Report of the Board of Governors
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
Consolidated financial statements 84
Notes – general 87
Accounting policies 91
Notes to the consolidated financial statements 99
Other notes 124
Company financial statements 129
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 Annual Report 2008 ABP
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.
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
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.
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
Investment Policy Committee Accountability body
Appeals Committee Investment Committee
Service (external AC members)
Pensioen Groep N.V.
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.
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
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.
8 Annual Report 2008 ABP
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 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 Annual Report 2008 ABP
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
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
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
Figure 1.1 Changes in funding ratio and underlying causes in 2008
Q1 Q2 Q3 Q4 Q1-Q4
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
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
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 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
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 Annual Report 2008 ABP
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
15 Annual Report 2008 ABP
Reflections on the year
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
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.
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.
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.
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
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
Winner of the first Olympic
marathon in 1896.
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 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
Merger with Cordares The merger between the administrative organisation and Cordares as announced in the
previous annual report was finalised in 2008.
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.
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
19 Annual Report 2008 ABP
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
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 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
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
21 Annual Report 2008 ABP
Pension fund governance
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’
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
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
– policy formulation by the Board of Governors;
– compliance with the (statutory) requirements relating to pension fund management,
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-
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
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
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
– 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
– 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 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
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 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
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
The accountability body is authorised pursuant to article 2 of its by-laws to give a
– 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
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.
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.”
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 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
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
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 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 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 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
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
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
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.
32 Annual Report 2008 ABP
The Board of Governors has stated that ABP – and by extension the administrative
organisation – is in control, which means that internal risk management and control
systems relating to the financial accountability of the outsourced investment management
and pension administration processes are in place and are of satisfactory quality in terms
of their configuration and functioning. The accountability body has asked the Board of
Governors to have the in-control statement validated by the external auditors.
The Board of Governors complied correctly in 2008 with the applicable legislation and
regulations and the fund’s Articles and regulations. The accountability body did find,
however, that the implementation of a number of new obligations had been postponed.
This decision had been taken by the Board of Governors after consulting the regulator.
The accountability body is concerned at the rise in pension administration costs per
participant and urges action to mitigate these costs.
The decisions on contribution rates and indexation for 2008 were taken after careful
consideration and in accordance with current policy.
The turmoil on the financial markets, especially in the second half of 2008, impacted very
heavily on the fund’s position and by year-end the nominal funding ratio had fallen to
89.6%. A recovery plan was adopted and submitted to DNB on 31 March 2009.
Good asset management is essential if the fund is to meet its future obligations, which is
the objective of ABP’s investment policy. The worsening problems on the financial markets
are now making effective investment management very difficult. In the fourth quarter of
2008, the Board of Governors decided that the risk profile within the current strategic
policy framework needed to be modified to suit the new situation. The accountability body
endorses this action.
The credit crisis has demonstrated that shareholders need to be alert if undesirable
developments within companies or sectors are to be avoided. The accountability body
recommends that the Board of Governors give high priority to active shareholdership.
The accountability body places great value on good communication with the participants
and employers. The accountability body has found in recent months that, given the effects
of the credit crisis, there is a growing need on the part of the Participant’s Council and
Employers’ Council in particular for good information and communication regarding the
fund’s position. The accountability body also notes that, according to the Participant’s
Council and Employers’ Council, the supply of information to and communication with
these bodies in late 2008 should have been faster and more complete. The accountability
body wishes to emphasis that timely and transparent communication with all stakeholders
concerning the fund’s position is vitally important, in good times and in bad.
Communication with all stakeholders must be high on the Board of Governors’ agenda.
The accountability body endorses the Board of Governors’ policy for the future, which was
recently adopted against the background of the drastic change in the fund’s position and
has been translated into actions defined in the recovery plan. The accountability body notes
the position taken by the Employers’ Council that the temporary contribution surcharge in
particular should be accompanied by some retrenchment in entitlements. The Participants’
Council takes the view that the temporary contribution surcharge may not be lifted until
retrospective indexation has been applied. The accountability body also notes that the
33 Annual Report 2008 ABP
Participants’ Council wants a reassessment of the recovery plan in the fourth quarter of
2009, together with a review of the fund’s position and reconsideration of whether
(retrospective) indexation can be applied, in the context of the reduction or lifting of the
The accountability body endorses the decision by ABP’s Board of Governors to argue in
favour of the review of a number of principles when the Financial Assessment Framework
(FTK) is evaluated.
The accountability body notes that, in their unqualified report on the financial statements,
the external auditors state that the financial statements give a true and fair view of the
fund’s financial position as at 31 December 2008 and its result for the year then ended in
accordance with Part 9 of Book 2 of the Netherlands Civil Code. When it has been issued
by the external auditors, the auditors’ report will be discussed with the Board of Governors
by the accountability body.
The accountability body has discussed the (draft) management summary with the external
actuary. An actuarial statement on the financial statements has been issued by the external
Judgment This judgment by the accountability body on the policy of the Board of Governors relates
to a turbulent year in which the fund sustained a very substantial loss on the pension
capital and is given in the light of all the developments that have affected the financial
markets and the global economy. As a very large fund, ABP is by definition involved in
these developments. Against that background, the accountability body finds that the
Board of Governors has responded actively to developments to the best of its ability.
Despite the fund’s extremely disappointing result last year, the accountability body therefore
takes a generally positive view of the actions of the Board of Governors, the policy it has
pursued, the policy choices it has made and the way in which it has complied with the
principles of good pension fund governance. The accountability body judges that the fund
is being managed by the Board of Governors with great commitment and expertise and
with the professional support of the Executive Office.
The meetings between the Board of Governors, the Participants’ Council and the
Employers’ Council serve as a forum in which the interests of the stakeholders in ABP are
rigorously protected. The Board of Governors has taken account of these interests in a
The accountability body notes that the external auditors and the external actuary have
given unqualified opinions on the financial statements. Unfortunately, it was not possible to
meet with the external members of the Audit Committee this year, but a meeting on the
2009 annual report will be held next year.
Recommendations The accountability body makes the following recommendations:
a. extra attention needs to be paid to consolidating the structural change and developing
the Executive Office
b. outperformance and underperformance need to be placed in a historical perspective
covering many years
c. in the context of investment policy, high priority needs to be given to active
d. there must be transparent and timely communication to all stakeholders of information
on the fund’s position
34 Annual Report 2008 ABP
e. more time needs to be allowed for the accountability body in the process of preparing
the annual report and financial statements
f. a retrospective analysis should be carried out of the actions taken in response to the
credit crisis and their timing
g. a plan needs to be drawn up to promote development of the expertise of the Board of
Governors and its individual members
h. the in control statement needs to be validated
i. the administration costs per participant must be reduced
j. high priority needs to be given to the evaluation of the FTK.
Response of the Board of Governors to the report of the accountability body
The Board of Governors took cognisance on 15 April 2009 of the findings, judgment and
recommendations of the accountability body relating to the policy of the fund’s Board of
Governors and finds no grounds for comment therein. The accountability body’s recom-
mendations are fully endorsed by the Board of Governors and will be incorporated by the
Board of Governors in its annual plan. The Board of Governors thanks the accountability
body for the effort it has invested in arriving at a well founded judgment of the policy that
the Board of Governors has pursued, especially given the very short time available
between the installation of the accountability body and the adoption of the annual report.
35 Annual Report 2008 ABP
The fund’s financial position
Funding ratio The funding ratio had fallen to 90 per cent by year-end 2008, from 140 per cent only one
year before. What started in 2007 as a credit crisis in the United States turned in 2008 into
a global economic recession that also undermined the stability of the European financial
sector. With the deepening of the international credit crisis following the failure of US
merchant bank Lehman Brothers, the second half of 2008 brought the collapse of equities
and real estate markets and sharply falling interest rates.
With a return of 20 per cent negative, the fund’s investment result in 2008 was historically
low. This was mainly due to equities and alternative investments, which impaired the value
of ABP’s assets. At the same time, the value of the nominal liabilities was also significantly
increased by the fall in the capital market interest rate in 2008, from 4.85 per cent to 3.57
per cent. The combination of lower asset values and higher liabilities reduced the funding
ratio in 2008 to 90 per cent.
Table 5.1 compares the nominal funding ratio in 2008 with the funding ratio required by
law, based on the standard model.
Table 5.1. Nominal funding ratio for pension fund (in %)
Actual Required Shortfall /
funding ratio funding ratio surplus
Year-end 2007 140.0 125.8 14.2
Change in 2008 -50.4 -2.2 -48.2
Year-end 2008 89.6 123.6 -34.0
Funding and reserves The minimum required capital depends on the fund’s liabilities structure and is calculated
shortfall according to the rules set by the Financial Assessment Framework Decree (Besluit Finan-
cieel Toetsingskader). As at year-end 2008, ABP’s minimum required capital was 4.4 per
cent, so the liabilities were 14.8 per cent underfunded (€ 28.4 billion). As at year-end 2008,
the required funding ratio was 123.6 per cent, so there was also a reserves shortfall of
34.0 per cent (€ 65.5 billion). Table 5.2 shows the financial position at the end of 2008.
Table 5.2. Financial position as at year-end 2008 (€ billion)
General reserve -20.0 -20.0
Minimum required capital 8.4 45.5
Shortfall -28.4 -65.5
As percentage of liabilities -14.8% -34.0%
36 Annual Report 2008 ABP
Recovery plan There was both a reserves shortfall and a funding shortfall. In principle, therefore, ABP was
required to submit a recovery plan to the regulator (DNB) within two months, i.e. before the
end of 2008. In the light of the exceptional circumstances, the Minister of Social Affairs and
Employment extended the closing date for submission of recovery plans until 1 April 2009.
The recovery plan had to provide initially for elimination of the funding shortfall within the
statutory period of three years and of the remaining reserves shortfall within fifteen years.
The Minister of Social Affairs and Employment decided, however, to extend the period
allowed for rectification of the funding shortfall to five years. ABP has submitted a recovery
plan to DNB which meets these requirements.
Given the fund’s weakened financial position, the Board of Governors decided at the end
of 2008 not to apply indexation. With this decision, an indexation shortfall of 4.73 per cent
The credit crisis
The financial markets have been in turmoil since mid-2007, with prices of equities, cor-
porate bonds, covered bonds and real estate falling across a broad front. At the same
time, the prices of safe-haven investments such as government bonds and gold have shot
up. Added to these violent price movements, day-to-day price volatility was also very high
and there was considerable unrest particularly in the last four months of 2008. The balance
sheets of practically all financial institutions came under strain and governments even had
to rescue banks from imminent collapse. Interbank confidence was further undermined by
the failure of Lehman Brothers in September 2008, with business and consumer lending
virtually drying up. World economic growth, which had been steadily weakening in the
previous quarters, slowed abruptly in the closing months of 2008.
What caused the crisis? It is not possible to point to one single factor. High economic
growth combined with low inflation, savings ratios that were too high in the emerging
markets and too low in the United States, interest rates that stayed too low for too long,
investors seeking higher returns, rapid innovation in the financial sector and poor risk
perception on the part of various market parties – all played a part.
With house prices rising sharply in the United States and an ample supply of capital at low
interest rates, mortgages were given to households that were in fact unable to service their
debt. These mortgages were then ‘packaged’ into innovative investment products.
Investors were eager to buy these structured credits in view of the low interest rates on
safe investment products. These widely diversified mortgage pools (with high credit ratings)
appeared to offer a good return at low risk. Things took a different turn, however, when US
economic growth slowed down, the housing market collapsed and mortgagors were
unable to meet their commitments. Investors tried to dispose of their structured products,
but in the absence of buyers the prices fell sharply. Banks found themselves in difficulty,
hedge funds that operated largely on credit failed and ultimately the financial system seized
up. Complete collapse was only prevented by heavy intervention by governments and
How does a pension fund respond to a situation like that? There has been an intensive
exchange of information and investment policy has been the subject of continuous
discussion at ABP in the past few months. A swaption strategy has been adopted to
provide some protection against the risk to the funding ratio of a sharp fall in interest rates
and risk management and control has been intensified. Despite these measures, it is
evident that even a large player like ABP relies heavily on market performance.
37 Annual Report 2008 ABP
General The employers’ and employees’ organisations, together represented in the Pension
Chamber, are responsible for determining the content of the pension scheme. The
ambition to index pension rights fully and consistently to reflect pay trends in the public
sector and education is part of the pension commitment to which the employers’ and
employees’ organisations have agreed. Compensation for under-indexation through
retrospective indexation is part of the indexation ambition. The Board of Governors is
responsible for the overall financial policy of the fund and is advised on that policy by the
Participants’ Council and the Employers’ Council. The financial policy comprises the
contribution rate policy, the indexation policy and the investment policy and must be
adopted as a whole. The fund’s financial position is a key determining factor in indexation
policy. Full indexation is applied unless the fund’s financial position provides a compelling
argument against such adjustment.
Contributions policy Each year, the Board of Governors determines the cost-covering contribution rates for the
various collective schemes:
– average-pay schemes: retirement and surviving dependants’ pension scheme (OP/NP),
surviving dependants’ pensions top-up (ANW) and occupational disability pension top-up
(AOP) for non-military participants;
– final-pay schemes: retirement and surviving dependants’ pension scheme (OP/NP) and
surviving dependants’ pension top-up (ANW) for regular military personnel;
– PartnerPlus Pension (PPP) for the police sector;
– conditional past-service buy-back scheme.
To mitigate contribution rate fluctuations, the cost-covering contribution rate is based on a
prudent estimate of the expected long-term real investment return. Given the fund’s
indexation ambition and the real nature of the pension liabilities, this is based not on a
nominal, but on a real investment return, discounted at 3.0 per cent. This discount rate is
tested once every three years, the next time in 2009 for setting the contribution rates for
Retirement and surviving With effect from 1 January 2009, the cost-covering contribution rate for retirement and
dependants’ pension surviving dependants’ pension (OP/NP) has been increased by 0.4 percentage points to
contribution rate for 2009 20.4 per cent (including an unchanged 0.4 per cent surviving dependants’ pension (ANW)
top-up). In the context of the recovery plan, it has also been decided to apply, in addition to
this increase, a recovery surcharge to the cost-covering contribution rate for the duration of
the funding shortfall. This surcharge will be 1.0 per cent in the second half of 2009.
The increase in the cost-covering contribution rate, which is similar to last year’s, relates to
the right to transfer from the flexible pension and early retirement benefit (FPU) scheme.
The main reason for the increase in the contribution rate is a difference in pension accrual.
Under the structural scheme, pension is accrued at 2.05 per cent above the low state
pension (AOW) franchise (€ 10,350 as from 1 January 2009). Under the FPU transfer arran-
gements, that is 1.75 per cent above the higher franchise (€ 16,700 as from 1 January
2009). The number of participants qualifying for transfer from FPU and accruing pension at
a slower pace will decline from year to year. The contribution rate will rise from year to year
until there are no more participants qualifying for transfer from FPU. The second reason is
the shift in the client base. Because the reference age under the FPU transfer arrangements
has been raised, participants are working longer, and the higher the proportion of older par-
ticipants, the higher the pension contribution rate, because it is more expensive to fund
their pension rights than those of younger participants.
38 Annual Report 2008 ABP
Occupational disability The 2009 occupational disability pension (AOP) contribution rate, which is a sector-wide
pension contribution rate contribution rate, has been set for all sectors at the same level as in 2008, at an average
for 2009 of 0.5 per cent.
2009 investment plan Investment policy is guided by the 2007–2009 strategic investment plan. As part of the
recovery plan, the risk profile of the investment portfolio has been lowered slightly as from
1 January 2009, which has slightly decreased the risk of a downside deviation from the
recovery plan. The 2010–2012 strategic investment plan will be developed in 2009. The
total risk on the new strategic portfolio will be lower than that on the current strategic
portfolio. The objective will continue to be preservation of ABP’s recovery capacity.
Via the 2009 investment plan, ABP effected a number of changes to the investment policy.
It was decided to increase the duration of the fixed-income part of the portfolio as a hedge
against a fall in the long-term interest rate. Consistent with that policy, ABP gradually
increased the duration still further in 2008 to nine years and plans to extend it to ten years
The currency hedge was also modified. A small part of the US dollar hedge against the
euro was exchanged in 2008 for a full hedge of the UK pound and the Canadian and
Australian dollars against the US dollar. The original position had been profitable in 2008,
but was unwound in the light of the shift in relative values. The exchange risk with the US
dollar is again being fully hedged in 2009, consistent with foreign-exchange policy under
the strategic investment plan.
Several changes were also made to the portfolio weightings. The allocations to hedge
funds, convertible bonds and infrastructure were each increased by 1 percentage point
and the norm allocation to equities was reduced by 3 percentage points. The expected
return for hedge funds and convertible bonds is higher than for equities and the infra-
structure was increased mainly to gain the additional inflation protection provided by
certain market segments within infrastructure. With hedge funds and convertible bonds,
the portfolio can continue to realise the long-term expected return. By partially replacing
nominal bonds with index-linked bonds, nominal credit risk is replaced by inflation-related
Indexation policy The Board of Governors has discretionary powers to decide on the extent of indexation
from year to year. It bases its decision on the indexation matrix, which is represented
schematically in figure 5.1. The Board of Governors has discretionary powers to depart
from the indexation matrix.
39 Annual Report 2008 ABP
Figure 5.1. Indexation matrix
+ retrospective indexation
lower limit minimum required upper limit
(100%) (104.4%) (135%)
In the interests of simplicity, transparency and clear communication, the Board of Governors
decided in 2007 to fix the upper limit of the indexation matrix at 135 per cent. This means
that, in principle, no indexation or only partial indexation may be applied if the funding ratio
is up to 135 per cent. If the funding ratio is 135 per cent or higher, the Board of Governors
may decide to apply full indexation and possibly retrospective indexation to compensate for
indexation foregone in the past. The upper limit for less than full indexation is thus well
above the required funding ratio (123.6 per cent as at year-end 2008). The upper limit of the
indexation matrix is in principle reviewed every three years, taking into account ABP’s
indexation ambition, financial and economic developments and the outlook at the time.
The financial management of the fund focuses primarily on the long term. Its short-term
financial management is based initially on the indexation policy and/or adjustments to the
investment policy. Additional measures are in principle needed only if the prevailing
financial policy fails to generate sufficient capital for a recovery. The matrix applies the
following classifications in regard to recovery capacity:
- if the nominal funding ratio is too low to meet the statutory minimum capital requirement,
there is a funding shortfall. Recovery to the minimum required capital must in principle be
achieved in at most three years, but this period has been temporarily extended to five
- If the funding ratio is too low to meet the statutory minimum capital requirement but is
sufficient to meet the minimum capital requirement referred to above, there is a reserves
shortfall which has to be rectified within a maximum of 15 years.
- If the funding ratio is higher than needed to meet the statutory minimum capital
requirement but below the upper limit of the indexation matrix, the fund cannot apply full
- If the funding ratio exceeds the upper limit specified in the indexation matrix, the fund is
in principle strong enough to apply full and sustainable indexation. In principle, there is
also scope for retrospective indexation to compensate for past indexation shortfalls.
These classifications are shown schematically in figure 5.1.
40 Annual Report 2008 ABP
Indexation for 2009 Subject to the Board of Governors’ discretionary powers to decide differently, the funding
ratio as at 1 November (the reference date) is compared with the indexation matrix. In
2008, this gave no scope for indexation, with a funding ratio on the reference date of 103.9
per cent, compared with the statutory minimum capital requirement of 104.4 per cent. This
means that not only was there insufficient scope for indexation, but that there was in fact a
funding shortfall. In its decision not to apply indexation, the Board of Governors took into
account the further deterioration in the funding ratio since 1 November.
On the basis of the actual trend in contractual salaries in the public sector and education
over the period from 1 November 2007 to 1 November 2008, full indexation would have
amounted to 4.73 per cent.
This calculation takes into account the fact that, with respect to the collective labour
agreements, an accord was reached between the negotiators by 1 November 2007 but
the parties did not ratify the final agreement until after the reference date and these
collective labour agreements are thus included in the 2009 indexation calculation.
Excluding the lag in collective labour agreements, the actual contractual salary increase
would have been 3.2 per cent.
Value transfers While the funding shortfall persists, ABP may not cooperate in collective value transfers. If
the funding ratio is below 100 per cent, ABP may not execute individual value transfers. In
both cases, this refers to inward and outward value transfers.
2008 continuity analysis The Financial Assessment Framework requires pension funds to perform a periodic con-
tinuity analysis. This analysis is one of the tools used by DNB to monitor pension funds’
financial position and it focuses on developments in the medium to long term. The analysis
is designed to monitor consistency between the expectations created, the funding and the
actual indexation granted. The continuity analysis also serves as the basis for communi-
cation of the indexation expectation and as support for the recovery plan.
ABP performed a continuity analysis in 2008 on the basis of the situation at the end of
2007, when the funding ratio was 140 per cent. The results of this analysis were in line
with those of the 2007 continuity analysis. Given the serious deterioration in the financial
position since then, the 2008 continuity analysis does not provide an accurate view of the
actual risks and expectations for the long and medium term. The continuity analysis has
been updated in the context of the recovery plan.
The Minister of Social Affairs and Employment will evaluate the parameters for continuity
analyses at the end of 2009.
Recovery plan Having operated since the end of 2008 with both a reserves shortfall and a funding
shortfall, ABP has drawn up a recovery plan showing how it expects to eliminate the
shortfalls within the statutory periods. This recovery plan, which is currently being
considered by the regulator, is discussed in greater detail in Chapter 6.
41 Annual Report 2008 ABP
Standard model for required Under the Financial Assessment Framework, the required capital is the capital needed to
capital adequacy avoid a funding shortfall, such that the fund will have sufficient resources in one year’s time
to meet its unconditional pension liabilities. This is defined by law in terms of a 97.5 per
cent probability, i.e. a 2.5 per cent or lower risk of a funding shortfall in one year’s time.
The Minister of Social Affairs and Employment has defined a standard test of capital
adequacy as part of the Pensions Act regulations. This measures the possible (adverse)
effect on capital, in euros, of a number of risk factors. The results of the standard test
depend on market conditions and the investment risk profile, and can therefore fluctuate
over time. The risk factors measured in the standard test are:
S1. Interest rate risk
S2. Equities and alternative investments risk
S3. Currency risk
S4. Commodities risk
S5. Credit risk
S6. Underwriting risk
Effects S1–S6 are measured with reference to prescribed shocks. They are then combined
using a predetermined formula to give the total effect on capital adequacy, taking into
account that not all risks are incurred simultaneously (i.e. the effect of diversification).
According to the standard method, a pension fund’s capital satisfies the requirement if its
general reserve exceeds the figure produced by the formula. At the end of 2008, ABP’s
required capital was calculated at 23.6 per cent (€ 45.5 billion).
Minimum required capital The fund’s minimum required capital is put at 4.4 per cent of the liabilities (€ 8.4 billion).
Pierre Janssen (1926-2007) was the first art
expert to appear on Dutch TV. Already establis-
hed as a journalist and museum director, he rose
to fame as a TV presenter fired by missionary
zeal to stimulate interest in the arts. He hosted
Kunstgrepen, the first arts programme on Dutch
TV, which ran from 1959 to 1972. It attracted an
audience averaging two million per broadcast
and around a hundred programmes were made.
He next hosted a programme entitled Openbaar
Kunstbezit, through which he could convey his
enthusiasm for art to the viewers. His audience
was captivated by the tall, slim figure, the emo-
tions he displayed and his expressive hands.
He was able to focus their attention on the
works he admired, occasionally breaking with
the conventional style of presentation, such as
the time he presented the programme with an
inverted chair on his head. Some art experts
were not impressed, accusing him of demysti-
fying art and making it accessible to the hoi
We have come a long way since Pierre Jans-
sen’s pioneering TV arts programmes. Culture
channel Nederland C just failed in 2009 to recruit
the number of members needed for access to
the public network, but is now broadcasting on
Amsterdam channel AT5.
People like Pierre Janssen devote their whole
lives to raising the public’s awareness of the
Pier r e Jan ssen
beauty of art. It can take restorers up to nine
months to make just one painting fit to be put
Pioneering arts presenter, host of Kunst
grepen, the first arts programme on
Dutch TV (19591972).
43 Annual Report 2008 ABP
Nine months on a single painting
Marion Bosc, an independent painting restorer, once spent around nine months working on a single painting. It was a
painted panel from the 16th century, where the panels had become detached and so a lot of paint lost. Hundreds of tiny
holes had to be carefully filled one by one. “And then it really takes a long time to finish the job,” she explains.
