considers that pension fund governance must not only comply with the relevant rules and standards, but must also contribute to the achievement of the fund’s objectives. The Board of Governors endorses and will comply with the principles of good pension fund governance formulated by the Labour Foundation (STAR) in December 2005. The governance structure was reconfigured and implemented in accordance with those principles in 2008. Pension fund governance structure Configuration ABP’s governance structure consists of four elements: pension fund governance, internal supervision, codetermination and accountability. The Board of Governors has thirteen members: six members appointed by employees’ organisations, six members appointed by employers’ organisations and an independent chairman, who does not have a vote. The expertise of the members of the Board of Governors must be of an adequate level, as determined by the Nederlandsche Bank (DNB), in the interests of the participants, former participants and other stakeholders in the fund. The Board of Governors is required to notify DNB in advance of any change in its com- position and to notify DNB immediately of any subsequent disclosure concerning a member’s background. The Board of Governors is responsible and has authorisation for: – amendment and adoption of the Articles and regulations of the fund, including the pension regulations and the administrative regulations; – implementation or outsourcing implementation of those regulations; – management of the fund in accordance with the financial policy, which includes risk policy, investment policy and determination of contribution rate and indexation; – communication policy; – entering into service agreements and an SLA with the administrative organisation and monitoring correct implementation of those agreements; – entering into obligations with third parties, whereby the chairman, an employers’ member and an employees’ member jointly represent the fund. The Board of Governors is assisted in the performance of its duties by an Executive Office, the responsibilities of which include: – advising and assisting the Board of Governors, for example in negotiating the implementati- on agreement with the employers’ and employees’ organisations in the Pension Chamber; – consultation with the Pension Chamber; – entering into and monitoring the service agreements and SLA with the administrative organisation; – policy formulation by the Board of Governors; – compliance with the (statutory) requirements relating to pension fund management, including governance.
  22. 22. 22 Annual Report 2008 ABP Five committees have been formed to ensure optimum performance of the duties of the Board of Governors: the Audit Committee, the Fund Policy Committee, the Investment Policy Committee, the Appeals Committee and the Remuneration Committee. These committees act in an advisory capacity. As well as by the committees, the Board of Governors is also advised by independent bodies which do not include members of the Board of Governors: the Participants’ Council, the Employers’ Council, the Investment Committee and the accountability body. The Audit Committee, which carries out preparatory work for the Board of Governors, brings together the requisite financial expertise to support decision-making by the Board of Governors. The Audit Committee monitors: – the functioning of the risk management and control systems; – the accuracy of financial accounting; – compliance with legislation and regulations; – the integrity of the published financial information. As well as six members of the Board of Governors, three external experts also have seats on the committee. The Fund Policy Committee is responsible for the preparation of policy for the fund’s (strategic) long-term plan, including financial policy (risks, contribution rate and indexation), pension policy and administration policy. The committee consists of three members of the Board of Governors from the employees’ side and three members of the Board of Gover- nors from the employers’ side and is chaired by the chairman of the Board of Governors. The Investment Policy Committee is responsible for preparation of the fund’s (strategic) investment plan and the constraints imposed by the fund, including those relating to ESG factors. The committee consists of three members of the Board of Governors from the employees’ side and three members of the Board of Governors from the employers’ side and is chaired by the chairman of the Board of Governors. The committee consults regularly with the External Investment Committee. The Appeals Committee decides on behalf of the Board of Governors on appeals by interested parties against decisions taken under the fund’s Articles and regulations. The committee consists of a number of members of the Board of Governors and a number of independent members appointed by the Board of Governors for their expertise. The Board of Governors has appointed a Remuneration Committee, which sets constraints on the social policy of the administrative organisation on behalf of the Board of Governors. The committee makes preparations for the recruitment and selection of members of the Executive Board of APG Groep NV, a holding company which also controls the administra- tive organisation. The mitigated two-tier structure regime is applicable to this holding com- pany. As shareholder, ABP also determines the remuneration of the members of this Executive Board, on a proposal by the Supervisory Board of the administrative organisation. The committee consists of the two vice-chairmen of the Board of Governors, one Member of the Board of Governors from the employees’ side and one member of the Board of Governors from the employers’ side and is chaired by the chairman of the Board of Governors.