Marion Bosc is French by birth and trained as a painting restorer at the Sorbonne University in Paris. After graduating she
spent three years gaining experience of various techniques in countries such as Canada (modern art), Egypt (paintings on
Pharaonic temples and statues), Italy and the Netherlands. Her university studies also included an internship at the Stedelijk
Museum in Amsterdam, where she built up a wide-ranging network of contacts in the art world. These subsequently
resulted in an offer for her to come and work in Amsterdam, where she has lived since 1996 and has her own studio. She
works for some fifteen Dutch museums, as well as auction houses, art dealers and private collectors. As well as restoring
paintings, she also inspects the condition of paintings before and after exhibitions and examines complete collections.
Lots of waiting
The time Marion takes to complete an assignment can vary from a few days to a whole year or more. Inspections of
complete collections – the Stedelijk Museum’s collection, for example, comprises some six thousand paintings – can take a
particularly long time. Each work has to be checked very carefully and everything the restorer sees gets entered into a
database. Dealing with an individual painting can also take a long time, either because of its size or its location (if it is on a
ceiling, for example) or because the restorer has to wait a long time between each stage of the restoration work. As she
explains, “If a canvas has become deformed over a period of many years, we cannot get it flat again in one go as that
would make the paint crack. And sometimes we remove a thick, dark layer of varnish and discover abnormalities in the
paint layer below. If it’s not clear whether these were done by the artist or, for example, during a previous restoration, we
have to investigate before we can go any further.”
“Generally, art collections in the Netherlands are well looked after,” says Marion. “The climatic conditions here are difficult,
and moisture is one of the major risks. But the country invests a lot of money in preserving its cultural heritage.”
44 Annual Report 2008 ABP
Introduction Having operated since the end of 2008 with both a reserves shortfall and a funding
shortfall, ABP has drawn up a recovery plan pursuant to Sections 138 and 140 of the
Pensions Act showing how it expects to eliminate the shortfalls within the statutory
The recovery plan was adopted in March 2009 after the Participants’ Council had given a
positive recommendation and the Employers’ Council a negative recommendation. The
Employers’ Council took the view that a contribution surcharge would only be acceptable if
accompanied by some retrenchment in entitlements. DNB has still to approve the plan.
The financial policy it imposes will prevail until the shortfalls have been eliminated.
Under ABP’s current contribution rate, indexation and investment policy and on the basis
of the interest rate and return expectations employed, the funding ratio will recover within
five years from the shortfall (funding ratio below 104.4 per cent) as at year-end 2008.
Against this background, the Board of Governors decided to apply, as permitted pursuant
to the Decree of the Minister of Social Affairs and Employment of 4 March 2009, for
extension of the period allowed for recovery from the funding shortfall from three to five
After consultation with the employers’ and employees’ organisations, the Minister of Social
Affairs and Employment set out in detail the conditions for a recovery period of five years in
a letter to the President of the Dutch House of Representatives. In particular, the first date
of mandatory implementation of a decision to reduce pension entitlements proposed
during the recovery period was deferred until 1 January 2012. The Board of Governors of
ABP will take this revision of the ministerial rules into account at the annual recovery plan
The extension of the recovery period is also subject to further conditions. In particular, the
recovery plan must state the action to be taken if it is found during the recovery period that
the recovery is not progressing as expected and the minimum capital requirement is
unlikely to be met by the end of the recovery period.
In the light of the development of the funding ratio since the end of 2008, ABP’s Board of
Governors does not consider it justifiable to wait and wishes to use the full period of five
years for the recovery process. The Board of Governors has therefore decided to take
concrete measures this year to increase the pension fund’s recovery capacity. These
measures will significantly increase the probability of the funding ratio actually exceeding
104.4 per cent within five years and will reduce the need for additional interim measures.
Given the development of the fund’s financial position, additional interim measures may of
course become inevitable. The measures in question are indicated in the recovery plan, but
it is difficult to quantify their extent in advance. The ultimate decision will depend not only
on knowledge of the precise extent of the financial problems, but also on how the various
economic parameters develop and their implications for the fund’s recovery capacity. If and
when such decisions are taken, the Board of Governors will carefully balance their effects
on employers, employees, former participants and pensioners.
45 Annual Report 2008 ABP
In weighing all these factors, the principal objective of the Board of Governors will be to
devise a coherent policy that both provides solutions to short-term issues and offers the
prospect of long-term recovery. The Board of Governors therefore takes the view that work
must continue, after submission of the recovery plan, on restoring the pension fund to
Financial position At the end of 2008, ABP’s nominal funding ratio was 89.6 per cent, which means that the
available resources on that date amounted to 89.6 per cent of the value of the nominal
liabilities, based on the assumptions defined by the law. As at 31 December 2008,
therefore, there was both a reserves shortfall and a funding shortfall. The recovery plan is
designed primarily to rectify the funding shortfall.
Funding shortfall Pursuant to Section 131 of the Pensions Act, the minimum required funding ratio is 104.4
per cent. As at year-end 2008, the funding shortfall was 14.8 percentage points (104.4 –
89.6), which equates to a shortfall of € 28.4 billion.
Reserves shortfall Pursuant to Section 132 of the Pensions Act, the required funding ratio as at 31 December
was 123.6 per cent. As at year-end 2008, the reserves shortfall was 34.0 percentage
points (123.6 – 89.6), which equates to a shortfall of € 65.5 billion.
Policy during the recovery period
Contributions policy ABP bases the cost-covering contribution rate on a prudent expected real return of 3.0 per
cent, consisting of a conservatively estimated long-term-nominal return of 6.1 per cent and
expected wage inflation of 3 per cent per year.
Indexation policy Above a funding ratio of 104.4 per cent, an indexation matrix is applied. The upper limit of
this matrix is 135 per cent, which means that, in principle, partial indexation is granted at a
funding ratio between 104.4 and 135 per cent. The Board of Governors has the authority
to depart from the indexation matrix. In principle, if the funding ratio is below 104.4 per
cent, i.e. if there is a funding shortfall, no indexation is applied.
Based on the financial position on the reference date of 1 November 2008, ABP’s Board of
Governors decided not to apply indexation as from 1 January 2009. Full indexation for
2009 would have been 4.73 per cent, consisting of the average pay increase in 2008 in
the public and education sectors (approximately 3.2 per cent) and part of the pay increase
for 2007 which, because of the timing of signature of the collective labour agreement,
could not be included in the indexation for 2008 (approximately 1.5 per cent). The decision
not to apply indexation as from 1 January 2009 avoided a further decline in the funding
ratio of approximately 4 percentage points.
Investment policy Investment policy is currently being guided by the 2007-2009 strategic investment plan.
ABP is working in 2009 on a new strategic investment plan for the period 2010–2012,
taking into account a range of factors such as the balance of risk and return, ABP’s long-
term indexation ambition, the fund’s recovery capacity and the present and predicted
Other measures ABP’s Board of Governors is aware of the significant uncertainties surrounding the fund’s
planned path to recovery, given the unpredictable depth and duration of the current
economic crisis and its future direction, whether up or down. The fund’s ability to realise its
indexation ambition for the pension scheme in the short and medium term is also giving
46 Annual Report 2008 ABP
the Board of Governors cause for concern. In the final analysis, the Board of Governors
will do all in its power to prevent the erosion of pension entitlements.
In the light of the uncertainties surrounding the fund’s path to recovery, the sharply
diminished prospect of indexation and its determination to prevent erosion of pension
entitlements, ABP’s Board of Governors has approved a package of additional measures
to increase the fund’s recovery capacity. This package of measures is additional to the
withholding of indexation as from 1 January 2009.
The measures to be taken at the start of the recovery plan comprise:
– Modification of the risk profile of the investment portfolio. The risk profile was altered
slightly in the 2009 investment plan to reduce the risk of a downside departure from the
recovery plan. The investment policy will be finalised for the coming three-year period in
– Addition of a recovery surcharge to the cost-covering contribution rate for the retirement
and surviving dependants’ pension scheme (OP/NP) for civilians and military personnel
during the period of funding shortfall. This surcharge is 3 percentage points, of which
1 percentage point will apply as from 1 July 2009 and the full 3 percentage points as
from 1 January 2010. The Board of Governors will make a judgment in late 2009 as to
whether the expected improvement in the financial position for the remainder of recovery
period justifies reduction or suspension of the recovery surcharge.
– Investigation of the possibility of funding the temporary recovery surcharge in advance for
a period of five years (or other forms of one-off capital injection), so that it can contribute
immediately to increasing the fund’s assets.
The Board of Governors will closely monitor developments in the fund’s financial position.
A revision of the framework for assessing the relationship between the assets and liabilities
of pension funds may emerge from the study of the long-term sustainability of the pension
system, which includes evaluation of the Financial Assessment Framework, and the
recommendations of the Parameters Committee. Such a revision may affect the develop-
ment of ABP’s funding ratio and hence the fund’s progress towards recovery.
Recovery faster than With the package of measures described above, the Board of Governors has improved the
envisaged chances of faster recovery from the funding shortfall. Once the funding shortfall has been
eliminated, the Board of Governors will assess each year the scope available in relation to
the indexation matrix for an additional contribution to the realisation of the pension fund’s
indexation ambition and, if indexation is to be applied, whether on a one-off or structural
basis depending on the level of the current funding ratio.
Recovery slower than If, despite the measures that have been taken, the fund’s powers of recovery are not
envisaged sufficient to eliminate the funding shortfall within the remaining recovery period, the Board
of Governors will take additional measures to ensure that recovery is achieved within the
remaining period. Such measures might include raising the temporary contribution rate
surcharge and reducing pension entitlements. The precise extent of these potential
additional measures depends on the actual financial situation, the economic outlook, the
applicable regulations and parameters and the choices made by the government and
employers’ and employees’ organisations. The Board of Governors takes the view that a
balance would need to be struck between raising the temporary contribution rate sur-
charge and reducing pension entitlements so as to spread the burden evenly over all
stakeholders: employers, employees, pensioners and former participants.
47 Annual Report 2008 ABP
Predicted financial position
Funding shortfall With the financial policy described, including the recovery surcharge, it is expected that the
funding shortfall will be eliminated in about four years. Without the recovery surcharge on
the contribution rate, the minimum required funding ratio of 104.4 per cent would be
achieved in approximately 4 years and 8 months. The temporary recovery surcharge will
therefore shorten the recovery period by around eight months.
Figure 6.1. Predicted funding ratio: first five years
funding shortfall limit
85% base trend + contribution rate surcharge 3 years 4 years 5 years
08 09 10 11 12 13
Reserves shortfall Recovery from the reserves shortfall is expected to take 12 years and 9 months. The lower
risk profile shortens the period by approximately 8 months and the recovery surcharge on
the contribution rate also reduces it by about 8 months. The predicted funding ratio is
shown graphically in figure 6.2.
Figure 6.2. Predicted funding ratio
indexation matrix upper
reserves shortfall limit
funding shortfall limit
80% 5 years base trend + contribution rate surcharge 15 years
08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
48 Annual Report 2008 ABP
Table 6.1 shows the expected development of the funding ratio, based on wage inflation of
3 per cent.
Table 6.1. Predicted funding ratio
After 3 years After 5 years After 15 years
Average funding ratio 100% 107% 128%
ABP’s financial position will be closely monitored during the recovery period, with regular
If the recovery of the fund’s financial position is significantly slower than envisaged in this
recovery plan, the Board of Governors will first determined whether the delay will extend
the recovery period beyond the permitted time. If it is likely that the recovery period will be
extended to such an extent as to exceed the maximum periods of five and 15 years,
respectively, the Board of Governors will consider additional measures as described in the
recovery plan. In that situation, a new recovery plan will drawn up on which the Parti-
cipants’ Council and the Employers’ Council will be asked to give their recommendations.
In principle, if the fund’s financial position improves faster than envisaged in this recovery
plan, higher indexation will be applied in accordance with the indexation matrix and the
recovery period will be shorter. If the funding ratio improves faster than expected, the
Board of Governors may decide to apply higher indexation than that indicated by the
After adoption of this recovery plan, the employers, participants and pensioners will be
informed in a personal letter of the basic outlines of the plan and its consequences for
indexation. ABP will publish the funding ratio monthly on its website while the funding
shortfall persists. The fund will also publish regular updates on its financial position via
press releases. If further deterioration of the financial position, as outlined above, makes
additional measures necessary, the participants will be informed.
49 Annual Report 2008 ABP
This chapter deals with the risks to which ABP is exposed as a pension fund and its policy
for managing those risks. Quantitative information on the risks and the sensitivity of the
funding ratio can be found in the section on risk in the financial statements.
Risk management ABP has always given high priority to risk and risk management, but the many internal and
a high priority external developments are making good internal management even more important. In
response to factors such as changes to legislation and regulations, more complex
business processes, tighter regulation and an increasingly discerning client base, ABP
must ensure that both the risks to which it is exposed and its organisation are managed as
effectively as possible. Given the turbulence on the financial markets and the frequent
legislative changes, this is by no means a sinecure.
The Board of Governors took the following steps in 2008 to strengthen ABP’s risk
– The Board of Governors engaged external consultants in 2008 to advise on ABP’s
ex-ante risk management and control functions as implemented after the separation of
the pension fund from the administrative organisation.
– The Board of Governors approached risks from a strategic perspective by conducting
assessments within risk workshops, thereby not only fulfilling its statutory task, but also
explicitly identifying the risks that are relevant to the fund’s day-to-day operations and the
measures that can be taken and improvements made in response to them.
– An Executive Office was set up in 2008 to ensure effective monitoring of the admi-
nistration and risk management functions. In the coming year, the Executive Office will
focus inter alia on placing the assessment of the fund’s risk management on a more
– Outsourcing risk increased in 2008 following the separation of the pension fund from the
administrative organisation. To limit this risk, a system of contracts was negotiated
comprising a master contract, subsidiary contracts and a service level agreement (SLA)
for the coming year. The Board of Governors monitors the functioning of the contractual
arrangements on the basis of status reports and checks.
– One of the tasks of the Audit Committee is to supervise the functioning of the risk
management and control systems. To improve internal supervision, the Board of
Governors decided in 2008 to expand the Audit Committee by adding three external
– The Investment Policy Committee formed by the Board of Governors consults on a
regular basis with the external investment committee, thereby bringing the latter closer to
the Board of Governors which it assists in the role of an external advisory committee.
– The credit crisis occupied much of the Board of Governors’ attention in the second half
of 2008, and particularly in the last four months. Many more meetings have been held by
the Board of Governors, the Investment Committee and the external investment com-
mittee and the reporting frequency has been raised.
– While the long-term strategic aim of investment policy remains largely unchanged,
corrective action has been taken where necessary in response to the credit crisis. For
example, the Board of Governors has made several tactical changes to lower the risk
profile to some extent.
Good asset and liability management and raising risk-awareness were accordingly high on
the agenda. The pension fund has asked the pension administrator to continue with the
50 Annual Report 2008 ABP
development of an in-control statement. ABP also intends to make a series of
recommendations to listed companies.
Risk management Control and management of the various risks are organised into three processes, which in
organisation principle cover all the various risk categories (macro, meso and micro). In the interests of
functional segregation, it is important that responsibility for the three processes is not
borne by one person.
– Ex-ante risk management: this relates to the formulation of risk policy and the
development of risk-measurement frameworks and instruments. This process is top-
– Monitoring and reporting (risk control): the second process relates to embedding risk
management in the organisation, i.e. coordination of policy implementation and setting
standards for the organisation of the processes and activities. Risks are also measured
and risk reports produced for ex-post risk management. This process is generally more
bottom-up, but also includes top-down supervision of the effect of the macro frame-
works on the subsequent levels in the organisation.
– Internal and external control: the third process is internal supervision, with first-line
supervision by the Board of Governors of both ex-ante risk management and risk control
and actual risk management by the pension administrator, which provides ABP with a
quality statement in respect of this control. The Audit Committee, the external auditors,
the external actuary and the external regulators (DNB and the Authority for the Financial
Markets) also play an important role.
ABP’s risk management model is represented schematically in Figure 7.1
Figure 7.1. Risk model
Board of Governors
Ex-ante risk policy Internal and external control
Process design micro
Asset and liability Asset and liability management (ALM) is one of the main tools used to determine the fund’s
management strategy, and in particular its financial policy. The ALM model is used to examine and mana-
ge assets and liabilities in a coordinated manner, by analysing the effect on the fund’s finan-
cial position of a large selection of economic scenarios. This analysis covers the develop-
ment of the liabilities, the investment policy and the contribution rate and indexation policy
as they specifically relate to ABP’s situation. The ALM model is used to prepare for policy
decision-making and regular testing of financial policy on the basis of a continuity analysis.
The recovery plan is also based on a (new) continuity analysis. In addition, the ALM model is
51 Annual Report 2008 ABP
used to develop the annual investment plan and the three-year strategic investment plan
and a modified version of the ALM model, tailored specifically to the short term, is used in
the assessment of the risk profile for the investment portfolio.
The purpose of ALM is to find a combination of contribution rate, indexation and
investment policy that is appropriate to:
– the fund’s liabilities, taking into account future indexation (which is conditional but to
which the fund aspires);
– an attractive and stable contribution rate;
– the statutory frameworks for the assessment of the financial position and the formulation
of the financial policy.
Although the financial policy ultimately adopted must take account as far as possible of the
expected trend in the liabilities, it still inevitably involves some risk. The various risks asso-
ciated with the financial strategy are jointly referred to as the ‘mismatch risk’. The general
reserve acts as a buffer against this mismatch risk. In addition, the Actuarial and Business
Memo states that indexation and, where applicable, the contribution rate and the com-
position of the investment portfolio will react to changes in the financial position. These
mechanisms imply that, if necessary, risks can be transferred to participants, former
participants, pensioners and employers.
Identified risk categories The risks identified by ABP fall into two categories: financial and non-financial risk. The
non-financial risks, which are risks that directly or indirectly impede the fund in its
operations, are strategic risk, outsourcing risk and compliance risk. The financial risks,
which are those that arise from the fund’s specific activities, are interest rate risk,
investment risk, underwriting risk, indexation risk and liquidity risk.
These risks and the measures in place to manage them are discussed below.
Strategic risk Strategic risks are risks which may prevent the achievement of the strategic objectives.
Political decision-making and the situation on the financial markets are just two of the
many factors contributing to strategic risk.
For ABP, it is essential to preserve a collective pension system, based on solidarity, which
offers flexibility. This is vitally important to the various categories of participants, because
collectivity and solidarity mean that pensions remain affordable, risks are spread, the
prospects of full indexation are improved and costs are kept down. ABP believes that
further expansion will help it to achieve these objectives. Emphasising the contrasts or
differences between young and old or between sectors may be prejudicial to support for
the collective scheme based on solidarity and could therefore present a strategic risk.
The collective pension system is based on solidarity. ABP pursues a long-term funding
policy which seeks to apply full indexation while maintaining a stable and affordable con-
tribution rate. If large groups or sectors leave the scheme, it may disturb this long-term
policy. Because this may have adverse effects for the participants remaining with the
scheme, ABP applies financial conditions on exit from the scheme. One of these con-
ditions is that the group exiting the scheme is charged for underwriting loss. ‘Underwriting
loss’ refers to the effects on the contribution rate of the departure of a group of, for
example, relatively young participants.
52 Annual Report 2008 ABP
A strategic plan is drawn up every three years (in 2009 for the period 2010–2012) and the
strategic priorities are evaluated and, if necessary, updated every year. Strategic priorities
are then adjusted in the light of external developments and new ideas evolved within ABP.
Outsourcing risk Outsourcing risk is the risk of harm to the continuity, integrity and/or quality of activities
that are outsourced to third parties. ABP has outsourced the administration of the pension
scheme, which includes policy preparation, pension administration, communication and
asset management. For ABP, the outsourcing risk is primarily the risk of the administrative
organisation not acting in accordance with its mandate. To enable management of this
risk, which relates to operational activities, the terms and conditions have been contractu-
ally defined and are embodied in an SLA. Under the contract, the administrative organisati-
on undertakes to represent ABP’s interests properly and to the best of its ability and to
exercise the care that may be expected of a competent service provider acting reasonably.
As sole shareholder in the administrative organisation, ABP can exercise sufficient authority
to manage this outsourcing risk.
Under the mandate, the administrative organisation outsources part of the investment
management function to specialised asset managers. The risks associated with this
outsourcing are managed preventively, via an intensive selection process. The administra-
tive organisation subsequently checks that the chosen specialists consistently comply with
the administrative organisation’s requirements in terms of inter alia quality, expertise and
quality of service.
- pension fund management For the pension scheme, complete information and efficient processing are essential if the
rights accrued by the individual participants, the pension benefits paid and the contributi-
ons received from the affiliated employers are to be accurately recorded. This information is
also the basis of communications with participants, such as the uniform pension overview
(UPO). According to the administration regulations, this information is to be delivered in the
form of returns. Each month, the administrative organisation checks on behalf of the fund
that all the returns have been received and are complete, accurate and realistic.
The fund pursues an active policy on collection of contribution arrears. Interest is charged
if contributions are underpaid or paid late.
The actual payment procedures are protected by a system of preventive measures,
including civil status and change-of-circumstance registers and an online link to the
municipal personal records database (GBA), which ensures that the address is up to date
and that payment of pension terminates promptly when the pensioner dies.
- asset management The outcome of the ALM studies determines the desired investment mix and the actual
investment transactions undertaken to achieve it. Transactions are governed by rigorous
Each day, the administrative organisation coordinates the liquid investment positions
between external asset managers, custodians and investment administration. This enables
daily checks to be made on the permitted risk positions, with due regard for the regulations
of the relevant regulatory bodies.
All transactions in illiquid investments are checked in detail in advance, to ensure continuity
and consistency in the investment process.
53 Annual Report 2008 ABP
PricewaterhouseCoopers has issued SAS70 type II statements for a number of the
administrative organisation’s processes, confirming their effective functioning.
- financial reporting ABP places great value on internal management in the preparation of financial reporting.
The fund’s financial reports are prepared by the administrative organisation, which has
organised its internal risk management and control systems in accordance with the COSO
ERM framework. The internal management systems guarantee the reliability of both
financial administration and reporting.
The administrative organisation renders account for its administration and management in
quarterly reports and the annual report. The administrative organisation conducts reviews
of the quarterly reports and the audit of the annual report by the external auditors. Material
audit findings and progress with improvements instituted in response to those findings are
reported to and discussed with the Audit Committee.
Compliance risk Compliance risk is the risk of harm to ABP’s image in the event of non-compliance with
internal and external standards and values or legislation and regulations. ABP has
appointed a Compliance Officer to monitor compliance and has expressly imposed
compliance requirements on the administrative organisation.
The main compliance risks relate to implementation of the Pensions Act, the Sectoral
Pension Fund (Obligatory Participation) Act 2000 (Wbpf) and the Personal Data Protection
Interest rate risk Interest rate risk is the risk to the funding ratio of movements in interest rates. The fixed-
income investments, the pension liabilities and, albeit to a lesser extent, the other assets
and liabilities are sensitive to fluctuations in market interest rates. The interest-rate risk
depends on the extent and average maturity of the fixed-income investments and the
pension liabilities. Around 40 per cent of the fund’s investments in the strategic mix are
directly sensitive to movements in the interest rate, as are the total pension liabilities
because they are valued at market interest rates. The duration of the pension liabilities is
also considerably longer than the duration of the investments in fixed-income securities.
As a result, falls in interest rates have an adverse impact on the fund’s financial position.
Limiting this risk in 2008 required active balance sheet management, taking into account
ABP’s views on the outlook for interest rates. The fixed-income investments have become
slightly more sensitive to falls in interest rates compared with the benefits accruing from
rises in interest rates. The net result was an increase in the duration of the portfolio of
fixed-income securities compared with 2007. Under the 2009 investment plan, the dura-
tion will be extended further to ten years.
Although the interest rate risk in nominal terms is still high, ABP does not consider it
desirable to hedge it, given the fund’s real return target and the current low market interest
rate. Hedging this nominal risk would mean anchoring the current low interest rate levels in
the portfolio for longer. An unexpected increase in inflation and the nominal market interest
rate could then not be absorbed and, without further measures, could lead to devaluation
of the fixed-income investments and possibly a reduction in the return.
54 Annual Report 2008 ABP
Investment risk In addition to the interest-rate risk, which affects the value of the fund’s liabilities and fixed-
income investments, ABP is also exposed to an additional risk in respect of its invest-
ments: investment risk. This comprises various specific risks: the equities and alternative
investments risk, the currency risk, the commodities risk and the credit risk. These risks,
and the interest-rate risk and the underwriting risk, are included in the standard model
prescribed by the Financial Assessment Framework to determine whether a pension fund
has sufficient capital.
The equities and alternative investments risk relates to the risk of a fall in the value of
investments in equities and real estate. On the basis of the ALM, ABP has opted for a
strategic investment mix that allocates around 60 per cent of its investments to equities
and alternative investments in 2009. This mix is expected in the longer term to generate
the real return that is needed to ensure that contributions remain affordable and the fund
can realise its indexation ambition. The risks in equities and alternative investments are
primarily managed by ensuring that investments are spread over a wide range of assets,
regions, categories and sectors.
In order to diversify its risks, ABP invests considerable sums in foreign currencies. These
investments expose the fund to currency risks because it has to pay its pensions in euros.
These risks are, however, limited as most of the exposure to the major currencies (chiefly
the US dollar) is hedged with derivatives.
The credit risk is the risk of a debtor being unable to meet its payment commitments. In
exceptional cases, the principal may not be repaid or the debtor may be declared
insolvent. To manage this risk, the investment portfolio is spread widely over regions,
sectors and individual debtors and an appropriate risk premium is required. ABP requires
the administrative organisation to maintain a professional internal credit analysis
department at all times.
Underwriting risk The underwriting risk includes the risk of negative results on the actuarial assumptions that
are used to determine the technical provisions. The most important risk in this respect is
the development in life expectancy rates. Retirement and surviving dependants’ pensions
are lifelong pensions and the longer participants and former participants live, the higher the
provision for pension liabilities needs to be. ABP therefore takes account of the life expec-
tancy rates of its participants, former participants and pensioners in determining the liabili-
ties. The life expectancy rates are derived from survival probabilities. These survival proba-
bilities, which constitute part of the actuarial principles, are based on ABP’s pension
records and take into account future trends according to projections by Statistics Nether-
lands (CBS). The survival probabilities and expected trend are reviewed every three years
and adjusted if necessary.
For surviving dependants’ pensions, the ‘partner frequency’ is an important risk factor.
This actuarial assumption refers to the number of cases in which a surviving dependants’
pension is granted when a participant or former participant dies. The more participants or
former participants who leave surviving dependants, the higher the cost of surviving
dependants’ pensions and the higher the provision for pension liabilities needs to be.
In addition to retirement and surviving dependants’ pensions, the pension regulations also
provide for transitional supplements. These relate to the conversion from the provisions
under the Public Servants Superannuation Act (WPA) to the ABP pension regulations when
ABP was privatised in 1996. ABP does not always know before retirement whether there is
entitlement to benefit under a transitional arrangement, so an estimate of future liability for
55 Annual Report 2008 ABP
these benefits has to be made on the basis of the benefits paid to the current generation
of pensioners. With changing work and cohabitation patterns on which these benefits are
calculated, the estimate of future liabilities in respect of these benefits is subject to some
uncertainty and is therefore a risk factor in determining the provision for pension liabilities.
Indexation risk Wage inflation and general wage increases work through to the provision for pension
liabilities via indexation. Wage inflation is therefore a significant factor for the fund in that it
is a factor in the decision by the Board of Governors on indexation. The Board of Gover-
nors’ discretionary powers to decide whether and to what extent indexation is applied in
any year is one way in which this risk is controlled.
Liquidity risk The liquidity risk is the risk that the fund will have insufficient cash to meet its current
payment liabilities, including pensions for existing pensioners. As the sum of contributions,
direct investment income and redemptions of fixed-income investments exceeds the sum
of pension benefits and expenses by a wide margin and the fund also has a high percen-
tage of its investments in liquid financial instruments, the risk to pension benefits of a
liquidity shortfall is limited.
Investing in illiquid asset classes brings the risk of the fund being less flexible when it
comes to periodically reweighting the investment portfolio. In the case of derivatives or
securities lending, there may be a contractual obligation to make additional payment. This
risk was greater than normal in 2008.
In-control statement ABP’s Board of Governors is responsible for the fund’s financial position and hence for the
existence, configuration and functioning of the internal risk management and control sys-
tems. The purpose of these systems is to monitor progress towards achievement of the
pension fund’s strategic, operational and financial targets, to facilitate reliable financial
reporting and to identify and limit the risks taken by the pension fund and the external risks
to which it is exposed. The internal risk management systems are also designed to ensure
compliance with the relevant legislation and regulations.The assessment of the configurati-
on and functioning of the fund’s internal risk management and control systems is discus-
sed periodically by the Audit Committee of the Board of Governors.
The internal risk management systems are designed to identify and control risks. They
cannot, however, guarantee that the strategic, operational and financial targets will actually
be achieved. Nor can they guarantee that all risks, errors and instances of fraud will be
identified or prevented, nor that the relevant legislation and regulations will be complied
with in all cases. ABP’s Board of Governors stresses that, by the nature of the pension
fund’s activities, some risks are beyond its control, for example demographic changes,
wage inflation and developments on the financial markets. Where necessary and possible,
measures have been taken to minimise the impact of those risks. In the belief that it is
ultimately in the fund’s interest, ABP has deliberately chosen to pursue a long-term risk
policy. This means that short-term risks may (temporarily) have a greater adverse effect
than if the funds had opted for a short-term risk policy.
Last year, in which ABP separated from the administrative organisation, is seen as a year
of transition in which ABP took a number of measures to improve the management of the
fund’s risks, some of which did not take effect until 2009. Those which took effect in 2008
included the SLA entered into with the administrative organisation and the creation of the
Executive Office. For that reason, ABP’s Board of Governors largely bases its assessment
of the past financial year on the in-control statement received from the Board of Directors
of the administrative organisation.
Bonsai fanatic Iemitsu Tokugawa was a
powerful man in seventeenth-century Japan.
As the third shogun in the Tokugawa dynasty,
he was effectively the sole ruler. The emperor
had no power: he was kept a ‘golden prisoner’
at his court in Kyoto. Shogun Iemitsu ruled from
Edo, as Tokyo was formerly known. Under his
leadership, the shogunate attained the peak of
Iemitsu is at rest in the Tokugawa family temple,
guarded by spirits including Jikokuten, the god
of thunder. Iemitsu was devoted to gardening,
and in particular growing bonsai trees. He spent
so much time gardening that it sometimes
brought him into conflict with those around him.
His favourite tree was a pine, said to be close to
200 years old when he acquired it. He was so
fond of the tree that he assigned three atten-
dants to its care and protection. The senior
steward, who was ultimately responsible for the
tree’s welfare, was paid between three and five
times the normal stipend. Iemitsu also made
provision for the tree to continue to receive
preferential treatment from future emperors for
centuries after his death.
The Imperial Palace’s collection of trees suffered
j ikokut en
badly in World War II from the shortage of water
and fertiliser. After the war, it took more than a
decade in some cases to restore the trees to
God of thunder, guardian of the
family temple of the Tokugawa
Iemitsu’s pine tree, one of Japan’s national dynasty (1603–1867).
treasures, is still in the Imperial Palace in Tokyo.
It is now over 500 years old.
Six years to get a bonsai ready for sale
Iwan Roos cultivates and trades bonsais in Schoonhoven. Literally translated, a bonsai is simply a tree in a pot. Bonsais have been
cultivated in Japan for hundreds of years, while the oldest bonsai that Iwan has grown himself is now ten years old. It usually takes
around six years before a bonsai is ready for sale.
Even as a young child Iwan was fascinated by all sorts of plants and flowers, but it was a visit to the miniature town of Madurodam
that triggered off his obsession with the bonsai. He was given some empty ground behind his parents’ home and started growing
trees there to use for bonsais. “You need lots of patience,” he explains. “You plant the little tree in the soil and it’s another six years
before you can sell it. These days I can get two to three-year-old saplings from growers in Boskoop, and that makes a big
Importance of good composition
Although you can make a bonsai from any type of tree, some species are more suitable than others. Iwan cultivates most of his
bonsais from domestic species such as juniper, pine, lilac, hawthorn and various types of elm. It is important for the plant to have
small leaves and thin branches. “The bonsai needs a good composition,” he explains. “The crown of the tree needs to be one third
of the breadth of the pot, for example. That is the standard in Japan, where they have really got the cultivating of bonsais down to
a fine art. Some family businesses have bonsai trees that are hundreds of years old. The Japanese government has now banned
exports of those trees to the West. There was a time when we bought up everything we could find there: a rapid reduction in the
Japanese beauty heritage.”
Also beautiful from behind
Iwan sells his bonsais on the internet and also at horticultural markets in spring. Every week he sends plants, carefully packaged in
boxes, to clients throughout the Netherlands. He does not take much account of what ‘the client’ thinks is an attractive bonsai. “I
grow what I personally think is beautiful,” he says. “The branch structure has to be fine and compact, and the various ‘levels’ of the
tree have to fit together. In effect, you have to create a sort of waterfall. There has to be a flowing movement in the structure of the
branches. The tree also has to be beautiful from behind so that you create a three-dimensional image. People sometimes forget
about the back of the tree. And as far as I’m concerned, those are poor-quality bonsais.”
58 Annual Report 2008 ABP
The administrative organisation has been working on an ‘in-control’ project in recent years
which has created the foundation for the risk management function. This foundation and
the in-control statement, SAS 70 statements and periodic reports by the management of
the administrative organisation provided a sufficient basis for the Board of Governors’ own
in-control statement in that year of transition.
Where processes have been outsourced, these risks are managed by the administrative
organisation. The outsourcing risk to which ABP is exposed is managed by periodic
reporting by and consultation with the administrative organisation. ABP’s Board of
Governors has found no evidence that, in so far as they relate to financial reporting on
processes that fall within the scope of the service agreement between ABP and the
administrative organisation, the internal risk management and control systems were not
properly organised and did not function effectively in 2008.
Internal risk management systems have also been implemented within the administrative
organisation to manage the strategic, operational and compliance risks relating to the
realisation of ABP’s objectives in so far as administration has been outsourced by ABP.
Progress was also made in 2008 in implementing the internal risk management and control
systems relating to the administrative processes that have not been outsourced.
59 Annual Report 2008 ABP
Pension fund management
Pension scheme developments
Changes to pension The employers’ and employees’ organisations participating in the Pension Chamber
regulations reached agreement in 2008 on a number of administrative and operational changes to the
ABP scheme, including:
– provision of cover for under-65 partner pension from age 62 in the case of
– greater flexibility in exchanging partner pension for retirement pension;
– payment of death benefit to third parties without evidence;
– terminating deduction in respect of simultaneous service for two partner pensions;
– pension inception date other than the first of the month.
These changes will be implemented in future updates to the ABP regulations.
The employers’ and employees’ organisations participating in the Pension Chamber also
reached agreement on the relaxation of the anti-cumulation provisions of the flexible
pension and early retirement benefit scheme (FPU). This change to the FPU regulations
relates to the government’s efforts to make it more attractive for former teachers to return
to teaching on a part-time basis.
The pension base for the ABP disability pension (AAOP) was also debated in the Pension
Chamber, but the employers’ and employees’ organisations were unable to reach agree-
ment in 2008 and the issue of the AAOP pension base has been brought before the
Advisory and Arbitration Committee.
The ‘64 years and 11 months issue’ with regard to the FPU scheme was also discussed at
length in the Pension Chamber last year. The debate centred on the less than 100% actu-
arially based calculation of the interest rate for participants working beyond the reference
age under the FPU transfer arrangements and on making (partially) unconditional the cur-
rent conditional entitlement to buy into the ABP scheme. This debate did not result in any
changes to the scheme in 2008.
Communication with participants and employers
Communication of After publication of the recovery plan, the outlines of the plan and its consequences for
recovery plan indexation were explained to employers, participants and former participants by personal
letter. ABP will publish the funding ratio each month on the website for the duration of the
funding shortfall. The fund publishes regular updates on its financial position via press
Policy for communication Communication with the participants and employers is via three marketing and communication
with participants and concepts, based on ABP’s mission, that have been developed and tailored to suit each target
employers group (active participants, pensioners and employers) for use in all relevant communication
channels. For active participants, these are the uniform pension overview (UPO) and the
MijnABP internet environment. For pensioners, MijnABP is combined with the annual pension
summary and itemised payment records. For the employers, the service level agreement
(SNO) concept is combined with the EASINet website.
The objective is to provide the participants with a better overview, insight and outlook via
all communication channels (internet, telephone, e-mail, post, group presentations,
individual interviews). The concept for employers seeks to relieve them of the worry of
fulfilling their pension promise to their employees and make it easier for them to do so.
60 Annual Report 2008 ABP
A significant feature of this strategy is that participants are approached partly directly but
also, and increasingly, via the employer. This combination makes approaches to and
communication with the client more effective, because participants prefer to go to their
employer first if they need pension information.
High score for ABP in ABP scored 88 per cent in the most recent transparency survey conducted by Market
transparency survey Response in the context of the new Pensions Act, which came into force on 1 January
2007, placing ABP in the ‘excellent’ category. This signifies that the fund’s communications
are sufficiently transparent and no plans to improve transparency are needed.
Internet use still The internet is the main channel employed in ABP’s communication strategy, because it is
growing ideally suited to meet the growing demand by participants for a more ‘self-service’ approach.
Both the open abp.nl site and the secure and personalised MijnABP environment are being
continuously expanded with new functionalities and access and navigation are the subject of
constant improvement. What is important, is for the participant to be able instantly to find the
information he or she needs and to compute projections for a wide variety of personal
The number of visits to the websites is growing all the time. The number of visits to the
abp.nl general website increased to 2.2 million in 2008 (2007: 1.7 million). An important
feature of the site is the search function, which last year helped 75 per cent of users to find
satisfactory answers to their questions immediately – a high score in the internet world.
The number of visits to MijnABP also continued to grow, to around 900,000 a year (2007:
800,000). Visitors gave the sites a score of 7.4.
The number of e-mails in 2008 showed little change from the year before, at 91,000.
Another main element in ABP’s direct communication with participants is the digital
newsletter. That the newsletter is meeting a growing need among participants is evident
from the rapid growth in the number of subscribers to 155,000 (2007: 66,000).
Telephone still an important Notwithstanding the growing use of the internet, the telephone is still an important commu-
communication channel nication channel. After falling from 420,000 to 347,000 in 2007, the number of calls to the
call centre rose sharply again in 2008 to 372,000. Calls concerning the separation of the
pension fund from the administrative organisation and questions about the pension fund
growth factor (factor A), which participants need for their tax returns, accounted for most
of this increase. The number of calls was especially high in the early months of the year,
demonstrating the effectiveness of the pension fund’s policy of actively approaching and
informing participants via high-quality communication, which provides considerable added
value especially in times of crisis.
Despite the growth in the number of calls, access to the call centre remained high at over
98 per cent and the average time a client had to wait before reaching an agent fell to 21
seconds (2007: 26 seconds). In 93 per cent of cases, the call centre dealt with the client’s
call itself and referred the call to the second line (back office) in only 7 per cent of cases.
Reflecting this performance, the call centre’s client satisfaction score improved to 7.8
(2007: 7.5). In December 2008, the call centre was named the most responsive call centre
in the Netherlands in an independent survey by Customer Contact Company.
61 Annual Report 2008 ABP
Growing demand for Alongside the internet and the telephone, personal contacts are also growing in importan-
individual interviews ce. Over 11,200 individual interviews were held with participants in 2008 (2007: 6,100),
both at the employer’s site and at ABP’s regional offices. The value participants place on
these interviews is reflected in their satisfaction score of 7.7.
Employer is most important As well as approaching participants directly, ABP is also increasingly communicating with
intermediary for contact them through their employer. It is, after all, the employer that makes the pension promise
with participants to the participants. There are a number of channels available to ABP for communicating
One of the communication channels with employers is the EASINet website, in the secure
section of which they can access the Employers’ Mirror (Werkgeversspiegel), which pro-
vides relevant information from the ABP databases. By year-end 2008, a total of over 4,000
employers had bought 9,900 subscriptions to the EASINet site. Meanwhile, the advice desk
handled over 31,000 telephone calls and e-mails from employers.
The most important form of contact with the employers is still personal contact via the
employers’ advisers. Around 6,600 face-to-face meetings were held in 2008, at which the
advisers helped employers with issues such as pension-awareness, application of the new
Pensions Act, active aging and developments in social security and agreement was
reached on the services to be provided by ABP.
Another useful aid that was developed in 2008 is the ‘argument cards’ to help both
employers and employees make pension decisions. The employers are very enthusiastic
about this new tool.
ABP also talks to employers about current developments in the field of pensions and social
security at the Pension Day events and regional days and in network meetings and presen-
tations. ABP still receives a high 7.5 score from the employers.
Developments in service level
Service improved The online transaction facilities available to the client via MijnABP were upgraded in 2008.
via MijnABP These improvements, which relate to applications for the FPU benefit and the ABP
KeuzePensioen, take the form of both easier access and navigation and expanded
The projection calculations for various exit options have been augmented with net calcu-
lations and the pension figures are displayed in clear graphs, so that the simulations
provide maximum transparency and optimum insight into the client’s pension situation. In
the process, MijnABP has developed increasingly into an online personal pension file, not
just for people who are accruing pension, but also for pensioners wishing to consult their
itemised payment records and annual pension summary.
Higher CEM service score ABP’s strategic goal is to provide its clients with the best service in the pension fund world.
An important measure is the service score relative to the CEM benchmark, a global
pension fund benchmark compiled under the auspices of the CEM (Cost Effectiveness
Measurement) Institute in Toronto.
62 Annual Report 2008 ABP
CEM improved the service scoring method in 2008 by reflecting current developments in
pension fund management more closely. For example, website-based service to partici-
pants has been accorded a more prominent place in the CEM service score. In table 8.1,
the scores for previous years have been recalculated by CEM using the new method.
Table 8.1. Service score (max. = 100)*
2008 2007 2006 2005 2004
ABP 89 88 84 80 77
CEM World – average tba 68 70 69 68
12 largest funds – world average tba 71 69 68 68
Netherlands – average tba 69 71 72 67
Under CEM’s new 2008 service scoring method, ABP achieved a total service score in
2008 of 89 points on a scale of 1–100, placing ABP at the top of the CEM world bench-
mark. ABP’s position relative to all 77 participating funds will not be known until the
summer of 2009, when the 2008 benchmark results are published.
The slightly higher service score in 2008 reflects improvements in several client processes.
At the call centre, the average waiting time has fallen to 21 seconds and e-mails are being
dealt with more quickly. Improvements in the advice service at various locations also
contributed to the higher CEM service score. The service to employers was improved in
2008 by agreeing service plans with the majority of that group. The service score was also
helped by expediting inward and outward value transfers. All these improvements can be
attributed mainly to structural improvements in processes.
Front-office client Table 8.2. Front-office client satisfaction
satisfaction shows little
change 2008 2007 2006 2005 2004
Call centre 7.8 7.5 7.5 7.4 7.4
Employer advice 7.7 7.6 7.5 7.6 7.9
Regional days 7.4 7.7 7.7 7.5 7.5
Internet (ABP website) 7.1 7.1 7.1 - -
The Employee Call Centre’s excellent performance in 2008 raised the score for its front-
office services to 7.8 (2007: 7.5). Client satisfaction with the employers’ advisers also
improved, while that for the general abp.nl website showed no change. MijnABP’s client
satisfaction score was 7.4. Possibly due to the less flamboyant presentation, satisfaction
with the regional days was slightly lower, at a still acceptable 7.4.
Back-office client satisfaction Client satisfaction with the back-office services was higher in 2008 across all client groups,
higher across the board as shown in table 8.3.
63 Annual Report 2008 ABP
Table 8.3. Back-office client satisfaction
2008 2007 2006 2005 2004
Early retirement 8.0 7.9 7.7 7.7 7.8
Pensioners 8.2 8.1 8.1 8.1 8.1
Active participants 7.2 7.1 6.8 6.8 7.0
Special Ministry of Defence schemes 7.9 7.7 7.6 7.5 7.6
The improvement in client satisfaction among early retirees reflects the improved service
relating to the FPU award process. The quality of the award process (relating to retirement
pension) was also responsible for a further improvement in the already high client satisfac-
tion score among pensioners. The positive rating for the handling of information requests
and value transfers was responsible for the higher client satisfaction score among active
participants. The score for the uniform pension overview improved in 2008 to 7.4 (2007:
Appeals as barometer The activities of the Appeals Committee are also an important barometer of the quality of
of service quality ABP’s service, because it is the Appeals Committee to which clients have recourse in the
last instance. The number of appeals lodged in the context of the pension regulations and
their outcome are analysed in Table 8.4.
Table 8.4. Number of appeals
2008 2007 2006 2005 2004
Lodged 132 138 155 213 186
Withdrawn 41 57 51 80 60
Inadmissible 4 5 11 7 3
Committee unauthorised to rule - - - 2 -
Upheld 87 91 129 119 119
Overturned 7 5 10 9 26
Hearings 14 15 23 22 18
Developments in pension administration expenses
Higher CEM cost To maintain and strengthen its leading position on the Dutch pensions market, ABP has
made additional investments in raising the standard of information and communication
technology and improving communication with participants and employers. The focus has
been on adapting the processes and systems to keep pace with the advances in techno-
logy and raising the standard of service reliability and continuity. Higher standards of com-
pliance and internal management are also required as a consequence of the more rigorous
One of the first, most striking and most poetic
environmental speeches was delivered in 1854
by Chief Seattle of the Suquamish Indian tribe
living in the north-west of the United States. It
was under his leadership that the Suquamish
came into contact with the white man. Seattle
gave his famous speech in reply to a request
from Governor Stevens, who wanted to buy
Seattle’s land and move the tribe to designated
If we do not own the freshness of the air and
the sparkle of the water, how can you buy
Seattle told Stevens that the earth, air, water
and animals were like brothers and sisters to the
members of the tribe. He explained, in a mixture
of florid language and plain speaking, that the
white man had no respect for them and were
driven by greed and material gain.
This we know: the earth does not belong to
the white man, the white man belongs to the
earth. He treats his mother, the earth, and his
brother, the sky, as things to be bought,
plundered and sold.
Some tribes sold their land and others refused,
but by 1858 their resistance had been broken
and the last of the tribes gave in. To this day, CH IEF Seat t le
they have not been paid for their land. Seattle
lives on in the Suquamish Museum in the town
of the same name, where he has pride of place.
Delivered one of the first environmental
Many countries have signed up to the Kyoto speeches in 1854.
climate accord since it was drafted in 1997.
The United States has still not signed, but Pre-
sident Obama has said that the accord and its
consequences will be given serious
Forty years to generate clean, sustainable energy
By 2050 solar power, wind power and sustainable biomass will be able to meet most of our energy requirements. Until then we will
have to rely primarily on gas. Coal-fired and nuclear power stations can be phased out in the meantime, and no new power stations
should be built. That is the energy scenario put forward by Greenpeace, as Hans Altevogt, the leader of Greenpeace Nederland’s
energy transition campaign, explains.
“Our ‘Energy [R]evolution’ scenario demands large-scale investment in energy-efficiency measures and sustainable energy
solutions. The country’s overall energy bill will also be substantially lower because renewable energy is free. Our scenario shows it is
perfectly feasible to stop investing in coal-fired and nuclear power stations,” he claims.
Energy problem resolved
The Greenpeace scenario is clearly based on a comprehensive solution. On the one hand it involves implementing a series of
energy-efficiency measures. “We can certainly reduce our energy consumption considerably,” says Hans. “In our view, there’s still a
lot we can achieve in that way.” On the other hand, the solution also includes various sustainable energy options. “We are
campaigning for large wind farms to be built in the North Sea. Now more than ever is a good moment to bring these investments
forward. By linking the wind farms in the United Kingdom, Norway, Denmark, Germany, the Netherlands and Belgium to each other
in a supergrid, we can ensure a constant supply of wind energy. And if we can then link this system to the concentrated solar
power parks in North Africa and Southern Europe, we will have solved our energy problem, which is now primarily a fossil fuel
problem, for good.”
A lot obviously needs to happen before we reach that stage. In the meantime, gas is the most flexible source of energy: the ideal
transitional fuel. According to Hans Altevogt, “Experts say that we have enough gas, certainly until the end of this century. Natural
gas stocks will soon run out, but there is also gas from biomass and liquefied natural gas, which we can import from countries such
as Qatar and Algeria. Huge amounts of gas still also get wasted, for example, on heating homes that haven’t been insulated.”