  23. 23. 23 Annual Report 2008 ABP The Investment Committee advises the Board of Governors on investment policy. The committee of external experts is international in composition, with a profile appropriate to a body advising on investment policy. The committee was augmented in 2008 with the appointment of two members, Messrs. Evans and Kjaer. The Participants’ Council, representing the interests of the participants and pensioners, and the Employers’ Council, representing the employers in the public and education sectors, are the principal advisory bodies supporting the Board of Governors and provide the Board of Governors with solicited and unsolicited advice on policy. The Board of Governors has outsourced policy preparation, pension administration, communication and asset management to the administrative organisation. As well as a master contract, there are also three further service agreements between the pension fund and the administrative organisation, for pension administration, asset management and other services. The fund also enters into an SLA each year with the administrative organisation. Internal supervision The Pensions Act requires every pension fund to set up its own system of internal supervision employing external and independent experts with effect from 1 January 2008. The Act gives a choice of four different forms: a visitation committee, a supervisory body, an expanded audit committee or a one-tier-board. To meet this internal supervision requirement in a manner appropriate to a large pension fund, ABP’s Board of Governors decided to expand the (existing) Audit Committee by adding three external and independent members. The external members of the Audit Committee function in the same way as all the other members of the Audit Committee except that they are specifically and independently charged with assessing the functioning of the Board of Governors. The Act confines the supervision exercised by the external members exclusively to assessing the fund’s policy-making and management procedures and processes, the checks and balances, the fund’s governance and the way in which the Board of Governors manages risks in the longer term. The external members may, however, elect to investigate other aspects in addition to their statutory duties. The assessment by the external members of the functioning of the Board of Governors is an extension of the evaluation process which is part of the primary task of the Audit Committee. The external members of the Audit Committee discuss their findings with the Board of Governors and report on their assessment in the context of internal supervision. The Board of Governors took the following action in 2008 in implementation of the internal supervision system: – In compliance with Section 106 of the Pensions Act, article 20 of ABP’s Articles was amended to include internal supervision in the form of an Audit Committee augmented with three external members. – By-laws were formulated for the Audit Committee which include internal supervision. – A profile was compiled by the Board of Governors for external members of the Audit Committee. – The Board of Governors appointed Messrs. De Swaan, Klopper and Crone as external members of the Audit Committee. – Several members of the Board of Governors and staff of the Executive Office held introductory meetings with the external members of the Audit Committee.
  24. 24. 24 Annual Report 2008 ABP Reporting by external Because the external members of the Audit Committee were not appointed until late last members of the Audit year, they had no opportunity in 2008 to form an opinion based on their findings. Last year Committee can therefore be seen as a period of preparation for the configuration and implementation of the system of internal supervision. The external members of the Audit Committee are starting work in 2009 and will produce a report this year based on their findings, which they will discuss with the Board of Governors before submitting their final report to the accountability body. Co-determination In compliance with the Pensions Act and, before that, the Pensions and Savings Funds Act, ABP has had a Participants’ Council since 2004. The Board of Governors, being composed of representatives of employers and employees, considered it important to take advice from both camps, and therefore created an Employers’ Council at the same time. Both councils consist of 36 members. The Participants’ Council of ABP consists of 22 employees’ representatives and 14 pensioners’ representatives, who are appointed by the four trade unions for public-sector personnel (AC, ACOP, CCOOP and CMHF) and the Dutch Association of Pensioners’ Organisations (NVOG). In the Employers’ Council, the members of the different segments within the public and education sectors are represented on a proportional basis. Appointments are made by the Civil Service Sectoral Association (VSO) and the Energy and Utility Companies Employers Federation (WENb). Details of the membership of the councils can be found at the end of this annual report. The powers and responsibilities of the councils are defined in ABP’s Articles and the by-laws of the councils. The function of the councils is to advise the Board of Governors on matters on which the latter is required by the Articles to request advice and on any other policy matters on which the councils consider advice necessary. Pursuant to ABP’s Articles, the Board of Governors must seek the advice of the councils on the following matters: – adoption and amendment of the Articles and pension regulations; – adoption of the contribution rate and indexation percentage; – adoption of the annual report, the budget, the Actuarial and Business Memo and, where applicable, the recovery plan; – transfer of obligations; – winding-up of the fund. The Board of Governors thanks the councils for their contribution to the discussions of the developments affecting the pension fund and all its stakeholders. The members of the accountability body are appointed from among the members of the Participants’ Council and the Employers’ Council. Accountability body ABP appointed an accountability body within the meaning of the Pensions Act on 12 February 2009. It consists of 36 members, of whom one-third are appointed from the delegation representing the pensioners, one-third from the delegation representing the participants and one-third from the delegation representing the employers. The affiliated employers’ delegates are appointed by the Civil Service Sectoral Association (VSO) and the Energy and Utility Companies Employers Federation (WENb) from among the members
  25. 25. 25 Annual Report 2008 ABP of the Employers’ Council. The participants’ delegates are appointed by the trade unions for the public and education sectors from among the members of the Participants’ Council. The pensioners’ delegates are appointed by the trade unions and the Dutch Association of Pensioners’ Organisations (NVOG) from among the members of the Participants’ Council. The responsibilities and powers of the accountability body are defined in ABP’s Articles and the by-laws of the accountability body. The Board of Governors is accountable to the accountability body for the policy and its implementation and for compliance with the prin- ciples of good pension fund governance, as referred to in the Pensions Act Implementing Decree and the Obligatory Occupational Pension Schemes Act (WvB) of 18 December 2006. The accountability body is authorised pursuant to article 2 of its by-laws to give a judgment on: – the actions of the Board of Governors; – the policy pursued by the Board of Governors in the past year; – the policy choices for the future; – compliance by the Board of Governors with the principles of good pension fund governance as referred to in article 19 of the Articles. This judgment, together with the response of the Board of Governors to it, is included in the fund’s annual report. The reports compiled under the responsibility of the Participants’ Council and the Employers’ Council are included in the next chapter, together with the report of the accountability body.
  26. 26. On 29 May 1953, Edmund Hillary and his guide Tenzing Norgay were the first men to reach the summit of Mount Everest, at 8,848 metres the highest point on Earth. Norgay, a Nepalese Sherpa, knew the Himalayas better than anyone. The son of a yak herder, he had already taken part in six previous attempts to conquer Everest. After the successful climb in 1953, he was awarded the George Medal, a top British medal for bravery. His son Jamling would follow him to the top of Everest in 1996. New Zealander Hillary had taken part in a failed attempt on the summit of Everest in 1951. Following his successful expedition with Norgay, he returned six times to the Himalayas in the 1950s and 1960s. Hillary’s life was not all high E dm un d h illary points: in 1975, his wife and daughter were killed in a plane crash while en route to join him. Ten z in g n or g ay When his active climbing career ended, Hillary involved himself with the problems of the Nepalese people. He was also able to exercise First to reach the summit political influence on Nepal’s behalf: in 1985, he was appointed New Zealand ambassador to of Everest in 1953. India, Bangladesh and Nepal, a post which he held for four and a half years. Edmund Hillary, who died in early 2008 at the age of 88, was known for his modesty. It was not until 1999, long after the death of his climbing partner Tenzing Norgay, that he revealed that he, Hillary, had been the first actually to set foot on the summit of Everest on 29 May 1953. Since Hillary and Norgay, hundreds of people have climbed to the top of Everest. Junko Tabei from Japan was the first woman to reach the summit, on 16 May 1975.