Taking on the challenge of the future
The horizon in Greenpeace’s energy scenario is around 2050, by which time all the coal-fired and nuclear power stations
can have been phased out. The interim milestones include 2015 (which is when global CO2 emissions are expected to peak
and then subsequently need to fall substantially) and 2020 (by which time CO2 emissions need to have been reduced by 40
per cent). As Hans comments, “The year 2050 seems far away, but it is no further away than 1970. That’s why we need to
get down to work now!”
66 Annual Report 2008 ABP
These investments are reflected in ABP’s higher cost per participant.
Table 8.5. Pension administration expenses per participant (€)
2008 2007 2006 2005 2004
ABP 90 74 65 63 62
CEM Q1 – world tba 59 62 59 60
CEM world – median tba 79 77 78 85
CEM Q1 – Netherlands tba 78 86 79 62
CEM median – Netherlands tba 93 97 92 83
The sharp increase in the administration expenses to € 90 per participant in 2008 reflects
the cost of the additional investments in ICT, compliance and internal management and
communication with participants and employers. Part of the increase is also due to the
cost of outsourcing ABP’s administration, which includes a risk surcharge, to APG. Despite
this rise in the cost per participant, ABP still measures up to the other pension funds in the
benchmark, taking into account the contractual service level.
Compared with the 2007 benchmark results, ABP is still below the median cost per
participant for the peer group of Dutch pension funds that are relevant to ABP. The CEM
cost figures for 2008 will be available in mid-2009.
67 Annual Report 2008 ABP
Valuation of the investments
Current values fraught ABP measures its investments at current value employing a rigorous and reliable process
with uncertainty as defined in a valuation manual. The valuation manual sets out the valuation policy and
principles and specifies the methods and techniques by which they are to be applied.
In order of priority, ABP uses the following methods for measuring the carrying amounts:
1. Mark-to-market (market quotation)
2. Broker quotes
3. External estimates and appraisals
5. Best estimates
Measurement is only tried using an inferior method if a superior method proves
Given the market conditions, the valuation of (illiquid) investments is fraught with uncertain-
ty. The sting is in the tail. The markets were extremely volatile in 2008, especially in the last
four months of the year, and low transaction volumes can have a relatively large impact on
prices. Where there is no market for an asset class and other information is limited, valuati-
on is based on best estimates. In a number of cases, it has been necessary to use best
estimates to value illiquid investments in particular.
Investment return Figure 9.1 shows the cumulative return, both nominal and real, since early 1993. Every
-20.2 per cent € 100 invested in 1993 had grown by 31 December 2008 to € 251. The average annual
return has been 5.9 per cent. The return after actual wage inflation (real return) over the
period has been 3.7 per cent.
Figure 9.1. Returns 1993–2008 (cumulative)
250 3% notional prudent real return
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
68 Annual Report 2008 ABP
As the graph shows, although the disappointing results in 2008 have had a significant
impact on the long-term return, the real return is still well above the notional 3 per cent
used to calculate the cost-covering contribution rate.
The primary causes of the negative return were the global crisis on the credit market, the
uncertainty on the financial markets and the sharp price falls in most asset classes.
ABP’s underlying returns are shown in table 9.1.
Table 9.1. Returns on investment portfolio in 20089 (in percentages and billions of euros)
2004 - 2008 2007 2008 gewicht in
(5 jaar) porte-
% € mrd % € mrd % € mrd feuille
Fixed-income investments 14.8 10.3 1.9 1.6 0.4 0.3 44.8
Equities and alternative investments
(excluding hedge funds) 9.4 7.8 5.2 5.6 -36.5 -44.9 49.0
Equities -1.9 -0.6 5.3 3.9 -39.4 -33.3 32.4
Real estate and real-estate funds 32.8 5.9 -9.4 -2.0 -30.0 -6.3 8.6
Infrastructure 55.6 0.3 21.0 0.3 -3.1 -0.1 1.7
Private equity 79.9 2.5 29.4 1.6 -24.5 -2.4 4.0
Commodities -15.4 -0.2 31.0 1.8 -46.2 -2.8 2.3
Other investments (mainly hedge funds) 38.3 1.7 14.2 1.0 -5,7 -1.3 6.5
Overlay (including duration) 0.5 1.4 -0.5 -0.8 1.0 1.8 -0.3
Total 14.2 21.2 3.8 7.5 -20.2 -44.1 100
As table 9.1 shows, ABP added almost € 21 billion of investment results to capital in the
space of in five years, despite the credit crisis in 2008. Net contributions and benefits in
the same period amounted to € 2.1 billion.
In 2008, 85 per cent of the investments in US dollars were hedged against the euro.
Investments in UK pounds and Australian and Canadian dollars were 100 per cent hedged
against the US dollar. The exchange result on the investments was offset by the strategic
hedging of these currencies. The total return on the strategic currency hedge in 2008 was
0.4 per cent negative. The 4.9 per cent negative return due to the strengthening of the US
dollar was largely offset by the weakening of the above currencies against the US dollar.
As well as strategic hedging of the various currencies, the interest-rate sensitivity of the
pension liabilities has been partially hedged by extending the duration of the fixed-income
portfolio. This had a positive effect on the return for 2008 of around 1.8 per cent.
9 Including allocation of hedging and exchange results
69 Annual Report 2008 ABP
Investment portfolio results
Negative investment The 20.2 per cent negative return was largely the product of the strongly negative returns
return on equities and alternative investments. In equities, the developed markets (–36 per cent)
performed less badly than the emerging markets (–50 per cent). In the developed markets,
which account for over 80 per cent of the equities portfolio, financial services (–54 per
cent), basic materials (–49 per cent) and industrials (–48 per cent) were worst hit by the
credit crisis and the falling oil prices. Despite the higher risk profile, private equity (–25 per
cent) generated a better return than equities. With bank lending virtually at a standstill, the
return on real estate was also sharply lower (–30 per cent).
After an extremely good first half (+42 per cent), commodities ended the year with a 46 per
cent negative return due to the abrupt fall in oil prices in the second half.
Performance One of the references against which ABP’s return for 2008 is compared is the norm
portfolio return, based on regular market benchmarks, which is determined in advance by
ABP’s Board of Governors.
ABP aims to outperform the norm portfolio through active investment management. Having
achieved this consistently in recent years, ABP underperformed the norm portfolio in 2008,
with an actual return of 20.2 per cent negative, which was 4.8 percentage points lower
than the norm portfolio. It should be noted, however, that the balance of the actual return
and the return on the norm portfolio for 2008, together with the outperformance achieved
in the past five years, is still positive.
The 4.8 per cent underperformance relative to the benchmark was due to several factors.
The most significant of these was the use of an absolute benchmark (generally an inter-
bank interest rate plus surcharge) for the illiquid investments, when those investments
have in fact generated a negative return (accounting for approximately 2.5 percentage
points of the underperformance). There was also an unrealised loss on the securities len-
ding reinvestment programme (accounting for approximately 1 percentage point of the
underperformance) and credits were overweighted within the fixed-income securities port-
folio (accounting for around 1 percentage point of the underperformance). Due to over-
weighting in the portfolio, there were losses on the prices of a number of specific Dutch
bank shares which were heavier than those sustained by the benchmark (accounting for
around 0.5 percentage points of the underperformance). Lastly, underperformance of
approximately 1 percentage point was due to active investment decisions because the
market prices of the underlying securities collapsed. This was compensated by active
decisions on interest rates that achieved positive performance of more than 1 percentage
Top ten investments per Tables 9.2, 9.3 and 9.4 show ABP’s top ten investments10 in equities, real estate and fixed-
asset class income securities, with the positions in 2007 in the second column. The totals are
consistent with those in the company balance sheet.
10 More information can be found at www.abp.nl
70 Annual Report 2008 ABP
Table 9.2. Top ten equities investments
2008 2007 € million in %
1 (1) Exxon Mobil Corp 671 1.2 United States
2 (3) Koninklijke Philips Electronics NV 635 1.2 Netherlands
3 (2) Royal Dutch Shell Plc 464 0.9 Netherlands
4 (-) Nestlé SA 430 0.8 Switzerland
5 (-) Total SA 406 0.8 France
6 (8) ING Groep NV 402 0.7 Netherlands
7 (-) Allianz SE 394 0.7 Germany
8 (-) Bayerische Motoren Werke AG 347 0.6 Germany
9 (-) GlaxoSmithKline PLC 343 0.6 United Kingdom
10 (-) Roche Holding AG 314 0.6 Switzerland
Total for top ten equities investments 4,406 8.1
Total equities portfolio 54,339 100.0
Table 9.3. Top ten real-estate investments
2008 2007 € million in %
1 (1) Vesteda 1,523 8.4 Netherlands
2 (2) Corio NV 794 4.4 Netherlands
3 (3) Unibail-Rodamco 743 4.1 France
4 (-) Steen & Storm 420 2.3 Norway
5 (6) Simon Property Group Inc 338 1.9 United States
6 (9) Vornado Realty Trust 291 1.6 United States
7 (-) Public Storage 276 1.5 United States
8 (-) ING DOF 272 1.5 Netherlands
9 (-) Sonae Imobiliaria ERRA Fund 220 1.2 Portugal
10 (-) Westfield 218 1.2 Australia
Total for top ten real estate investments 5,095 28,1
Total real-estate portfolio 18,167 100.0
Table 9.4. Top ten fixed-income investments
2008 2007 € million in %
1 (1) France (government bonds) 10,631 11.6 France
2 (2) Italy (government bonds) 7,213 7.9 Italy
3 (3) Federal National Mortgage
Association (Fannie Mae) * 6,118 6.7 United States
4 (4) United States (government bonds) 4,135 4.5 United States
5 (5) Federal Home Loan Mortgage
Corporation (Freddie Mac) * 2,982 3.3 United States
6 (6) Germany (government bonds) 2,770 3.0 Germany
7 (7) Netherlands (government bonds) 1,724 1.9 Netherlands
8 (8) Greece (government bonds) 1,579 1.7 Greece
9 (-) Government National Mortgage
Association (Ginnie Mae) * 1,156 1.3 United States
10 (-) Bank of America Corp 984 1.1 United States
Total for top ten fixed-income investments 39,292 43.0
Total fixed-income portfolio 91,572 100.0
* secured on collateral
71 Annual Report 2008 ABP
Developments in the financial markets
The year 2008 was dominated by the continuing and deepening credit crisis that started
back in the summer of 2007. Underlying fears of a worldwide recession progressively took
hold during 2008, while the policies announced or implemented by governments became
increasingly radical during the final months of the year. Whether these policies will ultimate-
ly prove enough and sufficiently timely to stabilise the financial system and the economy
and ward off a long-lasting and painful recession was the main question facing investors at
the end of the year. Although governments seem willing to do everything they can and in
principle have access to a wide range of policy instruments, the chances of success in the
near future still seem far from certain.
The economic news in 2008 was dominated by bank balance-sheet problems, interest
rate cuts, government intervention, sharp contractions in economic activity, rising credit
spreads and fear and volatility on the financial markets. Returns on almost all equities and
alternative investments were highly negative, and even illiquid, more complex investments
lost substantial amounts of value. Liquid government paper was one of the few investment
categories yielding positive returns for the year as a whole.
Commotion in the banking Many banks were hit hard in 2008 by the credit crisis, which resulted in takeovers, govern-
sector ment injections of capital and even insolvencies. Banks’ balance sheets were weakened by
substantial losses on their positions in low-quality mortgage-backed securities, while share
prices of financial institutions fell sharply and losses continued to rise. The banking sector’s
problems really reached a peak in September 2008, when the fourth largest US bank,
Lehman Brothers, was forced to file for bankruptcy protection. This caused an almost
complete loss of counterparty confidence in the financial system, with major interbank
markets coming more or less to a standstill.
As banks are at the hub of the economic wheel, these problems have had far-reaching
consequences. Firstly, signs of risk aversion became increasingly evident, not least among
banks themselves. Credit became difficult to find, despite central banks around the world
cutting interest rates in an effort to encourage lending. Owing to higher risk margins,
however, these interest rate cuts have not translated into lower interest expense for
businesses and consumers. Lending conditions became stricter during the year, while
banks remained extremely cautious about lending to each other and interbank interest
rates were relatively high. Indeed, it was not until October 2008 that any signs of a slight
fall in rates started being seen.
Central banks around the Concerns about the economy and financial instability have prompted central banks all
world seek to boost liquidity around the world to cut their interest rates substantially, as well as trying other ways of
maintaining lending. Lending to banks, for example, has risen significantly in recent
months, thanks to relaxations in lending conditions and the acceptance of wider-ranging
forms of collateral. The Federal Reserve has even started directly purchasing the commer-
cial paper that many businesses use to fund their immediate and other short-term borro-
wing requirements, while also announcing plans to buy mortgage-backed securities issued
by Fannie Mae and Freddie Mac and acting in conjunction with the US government to res-
cue the world’s largest insurance company, AIG, from collapse.
72 Annual Report 2008 ABP
Governments announce Governments in the United States, United Kingdom, continental Europe, Japan and China
support measures have also been actively involved in trying to stave off recession. The most substantial
initiative so far has come from the US Ministry of Finance, which approved a USD 700
billion rescue package in October. Although the financial markets initially responded
positively to this plan, it has not resulted in a turn-around and nervous sentiment continues
to dominate the market.
In Europe, the credit crisis resulted in a number of banks having to be nationalised,
including the Dutch parts of Fortis and ABN AMRO. In an effort to ward off recession,
various countries have since announced stimulus packages to provide capital injections for
banks and businesses in need of funding. As a result, budget deficits all around the world
Serious pressure Growth in the United States slowed substantially in 2008, and this has since turned into a
on US economy recession. Fears of a deep recession increasingly took hold in the second half of the year.
The rapid rise in unemployment is putting additional pressure on the economy, as are the
sharp falls in consumer and business confidence levels. There have also been more and
more signs of a significant decrease in inflation and indeed growing fears of deflation. In
other words, a continuing fall in general price levels. The housing market remains weak,
with prices falling sharply and a significant reduction in construction activity levels.
Europe in recession Having recorded two successive quarters of negative growth, Europe is now officially in
recession, although the relative rise in unemployment has so far been less pronounced
than in the United States. The fall in inflation has prompted concerns about possible
deflation, with the combination of falling oil prices and recession continuing to push
Equities reach new lows Equity markets have been hit hard by the credit crisis. Stock exchange indices were
volatile in 2008, with many equities in industrial and emerging countries losing half their
value. Sharp falls in profits were initially seen primarily in the financial sector, but non-
financials also started experiencing problems during the course of the year and price-
earnings ratios fell throughout the world.
Risk aversion in lending The credit crisis also had an impact on the fixed-interest market, where high demand for
triggers flight to quality quality bonds triggered falls in interest rates on many state bonds. Yields to redemption on
10-year eurozone state bonds fell to 2.95 per cent at the 2008 year-end, compared with
4.3 per cent at the start of the year. The flight to quality and liquidity even resulted in
negative interest rates on short-term US treasuries in December, while demand for interest
rate swaps increased substantially.
On the other hand, risk premiums on both investment-grade and high-yield bonds rose
sharply, partly because of the general aversion to risk, but also the perceived rise in the
risk of bankruptcies and insolvencies. Spreads between corporate and state bonds
meanwhile rose to record levels.
High volatility of Oil prices were extremely volatile in 2008. The combination of initially strong worldwide
alternative investments economic growth, primarily in the emerging markets, and the limited supply pushed oil
prices up to a record high of USD 140 a barrel in the summer, with commodity invest-
ments yielding exceptionally high returns in the first six months of the year. The turn-around
came in the subsequent months, when signs of a sharp slowdown in economic growth
became increasingly evident. Oil prices closed the year at USD 44.60 a barrel, which
meant highly negative returns on commodity investments.
73 Annual Report 2008 ABP
The high volatility seen in equity markets was also reflected in the share prices of listed
real-estate companies, which fell sharply in value during the year. Returns on securities
lending in 2008 were clearly negative. Although the returns on hedge fund investments
were also negative, the losses were limited in comparison with the relevant benchmarks,
primarily thanks to our continuing focus on minimising the systematic risk in the specific
Composition of the investment portfolio
Considerable change in ABP’s investment mix has changed considerably in recent decades, as table 9.5 shows.
Table 9.5. Composition of the investment portfolio including derivatives
(before consolidation / in percentages)
(in %) Plan 2009 2008 2005 2000 1990 1980 1970
Fixed-income investments 40 44.8 43.2 49.6 87.9 95.5 96.3
of which index-linked bonds 9 8.3 4 - - - -
Equities and alternative
investments 52 49 53.6 50.4 12.1 4.5 3.7
participating interests) 32 32.4 37.2 39 5.3 0.2 0.4
Real estate 9 8.6 10.7 9.9 6.8 4.3 3.3
Infrastructure 3 1.7 0 - - - -
Private equity 5 4 3 1.5 - - -
Commodities 3 2.3 2.7 - - - -
Other investments 8 6.5 3.2 - - - -
Hedge funds 6 5.8 3.2 - - - -
Innovation 2 0.7 - - - - -
Cash - -0.3 - - - - -
Total 100 100 100 100 100 100 100
The effects of the changes in the investment mix on the relationship between investment
results and contributions are shown below.
Total investments (in € billion) 173 191 150 74 37 10
Investment result (in € billion) -44.1 21.2 3.6 5.4 2.6 0.5
Contribution (in € billion) 6.6 6.7 3.1 2.0 3.7 1.2
Progress of 2007 – 2009 strategic investment plan
The strategic investment plan for 2007 – 2009 set three objectives:
– configuring a new strategic portfolio
– developing a new investment framework
– implementing innovative strategies.
Strategic portfolio weightings The various developments in the financial markets are one of the reasons why we have
at 2009 levels been able to achieve the new strategic portfolio more rapidly than expected. ABP now has
a portfolio that is largely in line with the required strategic weightings, partly because of the
falls in the value of many listed investments.
74 Annual Report 2008 ABP
New investment framework The investment framework envisaged in the second objective is structured around the two
core tasks of pension fund investments: achieving the real returns required to ensure that
the pension scheme remains affordable and managing the risks inherent in the pension
liabilities. The main elements of this approach were examined in detail during the year.
Essentially this involves a different way of viewing the role of the investment categories in
the strategic mix, with the different categories being assigned a place in either the growth
portfolio or the income portfolio. The growth portfolio seeks to achieve returns that are on
average high, but variable, while the income portfolio is designed to achieve returns that
are on average low, but more certain. This framework will form the basis of the 2010 –
2012 strategic investment plan.
In response to the credit crisis the Board of Governors has started an internal evaluation of
the investment policy and the management of the organisation. One of the conclusions
reached is that the existing primary processes and systems have in any event worked well
and that the continuity of the ICT systems has proved its worth.
Any need that the Board of Governors identifies for adjustments in the strategic investment
policy will be incorporated into the 2010 – 2012 plan. This plan will also examine the confi-
guring of investments in terms of the returns generated net of inflation and the establishing
of appropriate benchmarks, risk profiles and investment horizons.
Focus on innovation yields The third objective in the 2007 - 2009 strategic investment plan is to implement innovative
tangible results investment strategies. ABP firmly believes that there are benefits to be gained by leading
the market in financial developments. We consequently attach great importance to innova-
tion and sought during the year under review to develop and encourage the creativity,
knowledge and expertise of employees in the administrative organisation. And this has
produced demonstrable results. A total of ten innovative investments were implemented in
the period to the end of December 2008. Capital totalling € 1.9 billion has been made
available for these investments, and € 1.4 billion of this has so far been allocated.
Ethical investments – in other words, integrating environmental, social and corporate
governance (ESG) responsibilities as broadly as possible into investment activities – is of
fundamental importance to ABP. The 2007 – 2009 strategic investment plan has set an
ambitious objective in this respect. Details of the new policy on ethical investments, which
was adopted in December 2007 and implemented during 2008, can be found on
Integration into day-to-day Sustainability (environmental and social issues)
investment processes The main purpose of the policy on ethical investments is to ensure that investment
decisions take ethical factors into account. These include issues such as climate change,
child labour, human rights and health and safety. The policies pursued by companies in
which ABP invests are analysed and assessed against this criteria before any decision to
invest in a company proceeds. Wherever necessary, ABP asks companies for additional
information. The issues investigated in 2008 included:
– planned EU legislation on vehicle CO2 emissions;
– the future of a European system for trading emission rights;
– the pharmaceutical industry’s ability to help improve access to health care in developing
– opportunities for investing in solar power.
We also started analysing sustainability issues arising from our investments in fixed-interest
75 Annual Report 2008 ABP
securities, real estate, infrastructure and commodities (including forestry and agriculture).
These areas cover issues such as the efficient use of energy in buildings, working conditions
on building sites, expropriations of land for development purposes and the implications that
biofuel production and mining have for people and the environment. ABP has decided to
conduct these analyses systematically for all investments in these categories from 1 January
2009 onwards. Our private equity partner Alpinvest has its own policy on socially responsi-
ble entrepreneurship, and this is in line with ABP’s policy on ethical investments.
Entering into a dialogue One of the important elements of our policy on ethical investments is our commitment to
with companies enter into a dialogue with companies to discuss their performance from an environmental
and sustainability perspective. ABP expects all the companies in which it invests to operate
in accordance with the United Nations Global Compact.11 The following table lists some of
the companies that we met in 2008 to discuss activities that could conceivably fail to
comply with the environmental and social standards we have set.
Company Issue Action taken Progress
Anglo American (UK) Relocation of a community and Personal meeting with the company in London. The company has assured ABP that it is seeking to resolve the
pollution of water supplies in Letter sent to the board chairman. issue of the community and that it will improve the procedures
South Africa applying in the case of future relocations.
Daewoo International Human rights relating to the Personal meeting with the company in Seoul. The company has published new information on its website about
(South Korea) planned construction of a gas Various exchanges of e-mails. The dialogue is its policy on the environment and various social issues, as well as
pipeline in Burma ongoing. providing ABP with additional information on the action it is taking
to prevent abuses of human rights.
Freeport-McMoRan Effects on the environment and Personal meetings with the company in New The company has shown a willingness to enter into a frank and
(USA) human health of waste- Orleans and London. One conference call, two open dialogue. In December 2008, ABP submitted a shareholder’s
processing activities at the letters to the board chairman and numerous resolution to the Freeport AGM that is to be held in June 2009,
Grasberg mine in Indonesia exchanges of e-mails. asking the company to appoint an environmental specialist to the
ABP has entered into an alliance with the board.
Swedish state pension funds AP1, AP2, AP3
and AP4, and also with pension funds in
The dialogue is ongoing.
Total (France) Human rights in Burma Personal meetings with the company in Paris A good dialogue has been established with the company. ABP is
and Amsterdam. Various exchanges of e-mails. seeking to establish whether the company is taking the measures
Visit to Burma in December 2008 to view the needed to ensure that its activities do not involve any human rights
company’s activities. The dialogue is ongoing. abuses. Final conclusions will be drawn in 2009.
Wal-Mart (USA) Labour conditions for employees Personal meeting with the company in The company has agreed to publish further information on its
Bentonville (USA). ABP is working with PGGM employees’ satisfaction levels.
and other investors in this case. The dialogue is
Vedanta (UK/India) Consequences for the Personal meeting with the company in London. The company totally rejects all allegations of adverse effects on the
environment and local Letter sent to the company. The dialogue is environment and society.
communities of a bauxite mine ongoing.
planned in Orissa (India) ABP is working with PGGM and USS (UK) on
Companies active in Human rights ABP has worked with a group of investors to Progress has been achieved in establishing a dialogue with the
Sudan encourage the companies to provide information companies. Additional information on their activities has been
on the precautionary measures taken to ensure obtained.
their activities are not associated with violations
of human rights. The dialogue is still ongoing.
In addition to the dialogues it maintains with individual companies, ABP sometimes also focuses
on groups of companies or governments. The administrative organisation has, for example,
worked with other investors under the UN banner to encourage some 9,000 companies
worldwide to subscribe to the United Nations Principles for Responsible Investment and to
support the United Nations Global Compact.
76 Annual Report 2008 ABP
Firm policy on Another example of the ethical investment policy is the membership12 of the European
climate change Institutional Investors Group on Climate Change (IIGCC), which involves participating in, for
instance, discussions on measures designed to deal with climate change. In December
2008, the IIGCC, together with its sister organisations in the United States (Investor
Network on Climate Risk) and Australia and New Zealand (Investor Group on Climate
Change), published a joint statement in the form of the Investor Statement on a Global
Agreement on Climate Change.13 This statement outlined what investors expect of
worldwide policy on climate change. The signatories to the statement represent some 150
investment institutions, with total assets under management of over USD 9,000 billion.
The statement was published at the time of the UN conference on climate change in the
Polish city of Poznan, where governments set out to negotiate climate policy for the future.
As an investor, ABP has an interest in consistent government policies as sudden changes
can affect the value of existing investments in areas such as renewable energy. In order to
ensure that future investment opportunities remain attractive in the longer term, it is also
important that the nature and scope of existing schemes do not change too often or too
Other activities relating to climate change include the administrative organisation’s involve-
ment in the Carbon Disclosure Project (CDP), which is an international network that
encourages companies to report on their greenhouse gas emissions and the risks and
opportunities that climate change represents for their businesses. In 2008, ABP provided
financial support for extending the CDP to companies in the Netherlands.
Human rights In relation to child labour, we established a basis for dialogue with a group of companies
by writing to over 250 of them and calling on them to adopt policies on human rights. This
initiative, which was launched alongside the events organised to mark the sixtieth
anniversary of the Universal Declaration of Human Rights, was designed to support a
project set up by Mary Robinson, previously the UN High Commissioner for Human
Investing in sustainable As part of its policy on ethical investments, ABP invests in renewable energy, clean
solutions technologies, sustainable forestry and microfinance. The new investments made in 2008
included investments in:
– the Koegorspolder wind farm in the Zeeuws-Vlaanderen region of the Netherlands, where
22 wind turbines generate electricity for 35,000 households and so save 120,000 tons of
CO2 compared with an equivalent coal-fired power station;
– a biomass power plant in Belgium generating power for commercial greenhouses in the
– a large solar power station in Castilla-La Mancha, Spain;
– a waste-fuelled power station in Kansas City, USA;15
– a USD 140 million commitment to provide finance to various funds making micro-credits
available in large numbers of developing countries.
12 ABP’s administrative organisation is a member of the IIGCC.
15 These four investments were made in 2008 by infrastructure funds to which ABP had given
commitments in previous years.
77 Annual Report 2008 ABP
Exclusion policy ABP does not invest in companies directly involved in manufacturing landmines, cluster
bombs or chemical or biological weapons. The Board of Governors reviewed this policy in
2008 and decided that no changes were currently required. The number of companies on
ABP’s exclusions list in 2008 totalled 16. The review of the list at the end of the year
resulted in three companies being removed because fresh investigations showed that they
were no longer involved in manufacturing landmines or cluster bombs. Four companies
were added to the list during the year. The full list of exclusions for 2008 and 2009 can be
found on the website.
Corporate governance means more than just good governance of an enterprise; it also
comprises a process. In other words, the way in which companies’ management and
shareholders, each operating within their own spheres of responsibility, deal with each
other in order to optimise long-term shareholder value. These relationships cannot be
recorded contractually as this would curb the freedom that is an essential part of entre-
preneurship. Corporate governance consequently demands efforts and commitment from
both sides. ABP recognises how important good corporate governance is for a long-term
investor such as itself and so takes its responsibilities as a shareholder very seriously.
During 2008, ABP continued seeking to integrate corporate governance into its investment
policy by, for example, exercising the rights it has as a shareholder in respect of infor-
mation and control. The policy on corporate governance includes:
– in principle exercising voting rights in respect of all the companies in which ABP invests;16
– entering into a dialogue with companies in which ABP has a substantial stake or where
issues of special relevance to shareholders arise outside the general meeting;
– seeking to recover losses if non-economic factors result in a fall in the value of an
investment (the financial crisis meant this aspect demanded greater efforts in 2008 than
in previous years).
ABP also strives in liaison with other institutional investors, both in the Netherlands and
abroad, to optimise the functioning of equity markets and corporate governance through
consultations with local and international regulators and supervisory authorities.
Examples of such consultations in 2008 included the discussions with the German Ministry
of Finance, when ABP sought to persuade the Ministry, following a number of unusual
transactions, to refine the rules applying when controlling interests are acquired in listed
In Sweden, ABP asked the supervisory authorities to investigate the equal treatment of
shareholders in takeover bids. This request was prompted by transactions where bids for
shares with fewer voting rights were lower than for shares with more voting rights or where
bids were made only in respect of the shares with higher voting rights.
A petition was submitted to the US Securities and Exchange Commission asking for share-
holders in US listed companies to be able to vote on appointments of auditors, while the
International Accounting Standards Board was urged to assign a greater role to represen-
tatives of institutional investors when adopting new, internationally applicable accounting
16 There may sometimes be practical obstacles that make it impossible to vote at meetings of certain
companies or in certain countries. ABP works with other institutional investors in an international
setting to try to remove these obstacles
78 Annual Report 2008 ABP
ABP expressed its concerns to the Board of the Brazilian stock exchange about short-
comings in the country’s national regulations on takeovers. The European Commission
was asked to investigate a transaction on the Greek stock exchange that, in ABP’s view,
violated the European takeover rules.
In the Netherlands, ABP is active within Eumedion, an alliance of institutional investors
seeking to promote good corporate governance, primarily in the Netherlands and Europe.
Further information on all the activities involved in ethical investment can be found in the
Responsible Investment Report, which is available on the website.
Portfolio management expenses
Compared with other pension funds, ABP has allocated a relatively large proportion of its
portfolio to alternative investments. These investments increase the expected long-term
real returns and improve the pension fund’s long-term risk profile. The higher returns and
reduced risks are, however, offset by higher costs. This rising trend in costs is in evidence
among all large pension funds around the world. Each year, the investment performance –
in terms of risk, return and costs – is measured against the international global benchmark
compiled by CEM Benchmarking Inc. (see table 9.6).
Table 9.6. Portfolio management expenses17
Fund assets (€ billion) 172.9 216.5
Investment return (%) -20.2 3.8
ABP investment expenses, CEM definition (basis points) 28.9 27.7
CEM benchmark median (basis points) Not available 25.4
Portfolio management expenses are shown in accordance with the new CEM definition,
which includes the fund-of-funds expenses relating to private equity investments. The figure
shown in basis points for ABP’s 2007 expenses in compliance with the CEM definition has
been adjusted to reflect this change. Total portfolio management expenses are fractionally
higher than the median because of ABP’s relatively higher level of investments in private
equity (fund-of-funds). The increase in basis points in 2008 is almost wholly attributable to
the decrease in capital invested. The CEM median for 2008 has not yet been published.
Portfolio management expenses can be divided into three categories. The first category,
organisational expenses, which totalled € 208 million in 2008 (2007: € 152 million, but this
excludes fund-of-funds expenses), is largely determined by the number of employees in
the administrative organisation. The numbers of these employees rose from 440 to 490
FTEs in 2008, partly owing to increased exposure to illiquid investments, investments in
equities and the accompanying administrative and ICT tasks. Organisational expenses also
rose because the fact that ABP is no longer a self-administering fund means that certain
expenses that were previously included in investment expenses are now shown as orga-
nisational expenses. The second expense category of € 127 million (2007: € 126 million),
which includes custody and other fees for external managers, remained almost unchanged
17 The CEM benchmark for 2008 is not yet available. Similarly, it is not possible to provide a five-year
review, as provided for pensions, because a consistent definition of the CEM benchmark for asset
managers was not applied until 2006.
79 Annual Report 2008 ABP
from last year, owing to an increase in the number of external managers, primarily in niche
markets, and a decrease in the amount of invested capital. The third category of portfolio
management expenses relates to the investment results achieved. These expenses are
based on performance exceeding a specified level and fell from € 205 million in 2007 to
€ 185 million in 2008.
Land reclamation was a central theme running
through the life of Cornelis Lely, the engineer
who conceived and designed the Afsluitdijk
(closure dike). The reclamation of the Zuiderzee,
an inlet of the North Sea, had been discussed
for centuries, but Lely was the first to devise
technically feasible solutions to such problems
as draining the river IJssel. Reclaiming the Zui-
derzee was seen as an impossible dream, even
after Lely presented his ideas. Lely was able to
implement his plan because, as well as an engi-
neer, he was a capable politician, serving as
Minister of Transport, Public Works and Water
Management in three administrations. His plans
were finally approved in 1916, when flooding
along the shore of the Zuiderzee brought home
to people how naive it was to ignore the dangers
posed by the sea.
The coast of the Zuiderzee was many hundreds
of kilometres long, making it very difficult to
provide effective defences. Lely’s idea, simple
but ingenious, was to shorten the coastline.
He died in 1929 at the age of 74 and did not
witness the completion of the Afsluitdijk, but his
cor n elis lely
memory lives on. The town of Lelystad was
named after him and several statues have been
erected in his honour, including one on the
Originator in 1891 of the plan to
enclose the Zuiderzee.
Lely’s idea was applied again later in the twen-
tieth century, in the Delta project to shorten the
Zeeland coastline in the south of the Nether-
lands. With climate change, water management
can only grow in importance in the longer term.
One hundred years to create a safe, clean delta
The Dutch water boards are working to make sure the country remains inhabitable over the next hundred years in highly
changeable conditions. The Delta Commission, chaired by the former agriculture minister Cees Veerman, set out the plans in this
respect in its ‘Working with Water’ report. Joseph Vos, chairman of the Brabantse Delta water board, discusses the report below.
There are various possible scenarios that the Netherlands has to take serious account of over the coming decades as climate
change is expected to result in a significant rise in sea levels, as well as periods of heavy rainfall interspersed with long periods of
drought. “The water boards are facing quite some challenges ahead, but we’ve got to prepare for them properly,” explains Joseph
Vos. “The Delta Commission has looked at a period of one hundred years, but in essence we have to start dealing with its
Keeping the Netherlands inhabitable
The measures proposed by the Delta Commission cover the main waterways (in other words, the North Sea, Wadden Sea, IJssel-
meer lake and the major rivers) and also the regional waterways (encompassing all the other waterways). As Joseph Vos says,
“What the water boards have to do in their own areas is make sure the waterways are strong enough to cope with the expected
changes. We are trying to structure the system so that it can cope both with very wet periods and very dry periods. If there is
heavy rain, there needs to be enough capacity in the system to channel off the water, but also to store it so it can be used in the
event of a drought.”
Restoring the health of our water
As well as being responsible for water supply and safety, the water boards are also responsible for maintaining the quality of the
water. The European Union has set standards for water quality and management, and these have to be met by 2027. As well as a
whole range of substances that are not allowed to be present in water, these standards also and primarily cover the ecology and
biodiversity in and around the water. According to Joseph Vos, “That’s also something we’ve got to start working on now.
The Netherlands has certainly got very high standards as far as environmental policy is concerned, but at the same time we use
our land highly intensively and have a lot of agriculture, heavy volumes of traffic, lots of industry and a high population density.” He
also mentions the interaction between water safety and quality. “The Delta works have been a great success from a safety
perspective, but ecologically they are a disaster. That means we need to identify ways of increasing safety, but at the same time
also restoring the health of our water.”
84 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
Consolidated financial statements
Consolidated balance sheet
- real estate 17,968 22,245
- equities 54,779 90,573
- fixed-income investments 93,050 99,295
- derivatives 25,109 6,633
- other investments 8,761 6,718
Other assets and liabilities relating to investments (2)
- securities 29,982 31,424
- receivables, prepayments and accrued income 10,881 4,486
- cash and short-term lending 23,283 20,303
- long-term liabilities - 95 -2
- payables, accruals and deferred income - 79,265 - 54,165
- short-term borrowing - 10,231 - 9,584
- minority interests - 15 - 18
- 25,460 - 7,556
Other assets and liabilities (3)
- participating interests 325 274
- intangible assets 47 -
- tangible assets 138 106
- receivables, prepayments and accrued income 1,307 952
- cash 361 419
- provisions - 52 - 30
- long-term liabilities - 61 -
- payables, accruals and deferred income - 612 - 816
- minority interests - 37 -
Fund assets 175,623 218,813
Provision for pension liabilities (4)
- retirement and surviving dependants’ pensions 189,400 150,844
- disability pensions 1,993 2,188
- flexible and early retirement pensions 1,402 1,512
- ABP ExtraPensioen 133 131
Provision for insurance liabilities (5)
- proprietary risk 2,532 2,102
- policyholders’ risk 213 198
General reserve (6) - 20,050 61,838
85 Annual Report 2008 ABP (in € million) 2008 2007
Consolidated statement of income and expenses
Net contributions (7) 7,217 6,638
Investment results (8) - 44,114 7,456
- 36,897 14,094
Benefit payments (9) - 6,911 - 6,507
Movements in provisions for liabilities
- pension accruals (10) - 4,495 - 4,755
- indexation (11) - - 6,670
- added interest (12) - 7,325 - 6,676
- utilised for benefit payments and administrative expenses (13) 6,921 6,377
- change in market interest rate (14) - 33,331 14,026
- change in actuarial assumptions (15) - 71 - 497
- change in respect of value transfers (16) - 229 - 382
- other movements (17) 42 285
Net value transfers (18) 260 320
Administrative expenses (net) (19) - 164 - 224
Other income and expenses (20) 312 - 27
- 44,991 - 4,730
Net income and expenses - 81,888 9,364
Appropriation of the net income and expenses:
Charged / added to the general reserve - 81,888 9,364
86 Annual Report 2008 ABP (in € million) 2008 2007
Consolidated statement of cash flows
Opening balance of cash excluding short-term lending and borrowing 6,345 3,900
Cash flows from pension and insurance activities:
- direct investment income received (including derivatives) 1,211 16,566
- contributions received 7,275 6,693
- value transfer payments received 554 468
- benefit payments made - 6,911 - 6,507
- value transfer payments made - 132 - 175
- investment expenses paid - 501 - 476
- other expenses paid - 147 - 213
Cash flow from pension and insurance activities 1,349 16,356
Cash flows from investment activities:
- repayments and sales of investments 225,258 377,917
- movement in short-term lending and borrowing - 2,027 3,327
- advances and purchases of investments - 233,981 - 395,571
- net movement in working capital 10,897 416
Cash flow from investment activities 147 - 13,911
Closing balance of cash excluding short- term lending and borrowing 7,841 6,345
- of which, pensions-related 7,482 6,200
- of which, insurance-related 331 145
- of which, administrative organisation 28 -
87 Annual Report 2008 ABP
Notes - general
Sector pension fund
Stichting Pensioenfonds ABP (ABP) looks after the pension arrangements for employees in the
public sector and in education. Pursuant to its Articles, the object of the fund, as a sector pension
fund for the public sector, education and related sectors and the airport sector, is to insure the
pensions of employees, former employees and their surviving dependants.’
Under the ABP Privatisation Act (WPA), the following entities are compulsorily affiliated:
– bodies governed by public law;
– educational bodies governed by private law;
– bodies governed by private law duly designated by the Interior Minister and whose conditions of
employment for their employees correspond to the conditions of employment of staff working in
one of the sectors affiliated to ABP.
ABP’s Articles permit voluntary affiliation on the part of an institution if it has a financial relationship
with a compulsorily affiliated institution and has the same object or if it was originally compulsorily
affiliated or if it has employees in its service who were originally compulsorily members of ABP.
It is ABP’s ambition that pensions should be fully indexed on an ongoing basis. This includes
eliminating the indexation shortfall where the full amount of the indexed increase was not awarded
in the past. Ongoing full indexation means that the pensions already in payment or the accrued
pension rights of existing and former members are in principle increased each year with effect from
1 January in line with the general average increase in pay levels in the government and education
sectors over the preceding year. Indexation is, however, conditional, i.e. the full amount of the
increase will be awarded unless the fund’s financial position provides a compelling argument
against such adjustment, the decision being entirely at the discretion of the Board of Governors.
The Board of Governors has set specific rules determining whether, and if so by how much,
pensions should be increased in line with general pay rises.
The above ambition is reflected in the contributions policy in that the setting of the contribution
rates takes full account of both the unconditional and conditional (pay-related) liabilities. As required
by the provisions of Section 128 of the Pensions Act and Section 4 of the Financial Assessment
Framework Decree, the contribution rate is determined on the basis of a prudent estimate of
the real return on the fund’s assets. In the event of a funding deficit, there is a further constraint
that, apart from efforts to mitigate contribution rate fluctuations, the actual level of contributions
should be at least equal to the cost-covering contribution rate. ABP will not grant any contribution
discounts before any indexation shortfalls have been fully eliminated.
The investment policy is geared to generating an adequate long-term return with the aim of being
able to pay the conditionally promised pensions, while keeping contributions at an affordable level
and without incurring unacceptable investment and other risks. The investment policy is formulated
in the context of the other elements of the fund’s funding policy. Achieving the indexation ambition
(even without guarantee) means achieving a return in excess of that which would be produced by
a low-risk investment portfolio made up entirely of long-term, indexed government bonds. A more
risky investment policy therefore has to be deliberately pursued.
88 Annual Report 2008 ABP
Increases will be awarded unless the fund’s financial position provides a compelling argument
against such adjustment. It is entirely at the discretion of the Board of Governors to decide whether,
and if so to what extent, annual increases should be allowed. This policy has been translated into
an indexation schedule with lower and upper limits for the nominal funding ratio (ranging from 100
per cent to 135 per cent). A funding ratio of 135 per cent and above basically means full indexation.
If the funding ratio is less than 135 per cent, however, the rate of increase is progressively reduced
from the full amount to nil at the minimum required funding ratio of 104.4 per cent. Given ample
funding, there is scope, under certain conditions, to award additional increases to make up for less
than full indexation in the past. This does not, however, include making up the amount of benefits
already paid with a reduced increase.
The funding ratio is obtained by dividing the total funds available to the pension fund by the provi-
sion for pension liabilities. The general reserve is the difference between the pension capital and
the provision for pension liabilities. It provides a reserve, or solvency margin, and it is also available
to fund the conditional indexation increases. The higher the general reserve, the greater the annual
increase can be, up to and including full indexation and even making up for indexation shortfalls
in the past. If the level of the required capital is inadequate, the annual increase in pensions will be
less than the full, indexed amount. In such a situation, the principle is that the reduced increase is
applied equally to the accrued pension rights of former contributors and active members as well
as pensions already in payment. The same even applies to the accrued rights of military personnel
under their final-pay scheme.
The pension schemes provided by ABP comprise retirement benefit (OP), surviving dependants’
benefit (NP), incapacity benefit (AAOP, IP and HPT), sector-specific schemes and individual top-up
plans. ABP manages all the risks associated with the assumed obligations in house. None of the
risks is transferred or reinsured.
ABP’s pension schemes have the following features.
– While in the employment of an affiliated employer.
– For persons in receipt of retaining pay or unemployment pay, partial continuation of participating
period (50 per cent and 37.5 per cent, respectively).
– For persons in receipt of incapacity benefit, partial continuation of the participating period for
retirement and surviving dependants’ pensions (50 per cent in the case of total incapacity for work).
– Conversion factors for years of participation in the retirement/surviving dependants’ pension
scheme prior to 1 January 1996, so as to enable the number of years in the scheme to be
calculated on the basis of the current franchise system for everyone.
– Pensionable income: in principle, all income components paid in cash received by an employee
from his or her employer in respect of employment.
– Certain income components are not pensionable by law.
– Franchise: € 10,100 (€ 10,350 with effect from 1 January 2009); franchise is systematically
adjustable to the level of the state old-age pension for married couples. For participants coming
under the flexible and early retirement benefit scheme, a different franchise of € 16,400 (€ 16,700
with effect from 1 January 2009).
– Pension base is pensionable income minus franchise.
– With effect from 1 January 2004, the ABP pension scheme has been an average pay scheme;
the amount of pension rights built up prior to that date has been fixed on the basis of the
pensionable income as at January 2004.
89 Annual Report 2008 ABP
Retirement pension (OP)
The ABP standard and flexible retirement pension scheme goes under the name of ABP Keuze-
Pensioen, which describes a scheme under which there is the option of tailoring the pension to
personal requirements. For instance, this scheme allows for a flexible retirement date (between the
ages of 60 and 70), it has the option of combining part-time working with a part-pension, it permits
the amount of the benefit paid to be varied within certain limits and it allows one type of pension to
be converted into another (e.g. retirement pension into extra surviving dependents’ benefit and vice
versa). The ABP KeuzePensioen applies to members born after 1949 and members born before
1950 not covered by the FPU transitional arrangements.
The accrual of pension rights in any one year of membership amounts to 2.05 per cent of the
pension base for that year. Those participants who do not fall within the FPU transitional scheme
and were government employees on 31 December 2005 and on 1 January 2006 can take advan-
tage of tax allowances not fully utilised by ABP for OP and NP pensions when they were members
of the pension scheme prior to 1 January 2006. The rights accrued by these means are, however,
conditional in nature, i.e. they only become vested rights with effect from 1 January 2023 and only
then for those who are still participants. In the case of retirement prior to this date, the contingent
rights as at the date of retirement become vested. The promise to build up extra rights was made
as of 31 December 2007 and the accrual of those rights commenced on 1 January 2008, within
the framework laid down by Section 4 of the Social Accord 2004 (Pension Aspects) Implemen-
tation Decree. Participants covered by the FPU transitional scheme build up pension rights at a
different rate of 1.75 per cent.
Flexible pension and early retirement benefit (FP)
The FPU scheme was discontinued with effect from 1 January 2006 for participants born on
or after 1 January 1950. Accrual of FPU pension rights ceased for this group with effect from
1 January 2006. As already mentioned, the scheme has been replaced by one providing enhanced
retirement benefit. Participants born before 1 January 1950 and satisfying certain conditions retain
their flexible pension rights (as amended with effect from 1 January 2006).
Surviving dependants’ pensions (NP)
The surviving dependants’ pension comprises the partner pension and the orphans’ pension.
The partner pension (PP) is divided into a partner pension payable on death before the age of 65
(PP65-) and a partner pension payable on death after the age of 65 (PP65+). The PP65- pension
currently amounts to 50 per cent of the OP retirement benefit, with pension rights continuing to
accrue up to the age of 65. The PP65+ pension amounts to 5/14ths of the OP benefit. For the
period of participation prior to 1 July 1999, the partner pension (PP65- and PP65+) continued to
accrue; for the period from that date onwards, only the provision for the PP65+ pension continues
to accrue, the PP65- pension liability being insured.
The orphans’ pension (WZP) currently amounts to 1/10th of the OP retirement benefit for the loss
of one parent and 2/10ths for the loss of both parents. The right to WZP benefit lapses on attaining
the age of 21 in both cases.
Under the Work and Income (Ability to Work) Act (WIA), with effect from 1 January 2007, anyone
qualifying for state benefit will automatically be entitled to receive an ABP incapacity pension
(AAOP) designed to supplement the various state benefits: basic WIA benefit, IVA benefit (for the
totally disabled), wage-related benefit (LGU), wage-supplementing benefit (LAU) and follow-on
90 Annual Report 2008 ABP
For participants able to claim disability benefit under the Disablement Insurance Act (WAO), the
ABP disability pension and redeployment benefit scheme (IP/HPT) in operation prior to 1 January
2006 continues to apply.
Rights on leaving employment
If active participation in the pension fund is terminated other than by the award of a pension or
death, OP and NP benefit rights, with the exception of the insured PP65- liability, become vested
in proportion to the period of participation or continue to accrue on a non-contributory basis (the
same applying to FPU and ABP ExtraPensioen, if applicable). The final value of ABP ExtraPensioen
is determined at the time of leaving the scheme and translated into non-contributory rights to OP/
PP benefit (PP65+).
– The participant’s contribution for the OP/NP scheme amounts to 30 per cent of the total
contribution and, for the ANW benefit compensation scheme, 75 per cent of the total
– The participant’s contribution for the AAOP scheme amounts to 25 per cent of the total
Defence sector scheme
The defence sector has a final-pay scheme for professional military personnel, with a franchise of
€ 16,600 (€ 16,950 with effect from 1 January 2009) and an accrual rate of 1.75 per cent. Military
personnel do not participate in the AAOP and IP/HPT schemes and are not covered by FPU
Individual supplementary benefits
The pension rules provide for various voluntary arrangements for building up extra retirement
benefit entitlement or for continuing schemes on a voluntary basis, for example, after leaving
employment. Participants availing themselves of these options pay an individually calculated
contribution or an average contribution, depending on the specific terms of the scheme.