  27. 27. Ten weeks to reach the summit Katja Staartjes is so far the only Dutch woman to have reached the top of Mount Everest. She has also climbed various other mountains higher than 8,000 metres. As she explains, if you want to reach the summit reasonably safely, what you need most of all is lots of patience. Taking ten weeks for a climb is certainly not exceptional. Katja has been devoted to mountaineering since 1998 and, as well as Everest, has also climbed other giants such as Cho Oyu, Ama Dablam, Gasherbrum 1 and Dhaulagiri. As she explains, “On average you have a base camp at around 5,000 metres on mountains like these. You certainly have to count on four to six weeks from base camp to the summit. Firstly, the weather up those mountains is often bad. And then there’s nothing you can do but wait at base camp. And you also need that time to adjust to the thin air as that creates a lot of problems for your body. That’s why you climb a bit, set up your tent camp and then go back to base camp to recover. There is so little oxygen at those altitudes that your body literally starts breaking down. What’s more, you can hardly eat because all your blood is in your brain, heart and lungs and hardly any in your digestive tract. Once you get back to base camp, there’s more oxygen and you start feeling hungry again. That’s when you start building yourself up for the next climb, when you go a bit further up the mountain. When you leave base camp, you take some more equipment with you for your next tent camp. That means extra ropes, gas to cook with and so on. In that way, it takes you between three and six rounds to reach the summit. And something will always go wrong when you’re going up and down the mountain. You go back up the mountain, for example, and the tents turn out to have blown away. In my view, that is the main reason why climbers give up on those high mountains. They haven’t got the patience and don’t have the mental resources to deal with all the setbacks.” Dangerous Her most recent climb was in October 2008, when she got within 30 metres of the summit of Manaslu in Nepal. For various reasons it was considered too dangerous to climb the last few metres of the 8,163 metre-high mountain. “Obviously we were disappointed,” explains Katja Staartjes. “But we were also pleased to get home safely. Don’t forget that one out of every twenty mountaineers doesn’t return alive from these mountains.”
  28. 28. 28 Annual Report 2008 ABP Reports of the Participants’ Council, Employers’ Council and accountability body Report of the Participants’ Council Two members of the Participants’ Council, Messrs. Kleefstra and Roggema, passed away in 2008. We remember them as highly valued members of our council. 2008 was also an eventful year for the Participants’ Council in many respects. Considerable time and energy was devoted to complex issues including the introduction of the Pensions Act, the separation of the pension fund from the administrative organisation and, of course, the credit crisis and its consequences for the fund and its stakeholders. Fund position, contribution From the late summer of 2008, the Participants’ Council closely monitored the develop- rate and indexation ments affecting the fund in the wake of the credit crisis. The council, like the Board of Governors, could do little more than stand by powerless as the fund lost a substantial part of its assets and the funding ratio dropped from 140 to 90 per cent, reflecting the abrupt fall in market prices and the declining market interest rate. During that period, the Parti- cipants’ Council was frustrated by the obfuscatory language of the reporting on ABP’s results. While the Participants’ Council understood why the Board of Governors was unable to apply structural indexation as from 1 January 2009, it strongly urged the Board of Gover- nors to consider payment of a one-off benefit to the pensioners. The Participants’ Council pointed out that it was precisely the pensioners whose purchasing power was being impaired and who derived scarcely any benefit from the government’s measures. After lengthy debate, the Board of Governors promised to reconsider indexation in mid-2009, in the light of the situation prevailing at that time. Separation of pension Following changes in legislation and regulations, ABP’s Board of Governors decided in late fund and administrative 2007 to separate the pension fund and the administrative organisation. The consequences organisation of this decision were discussed at length with the Participants’ Council, resulting in an amendment to the fund’s Articles with effect from 29 February 2008 on which the Council gave a positive recommendation. One of the main issues was whether the Participants’ Council which have any influence over the SLA which the fund would enter into with the administrative organisation each year. The Participants’ Council argued that the way in which administration was outsourced by the fund was particularly relevant to the parti- cipants and pensioners. After an in-depth debate, the Board of Governors acceded to the wishes of the Participants’ Council and gave the Council the right to advise on the SLA. The Participants’ Council first exercised this right in November 2008, when the SLA for 2009 was finalised, having been involved in the preparatory phase. The Council was also successful in persuading the administrative organisation to set up a Client’s Council, which has direct influence on the treatment of participants and pensioners by the administrative organisation. The Participants’ Council considers that the consultancy procedure relating to the formulation of the profile for members of the Supervisory Board of the administrative organisation was not executed correctly and has instituted proceedings before the Enterprise Section of the Court of Appeal. Following intensive discussions covering all the Council’s questions and observations on the profile, the Council withdrew its action before the Enterprise Section.
  29. 29. 29 Annual Report 2008 ABP Good pension fund The Pensions Act imposes rules on the organisation of co-determination, accountability governance and internal supervision by pension funds. ABP instituted an accountability body in 2008 and complied with the internal supervision requirements by appointing three external members to the Audit Committee (investigative committee), with their own authority to assess the functioning of the Board of Governors. The Participants’ Council gave a positive recommendation to the Board of Governors’ proposals concerning these measures and the related amendment of the Articles, the by-laws of the accountability body and the by-laws of the Audit Committee. Following the Council’s positive recommendation, the Board of Governors adopted this amendment of the Articles in August 2008. The amend- ment was notarially documented on 2 February 2009. Regular matters More routine matters on which the Council’s recommendation was requested included: – the fund’s 2007 annual report; – the annual plan for the second half of 2008; – technical adjustments to the Actuarial and Business Memo; – amendments and updates to the statement of investment principles; – changes to the pension regulations in connection with the relaxation of the existing anticumulation provisions for those in receipt of income in addition to benefit under the flexible pension and early retirement benefit scheme (FPU); – the fund’s new administrative regulations focusing on the affiliated employers. Report of the Employers’ Council In Mr. Paul Sieverding, who passed away in 2008, we miss a highly valued colleague. The Employers’ Council’s objectives in 2008 were: – to improve and optimise its own functioning; – to optimise cooperation with the Board of Governors and the Participants’ Council; – to achieve closer coordination with the Civil Service Sectoral Association (VSO). The Employers’ Council organised its activities with a view to achieving these objectives. The Employers’ Council followed a clear line in its recommendations on pension fund governance, the service agreement with administrative organisation APG, changes to the regulations, implementation of the accountability body and the decisions on contribution rates and indexation. It emphasised that the Employers’ Council attaches great value to transparency in all respects and to clear, timely, accurate and complete communication and considered it important to maintain a consistent policy line. In a meeting with a delegation from ABP’s Board of Governors and the Participants’ Council, agreement was reached on improving cooperation between the Board of Governors and the councils, while respecting each body’s position. In the course of preparing its response to requests for recommendations, the Employers’ Council organised meetings among its own members and with other organisations such as the VSO. With a view to optimising the Employers’ Council’s own functioning, it was decided in consultation with VSO and the Energy and Utility Companies Employers Federation (WENb) to take up some of the allocated number of seats on the accountability body. The configuration and composition of the accountability body was also discussed and agreed with those bodies.