91 Annual Report 2008 ABP
These financial statements have been prepared on the basis of financial reporting policies generally
accepted in the Netherlands and the statutory provisions concerning annual accounts contained
in Part 9, Book 2, of the Netherlands Civil Code and the Guidelines for Annual Reporting in the
In the consolidated balance sheet, the pension and insurance liabilities and the matching invest-
ments are mainly of a long-term nature. The other items are included in the other assets and
liabilities relating to investments and in the other assets and liabilities. In the consolidated balance
sheet, the general reserve is equal to the difference between the total fund assets and the total of
the provisions for pension and insurance liabilities.
All income and expenses are recognised in the period to which they relate. ABP accounts for all
movements in the general reserve via the statement of income and expenses where permitted.
This means that the Items in the statement of income and expenses are largely a function of the
accounting policies in respect of the investments and the provisions for pension liabilities and for
insurance liabilities applied in the preparation of the balance sheet.
The company balance sheet and company statement of income and expenses are included
Change in accounting policies
An amended version of Guideline 610 Pension Funds applicable with effect from the beginning of
the reporting period has been published by the Council for Annual Reporting in the Netherlands
(CAR). The change essentially concerns the recognition of negative investment and derivative
positions as liabilities relating to investments. This reclassification does not affect the result, the
total fund assets or the total liabilities. The comparative figures have been restated.
Basis of valuation and determination of results
Basis of consolidation
In the consolidated financial statements, investments in the equity of entities in which ABP has the
power to govern the financial and operating policies are included by applying the integral method
of consolidation. The interests in these entities commonly represent elements of the investments.
Consolidating them on the above basis looks beyond the legal form of the interest and provides
a direct view of the overall financial position of ABP. Consolidation is performed using uniform
Minority interests in entities in which ABP has investments are included separately under the other
assets and liabilities relating to investments and the results relating to these minority interests are
deducted from the investment results. Other minority interests are accounted for under the other
assets and liabilities and under other income and expenses. The consolidation is based on figures
deemed to be appropriate for consolidation purposes. A list of consolidated entities is included
under the heading of other information. Interests in joint ventures are not consolidated.
Preparing the financial statements involves using estimates and assumptions which can affect
the reported assets, liabilities, income and expenses. This is particularly the case with respect to
92 Annual Report 2008 ABP
the calculation of the provisions for pension and insurance liabilities and the measurement of the
illiquid investments. It may subsequently be found that the reported amounts differ from the actual
Unless otherwise stated, assets and liabilities are carried at current value. An asset is recognised in
the balance sheet when it is probable that the future economic benefits of the asset will flow to the
pension fund and the amount of the asset can be measured reliably. A liability is recognised in the
balance sheet when it is probable that an outflow of resources embodying economic benefits will
result from the settlement of a present obligation and the amount at which the settlement will take
place can be measured reliably.
Income is recognised in the statement of income and expenses when an increase in future econo-
mic benefits related to an increase in an asset or a decrease in a liability has arisen that can be
Expenses are recognised in the statement of income and expenses when a decrease in future
economic benefits related to a decrease in an asset or an increase in a liability has arisen that can
be measured reliably.
Foreign currency translation
The year-end balances of assets and liabilities denominated in foreign currencies are translated into
euros at the rates prevailing on the balance sheet date. The rates used for translation purposes are
the 4 p.m. London World Market fixing rates on the last day of trading for the year as published
by Reuters. The resultant translation differences are included in investment results. Income and
expenses in foreign currencies are translated into euros at the rates prevailing on the transaction
date. Differences between the transaction rate and the settlement rate are included in investment
results. The policy with respect to investments outside the eurozone is the same.
Basis of valuation of assets and liabilities
The real estate investments concern investments in real estate funds and direct investments in real
estate. Investments in real estate funds are carried at current value, where possible derived from
quoted market prices. Direct investments in real estate are carried at current value, measured on
the basis of value in use as determined by external and internal valuers on the basis of appraisal by
rotation of part of the portfolio as let property.
Investments in shares, convertible bonds and private equity are carried at current value, based on
quoted market prices where available. Where quoted prices are not available, the current value is
measured using valuation methods generally accepted in the financial sector. In the case of shares
of business start-ups, the investment is measured at not less than the amount of the contributed
share capital for the period during which start-up losses are expected.
The fixed-income investments concern bonds, index-linked bonds, mortgage loans and private
placements, including climbing loans.
93 Annual Report 2008 ABP
Bonds, including index-linked bonds, are carried at current value measured, where available, on
the basis of quoted market prices, and adjusted for accrued interest. If no quoted price is available,
the current value is calculated on the basis of the contracted cash flows and the market interest
rates appropriate to the remaining terms to maturity. If warranted by ABP’s estimates of the risk,
spreads are also taken into account.
Mortgage loans are carried at current value, allowing a fixed spread for the risk of early repayment,
credit risk and liquidity risk. Savings-based mortgages are shown net of the accumulated savings.
Investments in private placements (including climbing loans and real estate finance leases) are carried
at current value adjusted on the basis of market information and marked down for the liquidity risk as
well as being adjusted for accrued interest. The current value of private placements is arrived at by
calculating the net present value of the contracted cash flows from these loans using market interest
rates appropriate to the remaining terms to maturity. Climbing loans are shown inclusive of the capi-
talised interest. Real estate finance lease loans are measured, applying fixed spreads for liquidity risk
and credit risk.
Derivatives are financial instruments used in controlling balance sheet and investment risks and
achieving the strategic investment mix. As far as the investment risks are concerned, they are used
mainly to manage and make adjustments to the strategic asset mix and the tactical and regional
asset allocation/reallocation, for duration management and to hedge exchange risks. The derivatives
position is presented separately under the heading of investments. Derivatives with a negative
current value are presented as payables under the heading of other assets and liabilities relating to
Derivatives positions are carried at current value. For certain instruments, such as over-the-counter
derivatives, use is made of valuation models based on certain assumptions, e.g. with respect to
credit risk, correlations and interest rate term structures. Other valuation models and assumptions
might produce a different estimate.
Other investments are investments which cannot be allocated to any of the other investment
categories. They concern commodities, absolute-return strategies and so on. Where possible,
commodities are measured at quoted market prices. Absolute return strategies and the other items
are carried at current value.
Other assets and liabilities relating to investments and other assets and liabilities
Receivables, payables, prepayments and accrued income, accruals and deferred income, cash
and long-term liabilities relating to investments, except for securities (reinvested cash collateral
connected with securities lending) are included at fair value. After initial recognition, the receivables
and payables are carried at amortised cost. For receivables and payables, the carrying amount
corresponds to the face value, less any provisions deemed necessary for bad debts in the case of
Securities representing reinvested cash collateral are carried at current value calculated in the same
way as the investment category to which the investment belongs. In the absence of a quoted market
price, use is made of valuation models based on certain assumptions, e.g. with respect to credit risk,
the risk of early repayment and interest rate term structures. Other valuation models and assumptions
might produce a different estimate. Cash is carried at face value.
94 Annual Report 2008 ABP
Participating interests are investments in the share capital of entities in which ABP has the power
to participate in the financial and operating policy decisions. They are carried at net asset value.
Investments in entities in which ABP does not have the power to participate in the financial and
operating policy decisions are not consolidated. Other equity investments are presented in the
investment category to which they relate since they do not qualify as participating interests unless
they are held with a view to a lasting relationship serving the company’s own activities.
The intangible assets are carried at cost less straight-line amortisation. The amortisation period
is based on the expected useful life of the assets concerned, taking into account any impairment
losses. In the event of acquisition of a company, all identifiable assets and liabilities of the acquired
company are recognised in the balance sheet at their fair value on the date of acquisition. Goodwill
arising on acquisition is measured on initial recognition as the difference between the purchase
price and the fair value of the identifiable assets and liabilities.
Buildings for use by the company and tangible assets such as computers and office equipment
are carried at the lower of cost and value in use less straight-line depreciation calculated over the
estimated useful lives of the assets concerned.
This item includes the provisions that are charged against fund assets.
Deferred tax provision
The provision for deferred tax includes the deferred tax liabilities resulting from temporary differen-
ces between the reported amounts of assets and liabilities and their tax bases. Calculation takes
account of tax rates applicable in future years that have already been enacted. The carrying
amount is measured at face value. Deferred tax of a short-term nature is included in payables.
The other provisions are carried at the net present value of the expected future expenses, taking
account of the relevant actuarial assumptions. The discount rate used is based on the year-end
interest rate on investment-grade Dutch corporate bonds with a maturity matching the remaining
term of the provisions. Where the expected term of the provisions is longer than 15 years, the
discount rate is based on long-term government bonds.
Provision for pension liabilities
The provision for pension liabilities has a long-term nature and is made up of the defined benefit
provisions based on average pay (civilians) or final pay (career military personnel) and length of
service for retirement and surviving dependants’ pensions, flexible and early retirement pensions
(including the special police AFUP scheme) and incapacity pensions (AAOP, IP and HPT) and
the defined contribution provision for ABP ExtraPensioen. The actuarial assumptions used are
explained in greater detail below.
The defined benefit provisions for pension liabilities are equal to the net present value of the expec-
ted future benefits payable plus a surcharge to cover disbursement costs. The provision is computed
according to actuarial assumptions on the basis of observations of ABP’s members (including mor-
tality rates and partner frequencies), the mortality rates used also taking account of expected future
trends. The calculations relate exclusively to the time-related benefits accrued up to the end of the
year and are based on general wage and salary increases up to and including 1 January of the next
year if and to the extent that the Board of Governors has decided to allow an increase.
95 Annual Report 2008 ABP
With effect from year-end 2007, the provision for pension liabilities has been calculated directly on
the basis of the interest rate term structure published by DNB.
The mortality rates used are taken from the 2003 Review of Actuarial Assumptions (performed in
2005), relating to the observation years 2001—2003, and also take account of the mortality rate
projections made by Statistics Netherlands (CBS) for the period 2004–2050. The assumptions
used for the actuarial computations are periodically updated and assessed in the interim. In 2009,
there will be a review of the actuarial assumptions (made every three years), based on observations
for the years up to and including 2007. This review will also update the mortality rate projections.
Provision for retirement, surviving dependants’ and flexible and early retirement pensions
The retirement pension, the surviving dependants’ pension in the case of death of the participant
before the age of 65 (period of service prior to 1 July 1999) and in the case of death after the
age of 65 and the flexible and early retirement pension are all fully funded plans. The surviving
dependants’ pension in the case of death of the participant before the age of 65 for the period of
service since 1 July 1999 is an insured plan. For the surviving dependants’ pension, the ‘standard
partner’ method is used, which assumes that, at the time of death of a male or female participant,
a partner will be three years younger or two years older, respectively.
Provision for incapacity pensions (IP/HPT/AAOP schemes)
The IP/HPT scheme supplements the benefits payable under the old Disablement Insurance Act
(WAO) and, with effect from 2006, under the new Work and Income (Ability to Work) Act (WIA).
With effect from 1 July 2007, the disability pensions (IP) cease to be increased each year in line
with state disablement benefit (WAO) and are instead increased independently according to the
ABP percentage. With effect from 1 January 2007, the IP/HPT scheme has been replaced by the
new AAOP scheme, providing an incapacity pension to supplement the state benefit payable under
the WIA. Both plans are entirely insurance-based, i.e. the provision relates only to pensions already
CAR Guideline 610 includes a recommendation to allow for the future claims from those partici-
pants who are known to be in ill health as at balance sheet date and are expected to be declared
unfit for work when calculating the provision for incapacity pensions. This recommendation has not
been followed for the simple reason that participants have no entitlement to an incapacity pension
unless they have been declared unfit for work. If participants who are in ill health are declared unfit
for work in any particular year, their entitlement to an incapacity pension is covered by means of
the interest-covering contribution for that year.
Provision for ABP ExtraPensioen
The provision for the ABP ExtraPensioen plan, which is a defined contribution plan, is equal to the
current value of the invested funds from contributions plus a reserve in respect of the guarantee
given by ABP regarding the nominal value of the contributions.
Provision for insurance liabilities
The provision for insurance liabilities has a long-term nature and is made up of the provision for life
insurance liabilities and the provision for non-life insurance liabilities.
The mortality rates used for the life insurance liabilities are the same as those given by the mortality
tables published in 2006 by the Dutch Association of Insurers. In the case of policies under which
benefits are indexed each year based on a decision (essentially depending on actual investment
results), the actuarial interest rate is taken from the yield curve published by DNB. The provision
includes a mark-up for future administrative expenses.
96 Annual Report 2008 ABP
The main non-life insurance contracts concern disablement/incapacity insurance. The provisions
for these non-life insurance schemes are based on the estimated amount of the benefits ultimately
payable in respect of all claims arising prior to the balance sheet date, regardless of whether they
had already been reported at that date, along with the associated existing and future administrative
The general reserve is equal to the total of the fund assets less the total of the liabilities. Apart from
providing a source of funding to cover unexpected deficits, the general reserve can also be drawn
on to fund possible future indexation rounds.
Pension funds are legally required to maintain a general reserve of approximately 5 per cent of
the provision for pension liabilities as a minimum. This is to be seen as a mandatory reserve. If
the general reserve falls below that level, the shortfall has to be made up within the temporarily
increased period of five years. This is the situation in which ABP finds itself.
97 Annual Report 2008 ABP
Basis of determination of results
Statement of income and expenses
Items in the statement of income and expenses are largely a function of the accounting policies in
respect of the investments and the provision for pension liabilities applied in the preparation of the
balance sheet. Both realised and unrealised results are accounted for directly in the fund result, on
the principle of ‘fair value through profit or loss’.
Contributions are attributed to the period to which they relate. An estimate is made on the basis
of extrapolation if the necessary information has not been received from employers. The amount
allowed to cover the costs of collection is accounted for in the benefit payments and administrative
Investment results are attributed to the period to which they relate. Dividends are recognised when
they are made payable. Capital gains and losses are accounted for in the period in which they
Other income is attributed to the period to which it relates.
Benefit payments are attributed to the period to which they relate.
Movements in provisions for liabilities
Pension accruals are attributed to the period in which the accrual of pension rights takes place. An
exception to this is the assumed continuation of active service for the purposes of pension accrual
in the case of incapacity and death. This future accrual of pension rights is recognised immediately
in the year in which the participant becomes unable to work or dies.
The amount of the annual indexation increase is not recognised in the statement of income and
expenses unless the Board of Governors has taken its decision on or before the balance sheet
The interest cost added is calculated on the basis of the nominal interest rate for a period of one
year included in the interest rate term structure published by DNB for interbank swaps at the
beginning of each year. The interest is calculated on the opening balance and the movements
during the year.
Benefit payments and administrative expenses
The amount released from the provisions for pension and insurance liabilities is credited to the
statement of income and expenses in the period for which provision for the expenses concerned
was made in the calculation of those provisions.
98 Annual Report 2008 ABP
Change in market interest rate
The effect which the adjustment of the actuarial interest rate in line with market rates has on
the provisions for pension and insurance liabilities is recognised in the statement of income and
expenses at the end of the reporting period.
Change in actuarial assumptions
The effect which the adjustment of the actuarial assumptions has on the provisions for pension
and insurance liabilities is recognised in the statement of income and expenses at the end of the
Change in respect of value transfers
Changes in respect of transfers of pension rights are attributed to the period to which they relate.
Other movements in provisions for liabilities are attributed to the period to which they relate.
Net value transfers
The net amount of value transfers in and out of the fund is recognised at face value and attributed
to the period in which the transfers are made.
Administrative expenses (net)
Administrative expenses are attributed to the period to which they relate.
The tax expense – where applicable – is calculated on the result before tax, taking account of tax-
exempt items and entirely or partially deductible expenses and using the tax rate appropriate to the
financial year concerned.
Other expenses are attributed to the period to which they relate.
Basis of the cash flow statement
The statement of cash flows has been prepared using the direct method. The notes to the
statement of cash flows explain the variances between movements in the items in the consolidated
statement of income and expenses and the items in the consolidated statement of cash flows.
Receipts and expenditures in foreign currencies are translated into euros at transaction date
exchange rates. The differences arising because of differences between the transaction rate of
exchange and the settlement rate of exchange are included in the direct investments income
received. The policy with respect to investments outside the eurozone is the same.
99 Annual Report 2008 ABP (in € million) 2008 2007
Notes to the consolidated financial statements
Section 7 of the report by the Board of Governors, entitled Risk Management, considers the risks
which ABP faces and the policy pursued in order to minimise those risks. The following section
presents more quantified information together with sensitivity analyses but does not consider
specific insurance-related risks.
As at year-end 2008, there is a funding deficit; the general reserve (which is in fact negative) is
less than the minimum required capital, the amount of which is set according to the provisions of
Section 11 of the Financial Assessment Framework Decree, at 4.4 per cent of the liabilities (€ 8.4
billion) as at year-end 2008. This means there is a funding deficit as at year-end 2008 of € 28.4
Table 1: Funding deficit (including derivatives positions)
Effect on capital
Minimum required capital 8,411 6,806
As percentage of technical provisions 4.4% 4.4%
Actual capital - 20,050 61,838
Less: Minimum required capital 8,411 6,806
Funding deficit / surplus - 28,461 55,032
As percentage of technical provisions - 14.8% 35.6%
As at year-end 2008 there is also a reserve deficit; the negative general reserve is less than the
required capital. The amount of the required capital is set on the basis of the standard model laid
down in the Financial Assessment Framework Decree and the Pensions Act Regulations, defining
the various risk elements borne by ABP, and, as at year-end 2008, amounts to 23.6 per cent of the
liabilities (€ 45.5 billion). As at year-end 2008, the reserve deficit therefore amounts to € 65.5 billion.
In measuring the liabilities, use is made of the long-term swap curve figures published by DNB.
This standard model involves measuring the adverse effect on capital, in euros, of a number of
risk factors. The calculation of the required capital is based on the assumption that not all the risks
will manifest themselves simultaneously (diversification effect). The results of the model depend on
market conditions and the existing investment risk profile, and can therefore fluctuate over time.
The capital is deemed to be adequate if the general reserve is greater than the required capital.
Table 2 gives the results of the standard model for ABP, as measured at year-end 2007 and 2008.
100 Annual Report 2008 ABP (in € million) 2008 2007
Table 2: Reserve deficit
Effect on capital
S1. Interest rate risk 20,560 17,318
S2. Equities and alternatives risk 29,593 26,773
S3. Currency risk 7,928 8,713
S4. Commodity risk 2,122 1,817
S5. Credit risk 7,193 2,177
S6. Underwriting risk 6,444 4,888
Subtotal of all risks 73,840 61,686
Less: diversification effect 28,370 21,834
Required capital 45,470 39,852
As percentage of technical provisions 23.6% 25.8%
Actual capital - 20,050 61,838
Less: required capital 45,470 39,852
Reserve deficit / surplus - 65,520 21,986
As percentage of technical provisions - 34.0% 14.2%
The required capital is determined on the basis of the equilibrium position, i.e. where the general
reserve is just sufficient to accommodate the combined effect of the above scenarios. As at year-
end 2008, the amount thus calculated is greater than that arrived at if the effect of the risk factors
is determined in relation to the actual capital because the margin between existing and required
capital also has to be able to accommodate interest rate shocks and exchange rate movements.
Principle of diversification
Any investment involves an element of risk. It is simply not possible to engage in investment
activities without incurring risk definitely not in the short term. The assumption is that ABP will
gain in the long run by deliberately accepting those risks. To succeed, however, proper risk
management is an essential part of ABP’s activities. The most important way of limiting the risks is
to diversify or spread the investments across a whole range of investment instruments, business
sectors and markets. Diversifying the investments in this way is not sufficient on its own, however.
The asset mix also has to match the risk profile of the pension obligations.
Strict limits apply to ABP’s investments. The restrictions are monitored on a daily basis. There is
a limit on the active risk - the risk due to management decisions - both for the ABP portfolio as
a whole and for the individual funds. In addition, there are specific limits for the interest rate risk
and for credit risks. The interest rate risk is expressed in terms of the duration, or the average
weighted maturity. For the credit risks there are exposure limits for assets with a given rating and
for individual counterparties.
Derivatives are used to increase or reduce the exposure to certain risks or the size of positions,
in order to adhere more closely to the investment policy laid down in the 2007-2009 investment
plan. Derivatives are also used to bring the investments more into line with future obligations. This
involves lengthening the duration of the fixed-income investments.
101 Annual Report 2008 ABP
Some of the investments are quoted in US dollars and, to mitigate the risk of dollar appreciation or
depreciation and safeguard the cash flows in euros, ABP hedges the currency risk.
The pension administrator monitors and calculates the financial and credit risks on a daily basis
at overall portfolio level and reports accordingly to the Board of Directors and to the Financial Risk
Committee. In view of the turbulence created in the financial markets by the subprime crisis, the
pension administrator has also set up a separate committee on which all the asset categories
and risk managers are represented. In this ad hoc forum, the developments in the markets are
discussed and considered in relation to the positions and processes within ABP. This covers
such things as actions to be taken regarding internal and external portfolios which need to be
watched carefully and the identification of opportunities. This combination of different disciplines
and different perspectives makes for the effective and efficient exchange of information across the
whole operation and forms a supplementary basis for investment decisions.
Interest rate risk
The interest rate risk is a function of the interest rate sensitivity of assets and liabilities and is
therefore an important element in the mismatch risk – specifically the difference between the
interest rate sensitivity of the assets and that of the liabilities they fund. As the interest rate rises
and falls, it affects the assets and the liabilities, and hence the funding ratio. On the assets side,
interest rate sensitivity is greatest for the fixed-income investments. The interest rate sensitivity
is expressed by the ‘duration’. The duration is the average weighted maturity of all cash flows
(interest and repayments of principal) relating to the fixed-income products. If the market interest
rate falls by 1 percentage, for example, the value of the portfolio will rise by approximately
1 percentage times the duration of the portfolio and vice versa. For ABP’s fixed-income
investments, the duration is approximately five years, whereas the figure for the liabilities is
approximately 16 years. In other words, there is a mismatch in terms of duration, or interest rate
sensitivity, between the fixed-income investments and the liabilities.
By means of long-term interest rate swaps with a duration of over 15 years, the weighted duration
of the fixed-income investments has been extended from 8 to 9 years. At the beginning of 2009,
the duration was further extended to 10 years, in line with the objective of the 2009 investment
plan. This has the effect of reducing the mismatch and hence the risk of a fall in the funding ratio
due to falling interest rates. In figures, the exposure of the interest rate swap contract is € 19.1
billion. Having regard to the reduction in the interest rate risk provided by this swap contract, a fall
in the nominal market interest rate of one percentage point will lead to a fall in the funding ratio of
approximately 10 percentage points. The interest rate effect on other assets (equities and so on) is
disregarded for this purpose.
Apart from going up and down, interest rates can also vary for different periods, leading to a
change in the shape of what is referred to as the yield curve. If interest rates at the long end of the
market go up by more than short-term interest rates, the yield curve is said to steepen. The partial
duration is a reflection of the interest rate sensitivity of the portfolio over different time horizons
(years). The following graph presents the interest rate sensitivity of the fixed-income investments
plotted against maturity.
102 Annual Report 2008 ABP
Graph 1: ABP portfolio partial durations fixed income investments
(including derivatives positions, securities lending and reinvested cash collateral)
Partial duration 9
8.00 Cumulative partial duration
1 year 2 years 3 years 5 years 10 years 20 years 30 years ABP Overlay
Leaving aside the strategic extension of the duration resulting from the ABP overlay, the maximum
interest rate sensitivity, prior to extension of the duration, lies in the 5-year and 10-year segment.
The extension of the duration of the portfolio of fixed-income investments provided by the overlay
is reflected in the last bar in the graph. The curve plots the cumulative interest rate sensitivity as at
Equities and alternatives risk
To manage the price risks on investments in equities and alternatives (excluding hedge funds),
ABP applies a policy of maximum diversification across geographical regions, asset categories and
sectors. Information on this is contained in the notes to the balance sheet.
Equities and alternative investments (excluding hedge funds) account for around 50 per cent of
the total investments, which means that a fall in the price of these investments of 10 percentage
roughly translates into a 5 percentage point increase in the funding ratio.
There are various methods for measuring and monitoring risks. An important measure is the
tracking error. This plays an important part in portfolio risk management. The tracking error
measures the price sensitivity of the portfolio relative to the chosen benchmark, an actively
managed portfolio serving as reference. Tracking error limits are applied both to ABP’s strategic
assets and to the individual investment funds. The tracking errors of the strategic assets and
investment funds are measured using risk systems which provide continuous monitoring.
103 Annual Report 2008 ABP
Graph 2: ABP portfolio tracking errors fixed income investments
(including derivatives positions, securities lending and reinvested cash collateral)
Dec 07 Mar 08 Jun 08 Sep 08 Dec 08
Liquid real estate investments ABP portfolio
Fixed-income investments Index-linked bonds
The graph plots the various tracking errors, i.e. the differences in yield between the ABP portfolio
and the benchmarks. The tracking error for the entire ABP portfolio (thick blue curve) remained
within limits throughout 2008. The noticeable upturns in the curves for both fixed-income invest-
ments and equities are the effect of the credit crisis. The impact of the crisis is apparent in the
fourth quarter in particular.
ABP incurs currency risk because part of the risk-spreading strategy involves investing in foreign
currencies. The risk stems from the fact that ABP pensions are paid in euros. The currency risk is
limited in that the greater part of the investments outside the eurozone is denominated in US dollars
and, in 2008, the related currency risk was almost entirely hedged. A natural hedge is sought when
reinvesting cash collateral. Table 3 analyses the effects of spreading the investments across different
currencies before and after hedging operations as at year-end 2008.
Table 3: Range of currencies as at year-end 2008, excluding reinvested cash collateral
(in € million) Before Result of After
hedging hedge hedging
Euro 80,243 63,890 144,133
US dollar 69,224 -63,458 5,766
Sterling 4,492 1,410 5,902
Yen 2,376 595 2,971
Other 13,274 832 14,106
Total 169,609 3,269 172,878
104 Annual Report 2008 ABP
The euro/US dollar exchange rate was volatile in 2008. The dollar was initially weak, stabilised for a
period then bounced back, to finish the year weaker than at the outset. An important factor in the
short term exchange rate movements of the US dollar against the euro is the relative expectations
of growth for the two continents. Movements in 2008 reflected the dramatic consequences of the
credit crisis and the impact of the presidential elections.
Graph 3: EUR/USD exchange rate movements
EUR/USD exchange rate movements
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
The market value of the derivatives position in commodities amounts to € 0.7 billion. The under-
lying exposure has a value of € 5.7 billion. This underlying or passive exposure is made up of
commodity derivatives and is held as an almost exact replica of the GSCI Total Return Index that
serves as the benchmark. There is accordingly almost no active risk in this respect. Nevertheless,
the Commodity fund is exposed to an active risk in that some of the assets are invested through
external mandates, pursuing specific investment strategies.
Within the portfolio, ABP bears a credit risk with respect to various companies. Credit risk refers
to the risk that a company is no longer able to meet its payment obligations or that its financial
situation deteriorates. The ratings of debt instruments issued by that company may deteriorate as
a result, which will in turn adversely affect their value. In an extreme case, it is even possible that
the principal will not be repaid. To hedge this risk, credit default swaps are purchased. A credit
default swap is a kind of insurance against a downgraded credit rating or the insolvency of a
particular debtor or basket of debtors.
ABP computes the default risk (the risk resulting from a counterparty not being able to meet
its financial obligations), taking account of both the probability of default and the potential loss
as a consequence. Based on these computations, a picture is formed of the major default
risks and credit migration risks (the risk of deteriorating credit ratings for counterparties). The
latter measurement is reflected, for example, in the credit rating profile of the portfolio. The two
measurements are important indicators used in ABP’s credit risk management.
105 Annual Report 2008 ABP (in € million) 2008 2007
Table 4: Use of credit default swaps
Credit risk hedging
Protection purchased by means of credit default swaps 4,567 1,970
Protection sold by means of credit default swaps 5,895 19,509
Net protection sold 1,328 17,539
Taking out this insurance (i.e. hedging the risk) by means of a credit default swap is referred to as
‘buying protection’, while assuming a counterparty’s risk is referred to as ‘selling protection’. As at
year-end 2008, a net amount of € 1.3 billion of protection had been sold (i.e. assumed as additional
risk). Compared with year-end 2007, this represents a sharp decline – in other words, less risk was
assumed through credit default swaps. The sharp decline in the protection sold is mainly explained
by contracts with banks in connection with satisfying the Basel I and II requirements that were
settled in 2008 (amounting to around € 15 billion).
Credit risk is commonly reflected in a credit rating, with a high credit rating meaning that the
debtor’s creditworthiness is very good and there is a high degree of certainty that the principal will
be repaid. Apart from the credit ratings awarded by internationally recognised rating agencies, ABP
also relies on the analyses produced by the pension administrator’s credit analysts. Credit ratings
range from AAA at the top of the scale to C at the bottom. The distribution of ABP’s fixed-income
investments is such that more than 87 per cent have a rating of AA/A or above.
A large part of the investment portfolio fixed-income investments and the reinvested cash collate-
ral received in connection with securities lending concerns securitised products. There are many
different forms of securitisation. In general, the purpose of securitisation on the part of the originator
is to package a large number of loans or mortgages together into a single, marketable product.
Investors buy these marketable instruments from the originators of the products, typically banks,
and, in doing so, they incur a credit risk vis-à-vis the bank concerned. However, apart from the
fact that the originator is partially liable for the payment of interest and repayments, the investor
can also lay claim to the flow of payments from the underlying loans, providing an extra level of
security. Another advantage of securitised products for investors is that the pooling of the loans
itself provides a diversification effect. As the credit crisis has deepened, however, it has become
clear that the ratings given to securitised products are proving less and less reliable, owing to an
increase in complexity and a lack of transparency. Understanding the structures and monitoring the
underlying instruments is crucially important. A team of credit analysts constantly assesses ABP’s
portfolio of securitised products and manages it accordingly.
Reinvested cash collateral
Cash collateral which is received is reinvested, generally in asset-backed and mortgage-backed
securities. The credit crisis led to an elevated risk profile for these instruments in the course of
2008, resulting in losses on this portfolio.
Because retirement pensions and surviving dependants’ pensions are payable for life, ABP
takes account of the life expectancy of the population of active members, former members and
pensioners on the basis of past experience as well as the projections prepared by Statistics
Netherlands with regard to future effects. If the mortality trend follows these projections, a man
aged 65 in 2050 can expect to live until he is 84.4 (now 82.4) and a woman aged 65 in 2050
can expect to live until she is 86.2 (now 85.3). If life expectancy advances by more than these
106 Annual Report 2008 ABP
projections, e.g. to 85.0 years for men and 87.0 years for women, the present liabilities would work
out at € 1.5 billion more and the funding ratio would deteriorate by 0.7 percentage points.
The indexation to which ABP aspires introduces a wage inflation risk inasmuch as ABP strives
to increase the pensions each year in line with pay increases in the government and education
sectors. Given the current funding ratio of 90 per cent, there is no scope for any annual increase
at all according to the indexation schedule. An increase of 1 percentage point, if it were awarded,
would translate into a decrease in the funding ratio of 0.9 percentage points.
The liquidity risk is the risk that the fund will have insufficient cash to meet its current payment
liabilities, including pensions for existing pensioners. Since the combined amount of the contri-
butions received, direct returns on investments and proceeds from the repayment of investments
in fixed-income securities (including sales) far exceeds the combined amount of benefits paid
and operating expenses incurred and, moreover, a large part of the investments are in liquid
instruments, there is no risk of a cash deficit in normal circumstances. Investing in illiquid asset
categories does, however, involved the risk that the fund does not have so much flexibility when
it comes to rebalancing the investment portfolio. Forced selling of illiquid assets at short notice is
generally only possible at a poor price. To avoid such a situation, the adopted portfolio rebalancing
policy takes account of the reduced flexibility with regard to the illiquid asset categories. Even so,
in the case of derivatives, the terms of the contracts can require additional payments to be made
Derivatives are financial instruments whose value partly depends on one or more underlying
financial instruments. Derivatives can be traded on an organised public exchange or directly
between two players in the financial sector. In the latter case, the contracts are described as being
‘over-the-counter’ (OTC derivatives). ABP uses both types of instrument. The use of derivatives
to reduce or to increase interest rate sensitivity is covered in the sections on interest rate risk,
currency risk and credit risk. This section covers the use of derivatives to achieve the desired risk/
return profile for the investment portfolio.
For risk management purposes, the greater part of ABP’s use of derivatives is guided by exchange
risk exposure policy and tactical decisions concerning maturities in the case of fixed-income in-
vestments. Derivatives are also used as an effective means of creating desired exposure relating
to certain assets or of modifying the characteristics of a particular investment portfolio. Table 5
analyses the pension fund’s unconsolidated balance sheet before and after derivatives overlay at
market value and derivatives exposure.
107 Annual Report 2008 ABP
Table 5: The balance sheet and derivatives – general (in € million)
Balance sheet Attributed Balance Derivatives Balance Initial
at market value market sheet after exposure sheet margin
value of attributing including
derivatives market value derivatives
of derivatives exposure
Real estate 18,167 - 50 18,117 - 18,117 -
Equities 54,339 - 76 54,263 8,959 63,222 975
Fixed-income investments 91,572 2,571 94,143 - 6,198 87,945 165
Other investments 8,564 1,114 9,678 4,683 14,361 1,680
- positive positions 24,927 - 24,927 - - - -
- negative positions - 16,394 16,394 - - - -
Other assets and liabilities
- investments - 9,604 4,974 - 4,630 - 7,444 - 12,074 -
- other 1,307 - 1,307 - 1,307 -
Available capital 172,878 - 172,878 - 172,878 2,820
Pension liabilities 192,928 - 192,928 - 192,928 -
General reserve - 20,050 - - 20,050 - - 20,050 -
N.B. Derivatives covers all derivatives including currency forwards and cross-currency swaps. These derivatives
are attributed to separate asset categories in the third column. The fifth column shows the cash (generally
on short-term deposit) associated with the derivatives exposure. The derivatives exposure is attributed to the
related asset categories from the other assets and liabilities relating to investments.
An initial margin usually has to be deposited with the counterparty when assuming a position in
derivatives. This provides a kind of cushion or security for the occasionally large fluctuations in the
value and quoted price of the derivative position. The initial margin is an amount of cash (or suitable
securities) that is deposited with the counterparty. If the value of derivatives fluctuates, the initial
margin serves as a guarantee for the settlement of any liabilities which arise.
Graph 4 shows the way in which the actual funding ratio, the standard funding ratio and the
minimum funding ratio changed in the course of 2008. The quarterly figures are partly derived
from the internal quarterly reports. The graph reveals that ABP’s funding ratio fell below both the
standard ratio and the minimum ratio in the fourth quarter. A recovery plan has accordingly been
submitted to the regulator.
108 Annual Report 2008 ABP
Graph 4: Funding ratio in 2008
Actual funding ratio
Standard funding ratio
80% Minimum funding ratio
Dec 07 Mar 08 Jun 08 Sep 08 Dec 08
109 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
Notes to the consolidated balance sheet
Investments concern real estate, equities, fixed-income investments, derivatives and other
Investments are carried at current value. In order of priority, ABP uses the following methods for
measuring the carrying amount:
1. mark to market
2. broker quotes
3. external estimates and appraisals
4. mark to model
5. best estimates.
Measurement is only tried using an inferior method if a superior method proves impracticable and
a best estimate is used as a last resort where there is no active market for a particular asset class
and only limited other information is available. This is the case for some of the illiquid investments
in particular. There are accordingly uncertainties with regard to carrying amounts, especially for the
latter asset class.
Of the total carrying amount of the investments (including the item securities under the other assets
and liabilities relating to investments), 54 per cent is marked to market, 26 per cent is based on
broker quotes, 11 per cent is based on external estimates and appraisals, 8 per cent is marked to
model and 1 per cent is based on best estimates. The value of the investment portfolio is therefore
largely based on data from independent sources. Only a small proportion of the portfolio’s value is
measured using internal models.
Movements in investments were as follows:
Real estate Equities Fixed- Derivatives Other Total Total
Opening balance 22,245 90,573 99,295 6,633 6,718 225,464 210,953
Effect of initial consolidation 4 38 149 - 8 199 -
Granted/bought 7,899 91,437 128,047 - 6,598 233,981 396,185
Repaid/sold* - 3,804 - 87,004 - 130,795 - - 3,655 - 225,258 - 377,920
Change in value - 8,061 - 39,755 - 4,287 18,476 - 437 - 34,064 - 3,041
Other movements - 315 - 510 641 0 - 471 - 655 - 713
Closing balance 17,968 54,779 93,050 25,109 8,761 199,667 225,464
*Including movements up to the time of disposal.
Other movements includes the change in the short position in 2008 relating to the reclassification
of the other liabilities relating to investments. The rapid turnover rate in 2008 stems from the pursuit
of an active investment policy, reinvesting dividends and rebalancing to restore the desired asset
mix. The accounting for mortgage-backed securities in the United States (daily rollover) partly
explain the high turnover rate of the fixed-income investments, especially bonds. The volume of
this portfolio has, however, decreased.
110 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
The following table analyses the investments by category and by region.
Real estate Equities Fixed- Derivatives Other Total Total
Government - - 33,305 - - 33,305 32,794
Financial and investment
institutions 215 13,705 48,936 24,928 335 88,119 87,528
Trade and industry 180 26,478 4,723 - - 31,381 49,649
Transport and storage - 1,403 1,379 - - 2,782 3,351
Services 14 6,660 2,171 - 5 8,850 14,227
Real estate 17,559 422 135 - - 18,116 23,107
Other - 6,111 2,401 181 8,421 17,114 14,808
Total 17,968 54,779 93,050 25,109 8,761 199,667 225,464
Netherlands 4,046 4,296 8,392 387 - 70 17,051 20,811
Rest of EMU 1,781 9,326 36,638 3,727 434 51,906 65,271
Rest of Europe 3,029 7,439 12,360 20,347 - 10 43,165 30,219
North America 7,309 24,701 34,157 422 8,407 74,996 86,221
Asia/Pacific 1,800 7,572 1,035 58 - 10,465 12,814
Other 3 1,445 468 168 - 2,084 10,128
Total 17,968 54,779 93,050 25,109 8,761 199,667 225,464
Out of the closing balance, the following amounts are:
- listed 136,203 185,326
- unlisted 63,464 40,138
Out of the total investments, € 2.3 billion relates to the insurance operations
Real estate includes € 1.6 billion (2007: € 1.6 billion) in non-consolidated equity investments in
other entities. Internal appraisals of real estate are made annually. Professional appraisals are made
at least once every three years.
Equities includes private equity and convertible bonds. Private equity mainly concerns equity
investments in unlisted companies, including venture capital investments. Of the total private
equity, € 0.1 billion is invested in direct investments (2007: € 0.2 billion) and € 6.7 billion in indirect
investments (2007: € 7.2 billion).
Fixed-income investments comprise investments in bonds, index-linked bonds, private loans and
mortgage loans. Of the total fixed-income investments, € 5.2 billion (2007: € 4.6 billion) relates
to high-yield credits. In respect of a proportion of the fixed-income investments recognised in
the balance sheet, amounting to € 1.2 billion (2007: € 1.4 billion), ABP enjoys only the beneficial
ownership. This concerns pledged mortgages.
The derivatives with a positive position are made up of futures (€ 1.1 billion), options (€ 0.6 billion),
interest rate swaps (€ 16.7 billion) , credit default swaps (€ 0.3 billion), inflation-linked swaps
111 Annual Report 2008 ABP
(€ 0.5 billion ), other swaps (€ 0.2 billion) , cross-currency swaps (€ 0.2 billion) and forward foreign
contracts (€ 5.6 billion).
Absolute return strategies concern external investments in hedge funds and internal active
Other assets and liabilities relating to investments (2)
ABP makes part of its portfolios of bonds and equities available for securities lending and has
only the beneficial ownership of that part of the portfolio. Equities on loan amount to € 13.6 billion
(2007: € 15.1 billion) and bonds on loan amount to € 22.5 billion (2007: € 22.7 billion), making a
total of € 36.1 billion. Collateral security, generally in the form of cash on which interest at short-
term borrowing rates has to be paid, is furnished at the time of lending. The cash collateral is
reinvested. The market value of the reinvested cash collateral as at year-end amounted to € 33.2
Cash collateral is reinvested in fixed-income securities with a short remaining term to maturity on
average and is included in securities in the balance sheet presentation. These assets are treated as
current assets on the basis of a model which takes account of fixed spreads and includes empirical
parameters for the probability of premature redemption of securitised mortgages. That introduces
uncertainties with regard to the calculation of the average term to maturity. The average legal
maturity, however, without allowing for premature redemption, is longer.
The following table presents the current values and the average terms to maturity of the reinvested
Current value Average
(in € billion) term
Securitised products 9.9 1.6
Corporate loans 5.3 1.5
Short-term money market products 18.5 0.005
Net working capital - 0.5 n/a
Overall 33.2 0.7
The methods used to measure the carrying amount are employed in the order of priority mentioned
above. Given the current state of the market, there are inevitably uncertainties with regard to the
measurements of illiquid investments in particular, especially as regards ‘tail uncertainty’. Market
volatility was exceptionally high last year and continues to be so. Small transaction volumes can
have a relatively large impact on prices. There is no such thing as objective quoted market prices
for cash collateral reinvested in securitised mortgages. And comparable trades are not always
available. The lack of an active market and the limited availability of information mean that best
estimates have to be used for measurement purposes in a number of cases. As a consequence,
it is estimated that the uncertainty surrounding the current value of that part of the reinvested cash
collateral which is measured on the basis of best estimates (€ 2.3 billion) lies within a bandwidth of
around 20 per cent.
112 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
The movements in the item securities are presented below. In view of the high turnover rate, the
analysis does not show purchases and sales but the net movements in the amount of the portfolio.
(in € billion)
Opening balance 31.4 39.3
Net movements 3.8 - 7.4
Unrealised gains and losses - 2.0 - 0.6
Closing balance 33.2 31.4
Of the market value of the reinvested cash collateral, totalling € 33.2 billion (2007: € 31.4 billion),
€ 30 billion has been recognised as securities and € 3.2 billion as cash (short-term lending).
The repayment obligations, with a face value of € 35.8 billion (2007: € 32.0 billion), are entirely
accounted for in payables, accruals and deferred income.
The rating profile of the above portfolio is:
AAA AA A BBB ≤BB None
80.5% 7.5% 4.8% 2.0% 2.5% 2.7%
As is apparent from the above, 93 per cent of the reinvested cash collateral has a rating of A or
Cash and short-term lending
Cash and short-term lending can be analysed as follows:
- short-term lending to banks 14,611 12,147
- current account bank balances 8,672 8,156
The current account bank balances include amounts invested on the money market as call money.
An amount of € 2.8 billion of the total cash is not freely available, being cash balances on margin
accounts held in connection with futures positions.
A credit arrangement totalling € 4.3 billion secured by a pledge together with an intraday credit
facility totalling € 4.5 billion has been contracted with ABN-AMRO and an intraday credit facility of
€ 0.2 billion has been contracted with ING Bank. At the end of December, a € 3 billion repo facility
was contracted with Rabobank, with a securitised parcel of mortgages given as security. No use
was made of this facility.
ABP subsidiaries have contracted loans from third parties totalling € 95 million. This concerns loans
amounting to € 20 million due within one year and € 75 million due after more than five years. No
security has been furnished by the subsidiaries for these loans.
Payables, accruals and deferred income
The repayment obligation in respect of cash collateral received in connection with securities lending
included in the payables amounts to € 35.8 billion.
113 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
The item includes negative positions in derivatives, analysed as follows:
- futures - 957 - 371
- options - 512 - 15
- swaps - 13,909 - 4,530
- cross-currency swaps - 13 - 299
- forward foreign exchange contracts - 1,003 - 419
- short position - 4,974 - 4,865
Total - 21,368 - 10,499
Swaps includes interest rate swaps amounting to € 12.7 billion, credit default swaps amounting to
€ 0.3 billion, inflation-linked swaps amounting to € 0.7 billion and other swaps amounting to € 0.2
The bank overdrafts included in the payables, accruals and deferred income total € 1.0 billion.
The payables also concern various cash collateral positions totalling € 8.1 billion and payables in
respect of fixed-income securities totalling € 12.8 billion. The active spread policy and the method
of accounting for mortgage-backed securities in the United States (daily rollover) explain the high
volume of the liabilities, of € 12.8 billion, which are predominantly of a short-term nature.
Short-term lending and borrowing
The short-term lending and borrowing includes a net liability of € 7.2 billion in respect of repo
operations, relating to bonds. A fee is charged for entering into these repurchase agreements.
Cash deposits are temporarily obtained to cover the risk of non-return, which are invested
according to strict rules with the object of generating additional returns.
Other assets and liabilities (3)
This item comprises miscellaneous assets and liabilities not attributable to investment operations.
- goodwill 43 -
- other 4 -
- buildings 89 73
- other 49 33
The estimated useful life of the buildings, which are currently undergoing renovation, is 30 years.
Other concerns office equipment and furniture, with an estimated useful life of 15 years, and
computers, with an estimated useful life of between 2 and 5 years.
Receivables, prepayments and accrued income
This item is made up of:
- receivables from employers 527 494
- receivables in respect of value transfers 150 146
- receivables from participants 8 8
- other receivables 622 304
114 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
An amount of € 7.8 million of the cash is not freely available.
Long-term liabilities - 61 -
An ABP subsidiary has borrowed a total of € 61 million from a third party on a long-term basis.
The loans fall due after more than five years. No security has been provided for the loans by the
Payables, accruals and deferred income
This item is made up of:
– payables in respect of value transfers -0 -2
– payables in respect of pensions - 242 - 515
– other payables - 370 - 299
- 612 - 816
Provision for pension liabilities (4)
The provision for pension liabilities has been calculated on the basis of the nominal interest rate
term structure published by DNB. This is comparable to a discount rate derived from a market
interest rate of 3.57 per cent (2007: 4.85 per cent).
The movements in the provision for pension liabilities for the various schemes were as follows:
OP/NP AOP FP AEP Total Total
Opening balance 150,844 2,188 1,512 131 154,675 156,414
– pension accrual/contributions 3,869 -10 3 22 3,884 4,351
– indexation - - - - - 6,670
– interest 7,060 96 64 - 20 7,200 6,630
– change in respect of value transfers 254 - - 25 - 229 382
– change in market interest rate 33,128 122 81 - 33,331 -14,026
– change in actuarial assumptions 71 - - - 71 497
– other movements 167 -60 - 16 - 91 - 166
44,549 148 107 2 44,806 4,338
– benefit payments 5,933 328 215 - 6,476 6,005
– disbursement expenses 60 15 2 - 77 72
5,993 343 217 - 6,553 6,077
Closing balance 189,400 1,993 1,402 133 192,928 154,675
– for active members 86,859 - 974 - 87,833 63,623
– for former participants 10,423 - 9 - 10,432 6,957
– for existing pensioners 85,934 1,993 419 - 88,346 78,556
– other 6,184 - - 133 6,317 5,539
Total 189,400 1,993 1,402 133 192,928 154,675
The share of the final pay scheme for career military personnel in the retirement benefit/surviving
dependants’ benefit (OP/NP) pension liabilities totalling € 189.4 billion was € 4.5 billion.
115 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
In view of the financial position, the Board of Governors fixed the indexation factor applicable with
effect from the beginning of 2009 at 0 per cent of the contractual pay increase for 2008 of 4.73
per cent (as at 1 November 2008). This applies both to pensions already in payment, to deferred
pensions and to pensions being built up by active participants.
For disbursement expenses, there is a supplementary allowance calculated into the provision for
pension liabilities. Collection costs are covered by supplements included in the contributions.
Other in the analysis of the closing balance concerns the provision for transitional supplements
connected with the privatisation of ABP (OPA), amounting to € 6.2 billion, and the provision for
ABP ExtraPensioen, amounting to € 133 million. The provision for ABP privatisation supplements
as far as civilians are concerned relates to the transitional supplements referred to in Annex K of
the pension plan rules and, as far as career military personnel are concerned, to the transitional
arrangements contained in Articles 17.6.3, 17.7.3, 17.7.8 and 17.8.3 of the pension plan rules.
These arrangements form part of the conversion operation aimed at having a neutral effect
in connection with the privatisation of all existing and future pension obligations at the time of
transition from the ABP Act to the ABP pension rules.
The disability/incapacity pensions column (AOP) includes both the schemes under the old Dis-
ablement Insurance Act (WAO) and those under the new Work and Income (Ability to Work) Act
(WIA), in other words all the old disability pensions (IP) and redeployment benefits (HPT) and the
new ABP incapacity pensions (AAOP).
As regards the ABP ExtraPensioen (AEP), there is a guarantee as far as the amount of the con-
tributions is concerned but the value fluctuation risk is borne by the policyholders.