  30. 30. 30 Annual Report 2008 ABP A delegation from the Employers’ Council consulted first with a delegation from the Participants’ Council and then with the Board of Governors on the configuration of the accountability body. The Employers’ Council’s preference was for the accountability body to consist of a small number of members (a maximum of six per delegation), but it was finally decided that there would be twelve seats for each delegation. The Employers’ Council considers the following to be the most important issues in 2009: – the recovery plan; – cooperation with the Board of Governors, Participants’ Council and accountability body; – progress in strengthening its own role and developing its expertise. Report of the accountability body The accountability body received the following information from the Board of Governors to assist in arriving at its judgment: – draft 2008 annual report; – draft 2008 financial statements; – (draft) external auditors’ report; – (draft) actuarial statement and management summary by the external actuary for the 2008 financial year; – quarterly reports for 2008. At its plenary session on 9 April 2009, the accountability body met the external auditors and the external actuary. The report of the external auditors was not available at that time and was not presented until after the report of the accountability body had been con- sidered at the consultation meeting with the Board of Governors and adoption of the final report for 2008 by the members of the accountability body. The (draft) management summary was discussed with the external actuary. No meeting was held with the external members of the Audit Committee because this internal supervision process did not start until 2009 and the members will therefore not have had an opportunity to form an opinion concerning 2008. No meeting was held with the compliance officer. A further meeting will be held with the external actuary later this year on the review of actuarial assumptions on which a report is to be submitted in the course of 2009. A number of questions raised by the accountability body concerning the content of the draft 2008 annual report and draft 2008 financial statements and the responses to those questions by ABP’s Board of Governors were discussed at a consultation meeting with the Board of Governors on 15 April 2009. The meeting also discussed the content of the draft 2008 report of the accountability body. In the coming months, the accountability body will concentrate on the performance of its other tasks and, in consultation with the Partici- pants’ Council and Employers’ Council, consider how to proceed with translating task allocation into operational practice. The accountability body for ABP has existed for only a short time, having been installed on 12 February 2009. There was relatively very little time, therefore, for the accountability body to perform its tasks during the process of preparing the annual report and financial state- ments. Several important documents were not yet available, it was not possible for a variety of reasons to consult with the external members of the internal supervision body or the compliance officer and the meetings with the external auditors and the external actuary were held at the last minute. Despite the pressure of time and the limited information available, the accountability body accepted the responsibility to perform an assessment of all aspects of ABP’s function, focusing both on the fund’s performance of its tasks and on the consultation structures that are conducive to optimum performance.
  31. 31. 31 Annual Report 2008 ABP The accountability body’s findings, its judgment and its recommendations relating to the activities defined in article 2 of the regulations are presented below, together with the Board of Governors’ response. Findings There was a change in the organisational structure of Stichting Pensioenfonds ABP last year, with the separation of the ABP pension fund from the administrative organisation with effect from 1 March 2008. The administration has been transferred to APG Algemene Pensioen Groep NV under a long-term agreement. The main tasks performed by the administrative organisation on behalf of the fund are pension fund administration, asset management, communication and services supporting the Board of Governors. This outsourcing arrangement is defined in a master contract and three subsidiary contracts, which have been distilled into an SLA for 2009. Management of the strategic, operational and compliance risks associated with the outsourcing of the various processes requires the Board of Governors’ constant attention. ABP’s Board of Governors is ultimately responsible for the management of the fund and the administration of the schemes. The risks to which ABP is exposed are discussed in Chapter 7 ‘Risk Management’ of the annual report and in the section on risk in the financial statements. Information is also given there on ABP’s policy on managing those risks. The accountability body considers that the report presents a clear picture, but only gives a brief outline of the measures taken by the Board of Governors to mitigate the effects of the credit crisis in 2007 and 2008 and their timing. The accountability body has asked the Board of Governors to provide a retrospec- tive analysis of the measures taken in the context of the credit crisis (and their timing). The Board of Governors has given an undertaking to comply with the accountability body’s request. The accountability body notes that the credit crisis has caused the investment portfolio to underperform. Given ABP’s prominence and the participants’ understandable wish to be able to judge whether their pension capital is being professionally managed, this underper- formance needs to be placed in a broader context. Partly to assist the accountability body, an historical review of outperformance and underperformance covering several years is desirable. The accountability body fully endorses the policy of the Board of Governors designed to provide good and affordable pensions for the participants and to preserve a system based on the principles of collectivity and solidarity. The accountability body considers that the Board of Governors performed satisfactorily in 2008 in applying to the pension fund the principles of good pension fund governance as formulated by the Labour Foundation in 2005 and embodied in the Pensions Act. Good pension fund governance requires a high level of expertise on the part of the Board of Governors and its individual members. A structured expertise development programme is required. The accountability body will return to this issue in its assessment of the 2009 annual report. As from 1 January 2009, the Stichting Pensioenfonds ABP’s governance was brought into line with the changes in the Pensions Act and the restructuring of Stichting Pensioenfonds with effect from 1 March 2008. In this context, the accountability body advises the Board of Governors to pay special attention to consolidating the new structure and developing the Executive Office.

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