Provision for insurance liabilities (5)
The provision for insurance liabilities concerns the most accurate possible estimate of the future
liabilities of the insurance operations. These liabilities relate to both life insurance and non-life
insurance. The reinsured part of the provision for non-life insurance is included in the other assets
and liabilities, with the total amount of the liabilities (gross) included in the provision for insurance
The movements in the provision for insurance liabilities were as follows:
Proprietary Policy- Total Total
Opening balance 2,102 198 2,300 2,214
Effect of initial consolidation 86 66 152 -
Contributions and other additions 597 14 611 404
Added interest 176 - 45 131 36
Profit-sharing/indexation -6 - -6 10
Utilised for expenses - 296 -1 - 297 - 233
Utilised for benefits - 11 -2 - 13 - 12
Other movements - 116 - 17 - 133 - 119
Closing balance 2,532 213 2,745 2,300
116 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
The closing balance of € 2.7 billion can be analysed as follows:
– life insurance involving proprietary risk 1,959 1,606
– non-life insurance involving proprietary risk 573 496
Subtotal insurances involving proprietary risk 2,532 2,102
– life insurance involving policyholders’ risk 213 198
Total 2,745 2,300
General reserve (6)
The general reserve is the difference between the fund assets and the provision for pension and
insurance liabilities. The movements were as follows:
Opening balance 61,838 52,474
Fund result - 81,888 9,364
Closing balance - 20,050 61,838
Apart from providing a source of funding to cover unexpected deficits, the general reserve can also
be drawn on to fund future indexation rounds.
The law requires pension funds to maintain a general reserve (the Pensions Act refers to minimum
required capital) of at least 4.4 per cent of the provision for pension liabilities. This is to be seen as
a mandatory reserve. As at year-end 2008, the minimum reserve works out at € 8.4 billion for ABP.
If the general reserve falls below that level, the deficit has to be made up within three years. Since
ABP does not satisfy the legal requirements in this sense, there is a funding deficit and a recovery
plan has accordingly been submitted. In view of the exceptional situation on the financial markets,
the three-year recovery period has been extended to 5 years..
Under the Financial Assessment Framework (FTK) rules, pension funds also have to maintain a
certain level of capital depending on the level of the various risks to which they are exposed. As at
year-end 2008, the required capital amounted to € 45.5 billion (see Table 2 in the section on risk
management for details). If the general reserve falls below that level, the deficit has to be made up
within 15 years. The recovery plan also takes this requirement into account.
A recovery plan has now been submitted to the regulator. This plan involves three measures, viz.:
– altering the risk profile of the invested capital
– charging a recovery supplement on top of the cost-covering level of contributions for as long as
the funding deficit persists
– exploring the possibility of funding the temporary recovery supplement in advance for a period
of five years (or other forms of immediate capital injection) so as to obtain an immediate
improvement in the financial position.
Under this recovery plan, the reserve deficit should be cleared within the statutory period of 15
years. As regards the funding deficit, the Minister of Social Affairs and Employment has relaxed
the recovery period to 5 years. The recovery plan satisfies this time horizon without the need
for additional measures. However, the Board of Governors has decided to charge a recovery
supplement on top of the cost-covering level of contributions for the duration of the recovery
period in order to increase the fund’s recovery capacity.
117 Annual Report 2008 ABP
Liabilities not shown on the face of the balance sheet
As at balance sheet date, commitments totalling € 5.7 billion (2007: € 4.7 billion) had been entered
into in respect of real estate investments.
Commitments to pay in capital when called up have likewise been contracted in respect of private
equity investments, amounting to € 6.0 billion (2007: € 4.8 billion) as at balance sheet date.
ABP maintains a collateral fund for exchange of collateral in connection with current derivatives
transactions. As at balance sheet date, the total value of the collateral fund was € 4.1 billion (2007:
€ 3.7 billion), of which € 0.6 billion (2007: € 1.6 billion) was pledged to third parties.
Commitments had been entered into for absolute return strategies as at balance sheet date
amounting to € 0.9 billion (2007: € 1.2 billion).
Current rental contract commitments amounted to € 92.3 million as at balance sheet date (2007:
€ 43.7 million).
Commitments totalling € 20.2 million (2007: € 26.4 million) have been entered into in connection
with the renovation of the buildings used by the company.
As at year-end 2008, ABP had committed itself to investing a total of € 3.8 million in computer
hardware and software.
As at balance sheet date, there were outstanding commitments in respect of current maintenance
contracts and data lines totalling € 4.2 million, of which € 1.9 million is due within one year and
€ 2.3 million is due after more than one year but within five years.
The liabilities in respect of ongoing vehicle leasing contracts amount to € 15.0 million (2007: € 15.7
million), of which € 5.9 million (2007: € 4.4 million) is due within one year and € 9.1 million (2007:
€ 11.3 million) is due in the period between one and five years after the balance sheet date.
Leasing costs of € 7.3 million (2007: € 5.5 million) were recognised in the year. The leasing liability
has been calculated by the leasing company on the basis of depreciation plus allowances for fuel,
insurance and servicing.
The group Alternatief Voor Vakbond (AVV) together with ten other parties brought a case against
ABP before the subdistrict court at Heerlen, challenging the age distinction in ABP’s new pension
rules, which came into operation with effect from 1 January 2006. ABP is represented in this
matter by E. Lutjens. The district court at Maastricht threw out the claim in its judgement of 23
January 2008. The AVV then took the case to appeal in the Court of Appeal at ‘s-Hertogenbosch.
The court’s ruling is expected in the second half of 2009. If the appeal court upholds the AVV’s
request to put prejudicial questions before the European Court of Justice, the proceedings will be
considerably extended. The average duration of a case in the Court of Justice is approximately 20
118 Annual Report 2008 ABP (in € million) 2008 2007
Notes to the consolidated statement of income and expenses
Net contributions (7)
Contributions from affiliated employers and employees are analysed by category below, together
with a number of underlying variables.
Contributions by category OP/NP AAOP Other Total Total
Employers’ contributions 4,408 86 - 4,494 4,238
Employees’ contributions 2,100 29 652 2,781 2,455
6,508 115 652 7,275 6,693
Less: collection cost supplements - 54 -4 - - 58 - 55
Net contributions 6,454 111 652 7,217 6,638
– contribution rate (%) 19.6 0.5 -
– ANW top-up rate (%) 0.4 - -
For military personnel there are different contribution rates , viz. 20.8 per cent for OP/NP and 0.6
per cent for the ANW top-up. The AAOP scheme does not apply to military personnel.
The number of affiliated employers as at year-end 2008 was 3,985 (2007: 3,999). It is they who are
responsible for actual payment of the entire amount of the contributions, i.e. including employees’
The contributions figure includes the finalised difference in estimates for the preceding year. Other
concerns AEP contributions of € 28 million, insurance-related contributions of € 621 million and a
residual item of FP contributions amounting to € 3 million.
The total contributions represent the actual level of contributions demanded by the pension fund
during the year. This is defined as the damped, cost-covering level of contributions plus any
markups or markdowns in connection with a recovery plan, for example, or discounts on the level
of contributions. Since there were no markups or markdowns, the actual level of contributions
was equal to the damped, cost-covering level of contributions. The Pensions Act stipulates that
the undamped, cost-covering level of contributions also has to be disclosed, i.e. the level of
contributions based on the nominal market interest rate at the start of the year (4.85 per cent). The
composition of the contributions has to be disclosed as well and the following table provides the
Pension fund Actual Cost-covering
contributions Damped Undamped
Total contributions 6,527 6,527 6,527
a. portion for vested liabilities 3,208 3,208 4,162
b. markup to cover administrative expenses 130 130 130
c. markup for solvency margin 828 828 1,074
d. portion for contingent liabilities 2,361 2,361 1,161
e. markups/markdowns on the damped,
cost-covering contribution level - - -
119 Annual Report 2008 ABP (in € million) 2008 2007
The level of the total contributions is based on a prudent estimate of the expected real rate of
return on the investments in the long term, of 3 per cent. The portion of the contributions for the
vested liabilities is based on the expected actual long-term rate of return for both the actual and
the damped, cost-covering level of contributions, of 6.1 per cent, and on the nominal market
interest rate at the start of 2008, of 4.85 per cent, for the undamped, cost-covering level. A com-
parison of the different elements in the overall level of contributions clearly illustrates the effect of
damping, i.e. inclusion of expected additional returns (with the damped approach) or exclusion
of any additional returns (with the undamped approach). The markup to cover administrative
expenses comprises a markup for collection costs and a markup for disbursement costs (for both
the nominal and actual liabilities).
The contribution element for the contingent liabilities and the contribution element for the solvency
margin are both available for funding the contingent liabilities. In this integral approach, element d.
of the contributions is the balancing item. Depending on the level of the nominal market interest
rate, the portion of the contributions covering the contingent liabilities will increase or decrease.
The lower the nominal market interest rate, the more expensive the vested liabilities become and
the lower the funding available for the contingent liabilities.
Investment results (8)
The investment results comprise results on real estate investments, equities, fixed-income
investments, derivatives and other investments. These elements are discussed below. The result
on investments was made up as follows:
Net result on Real estate Equities Fixed- Derivatives Other Total Total
investments income investments
Direct result 745 1,885 4,200 - 102 503 7,231 7,196
– price movements - 7,332 - 40,150 - 7,274 3,133 - 800 - 52,423 2,125
– currency movements - 140 299 1,008 - 1,143 2,310 - 8,595
– currency derivatives - - - - 781 - - 781 7,198
Expenses - 25 - 196 - 119 - - 161 - 501 - 476
Subtotal - 6,752 - 38,162 - 2,185 2,250 685 - 44,164 7,448
Results on investments for
third parties 11 4 -1 -0 15 29 11
Minority interests 21 - - - - 21 -3
Net result on investments - 6,720 - 38,158 - 2,186 2,250 700 - 44,114 7,456
The direct results relate to nominal interest income, dividends and rental income. The pension fund
is exempt from dividend tax. The indirect results are the sum of the movements in the current value
of the investments and the currency movements. The currency hedging results are attributed to the
asset classes to which they relate. The indirect results for the derivatives are the results of absolute
return strategies with a controlled risk. The expenses comprise costs of external managers and
management costs charged by the administrator. Internal costs which cannot be allocated directly
are allocated in proportion to the capital invested.
The result on investments includes the results on securities lending activities, totalling € 1.8 billion
negative (2007: € 0.4 billion negative). This figure is made up of direct reinvestment results and
lending fees amounting to € 1.5 billion (2007: € 2.2 billion), interest payable on cash collateral and
costs amounting to € 1.3 billion negative (2007: € 2.0 billion negative) and unrealised gains and
losses amounting to (€ 2.0 billion negative (2007: € 0.6 million negative). Unrealised results will only
be realised if counterparties are unable to settle their payment obligations.
120 Annual Report 2008 ABP (in € million) 2008 2007
Benefit payments (9)
Benefit payments comprises the actual amounts paid out in retirement and surviving dependants’
pensions (OP/NP), incapacity/disability pensions (AOP), flexible pension (FP) benefits and benefits
payable under the life and non-life insurance policies. The analysis of the amounts and numbers of
recipients concerned is as follows:
Benefit payments by type OP/NP AOP FP Insurance Total Total
Amount - 6,014 - 351 - 218 - 328 - 6,911 - 6,507
Number of recipients as at year-end 597,000 70,000 83,000 -
Movements in provisions for liabilities
Pension accruals (10)
Increase in provision for pension liabilities - 3,884 - 4,351
Increase in provision for insurance liabilities - 611 - 404
- 4,495 - 4,755
This item reflects the effect of one year’s additional service (or notional service in the case of
those qualifying for incapacity benefit) and mortalities on the pension liabilities for active members
calculated on a nominal interest rate basis. The main factor behind the lower amount added to the
provision for pension liabilities in 2008 was the higher discount rate (4.85 per cent) compared with
2007 (4.25 per cent). As regards the insurance operations, the amount included in this item is the
increase in the provision due to new obligations.
Indexation (11) - - 6,670
The value of the members’ pension rights increases annually with the results of indexation rounds,
in addition to the actual pension accruals. It was decided in 2008 not to award any annual increase
at all for the year beginning 1 January 2009.
Added interest (12)
Addition of interest to provision for pension liabilities at nominal market interest rate of 4.70
per cent (2007: 4.25 per cent) - 7,200 - 6,630
Addition of interest to the provision for insurance liabilities - 125 - 46
Total - 7,325 - 6,676
The value of the members’ pension rights also increases annually with the accrual of interest, in
addition to the actual pension accruals. For the pension fund, this means an increase in liabilities
and hence requires an addition to the provision for pension liabilities, which represents an expense.
These costs relating to the increased liabilities should in principle be met from the results achieved
on the investment of the pension capital. With effect from 2008, the interest cost for the year is
no longer calculated using the discount rate based on market interest rates used to calculate the
liabilities as at the preceding year-end (year-end 2007: 4.85 per cent) but using the 1-year interest
rate taken from the published interest rate term structure as at the preceding year-end (year-end
2007: 4.70 per cent), giving a more accurate result. As regards the insurance operations, the
amount added differs according to the product. For unit-linked products, the addition of interest
depends on the change in value of the underlying investments and, for the majority of the other
products, the addition is made at an interest rate based on the yield curve (published by DNB) as
at 31 December 2008.
121 Annual Report 2008 ABP (in € million) 2008 2007
Provision utilised for benefit payments and administrative expenses (13) 6,921 6,377
– utilised for funded benefit payments 6,476 6,005
– utilised for insured benefit payments 297 233
Total utilised for benefit payments 6,773 6,238
Future benefit payments are calculated actuarially in advance, based on probability systems, and
are included in the provision for pension liabilities. This provision represents the present value of the
expected future benefits. Each year, an amount of the provision is utilised to fund the benefits for
that year. This item also includes the results on probability systems.
– met out of cost supplement in pension contributions 58 55
– met out of disbursement cost allowance in provision for pension liabilities 77 72
– met out of cost allowance in provision for insurance liabilities / deduction from investment returns 13 12
Total utilised for administrative expenses 148 139
The collection costs included in the administrative expenses are met by a supplement included in
the pension contributions and the disbursement costs are met out of an allowance in the provision
for pension liabilities. For 2008, the collection cost supplement for the OP/NP scheme amounted
to 0.17 per cent of the OP/NP contribution base (2007: 0.17 per cent) and the disbursement cost
allowance for the OP/NP scheme amounted to 1.05 per cent of the provision (2007: 1.05 per
cent). For the disability/incapacity pension schemes, the collection cost supplement amounts to
0.02 per cent and the disbursement cost supplement amounts to 4.60 per cent.
The costs of the insurance operations are met partially out of a deduction from the contributions,
partially out of allowances in the provisions and partially out of a deduction from the returns on
investments. The latter two components are included in the present item.
Change in market interest rate (14) - 33,331 14,026
At the beginning of 2008, the interest rate term structure published by DNB corresponded to a
nominal interest rate of 4.85 per cent and, at the end of 2008, to a nominal interest rate of 3.57 per
cent. This decrease led to a sharp increase in the provision for pension liabilities.
Change in actuarial assumptions (15) - 71 - 497
This concerns changes relating to the provision for transitional supplements connected with the
privatisation of ABP (OPA)
Change in respect of value transfers (16)
– value transfers out (actuarial gains and losses) 134 181
– value transfers in (actuarial gains and losses) - 363 - 563
Total - 229 - 382
Other movements (17)
– other gains and losses relating to pension funding - 91 166
– other gains and losses relating to insurance 133 119
Total 42 285
Net value transfers (18)
– value transfers out (funding gains and losses) - 132 - 175
– value transfers in (funding gains and losses) 392 495
Total 260 320
122 Annual Report 2008 ABP (in € million) 2008 2007
Administrative expenses (net) (19)
The administrative expenses can be analysed as follows:
Salaries - 217 - 203
Social security charges - 18 - 13
Pension charges - 14 - 24
Other staff costs - 39 - 38
Depreciation - 17 - 11
Other operating expenses - 153 - 179
Subtotal - 458 - 468
Less: work on behalf of third parties 108 57
Subtotal - 350 - 411
Less: met from investment results 186 187
Net administrative expenses - 164 - 224
The deconsolidation of the joint ventures Alpinvest Partners NV, Oeral Investments BV and Patroffi-
ce BV and the merger with another pension administrator have led to changes in the pattern of
administrative expenses. The impact of these changes is minor but there has been an increase in
the costs recoverable in respect of work on behalf of third parties.
Other operating expenses includes the cost of temporary staff, ICT costs and premises costs
and, with regard to several consolidated subsidiaries for 2008, a net positive item in respect of
As required by CAR 271, the pension charges are recognised partly on a defined benefit basis and
partly on a defined contribution basis.
The average number of staff of the pension fund was:
– ABP 8 2,239
– consolidated entities 3,867 678
– ABP 9 2,440
– consolidated entities 4,197 732
Of whom, employed outside the Netherlands 103 150
The average analysis is as follows:
– management and corporate staff 386 235
– operating units 2,204 1,828
– service units 1,616 1,109
The average figures have been calculated with effect from the date of unbundling of the admini-
strative organisation and, in 2008, also include the employees of Cordares. The drop in the number
of full-time equivalent staff working for ABP results from the creation of the independent pension
Other income and expenses (20) 312 – 27
This item mainly concerns an amount to cover the increased costs of retirement benefits as people
continue to work beyond the reference age of 62. The funding is provided by the early retirement
fund (VUT). Also included in the item is a tax benefit amounting to € 160 million arising at the time
of relinquishing the self-administered status.
123 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
Notes to the consolidated statement of cash flows
The variances between movements in the items in the statement of income and expenses and the
items in the statement of cash flows are set out below.
Short-term lending and borrowing
The cash flows relating to short-term lending and borrowing have been presented as a net amount.
Unrealised changes in the value of investments are not included in the statement of cash flows.
Other expenses paid
Depreciation charges have been eliminated.
The balance of cash as at year-end, amounting to € 7.8 billion, is made up as follows:
Cash included in:
– other assets and liabilities relating to investments 7,695 5,926
– other assets and liabilities 146 419
Total 7,841 6,345
124 Annual Report 2008 ABP (in € million) 2008 2007
Separate actuarial analyses are presented for the pension fund and the insurance operations.
In the actuarial analysis for the pension fund, the results achieved on the indirect capital investment
in the insurance operations are recognised in the investment result.
Result on contributions
Net contributions 6,596 6,205
Pension accruals - 3,884 - 4,351
Result on investments
Investment results - 44,068 7,456
Indexation - - 6,670
Added interest - 7,200 - 6,630
Change in market interest rate - 33,331 14,026
- 84,599 8,182
Result on benefit payments and administrative expenses
Benefit payments and administrative expenses - 6,760 - 6,339
Utilised out of provision for pension liabilities for benefit payments and administrative expenses 6,611 6,132
- 149 - 207
Other income and expenses 279 - 72
Net value transfers 260 320
Actuarial gains and losses
Change in provision for pension liabilities in respect of value transfers - 229 - 382
Change in actuarial assumptions regarding ABP privatisation transitional arrangements - 71 - 497
Other changes in provision for pension liabilities - 91 166
148 - 465
Total result - 81,888 9,364
The overall result of € 81.9 billion negative is largely determined by the result on investments of
€ 84.6 billion negative, which is made up of investment results of € 44.1 billion negative and the
interest cost added to the provision for pension liabilities of € 7.2 billion, calculated at the market
interest rate. Finally, there is also a loss of € 33.3 billion due to the decline in the interest rate
term structure from the year-end 2007 level (average of 4.85 per cent) to the year-end 2008 level
(average of 3.57 per cent).
Result on investments - 297 -9
Result on benefit payments and administrative expenses - 21 -8
Other actuarial results 75 51
Other results - 1
Total result (before tax) - 243 35
The actuarial analysis relates solely to the life and non-life insurance operations and is exclusively
the result of several equity investments other than insurance companies.
125 Annual Report 2008 ABP
Segment information (in € million)
Balance sheet as at year-end 2008
Pension fund Insurance Admini- Elimina- Consoli-
including operations strative tions dated
Assets 173,751 2,840 611 - 1,579 175,623
Investments 197,457 2,259 66 - 115 199,667
Other assets and liabilities, net - 23,706 581 545 - 1,464 - 24,044
Reserves and liabilities 173,751 2,840 611 - 1,579 175,623
Reserves - 19,177 95 611 - 1,579 - 20,050
Provisions for liabilities 192,928 2,745 - - 195,673
Statement of income and expenses for 2008
Pension fund Insurance Admini- Elimina- Consoli-
including operations strative tions dated
Income - 36,466 415 572 - 1,279 - 36.758
Contributions 6,596 621 - - 7,217
Investment results - 44,012 - 238 - 18 154 - 44,114
Other income 950 32 590 - 1,433 139
Expenses - 44,550 - 711 - 498 561 - 45,198
Movement in liabilities - 38,253 - 292 - - - 38,545
Benefit payments - 6,583 - 328 - - - 6,911
Other expenses 286 - 91 - 498 561 258
Result before tax - 81,016 - 296 74 - 718 - 81,956
Tax - 73 -5 - 68
Result after tax - 81,016 - 223 69 - 718 - 81,888
126 Annual Report 2008 ABP 2008 2007
Remuneration of board members (in euros)
The remuneration of board members is made up of the remuneration paid to members of the
Board of Governors, members of the Committees and, up to 29 February 2008, members of the
Board of Directors.
Board of Governors Salaries/ Pension
- LC Brinkman, 58,922 9,020 67,942 66,991
- Other members 644,163 - 644,163 548,495
Total 703,085 9,020 712,105 615,486
The chairman of the Board of Governors is paid a salary which is increased in line with CLA pay
rises. A CLA increase of 2.25 per cent was awarded with effect from 1 April 2008. In December
2008, a single payment amounting to 0.25 per cent of the regular salary for 2008 was made.
The remuneration payable to the other members is in the form of attendance fees. The amount
payable depends on the number of Board of Governors and Committee meetings attended by the
individual members. In connection with the unbundling of the administrative organisation and the
effects of the credit crisis, the number of meetings in 2008 was higher than in the preceding year.
No loans, advances or guarantees have been granted to members of the Board of Governors.
Audit Committee 21,624 -
Appeals Committee 36,665 34,588
Investment Committee 157,919 85,000
Participants’ and Employers’ Council 142,690 152,582
Accountability Body - n/a
Total 358,898 272,170
The above attendance fees for Committee members are payable to outside members of the
Committees. In 2008, the Investment Committee was expanded by two additional members.
The fixed remuneration of the members was also increased.
Board of Directors Salaries Other Pension Variable Long-term
staff costs charges remuneration incentives
DM Sluimers 52,067 7,881 11,339 0 14,696 85,983 612,698
ABJ ten Damme 42,533 6,959 7,474 0 12,005 68,971 34,504
JML van Engelen 42,533 6,959 7,474 0 12,005 68,971 -
JF Maassen 42,196 6,524 9,213 0 - 57,933 417,910
RMSM Munsters 51,670 9,302 9,995 0 17,500 88,467 553,700
JWE Neervens † - - - - - - 15,257
Total 230,999 37,625 45,495 0 56,206 370,325 1,634,069
The remuneration of the members of the Board of Directors relates to the period 1 January to 29
February 2008, viz. the period for which the members were in office as the Board of Directors of
ABP. In connection with the relinquishing of self-administered fund status, the Board of Directors
127 Annual Report 2008 ABP
was transferred to the pension administrator, the conditions of employment of the members
remaining unchanged. Since the economic risk of the administrative organisation of ABP has been
born by the pension administrator with effect from 1 January 2008, the remuneration of the Board
of Directors has not been included in the company statement of income and expenses.
The other staff costs include such items as holiday allowances, regular year-end bonus and
childcare allowances, in addition to employers’ contributions.
The variable remuneration received depends on the achievement of set targets and is tied to the
annual pay enjoyed in 2008. Four performance targets are used in calculating the amount of the
variable remuneration for the members of the Board of Directors, which cannot exceed more than
25 per cent. The four targets, which are set each year, are investment return, cost performance,
level of service and fund result. For the investment return, there is a standard target figure of 7 per
cent averaged over three years. The cost performance standard is based on the fund’s ranking
among the top 25 per cent of pension funds in the world in terms of cost efficiency. The service
level target is to occupy a leading position worldwide. The fund result is assessed on the basis of
the percentage increase awarded in the annual indexation round.
The degree of indexation is an element which cannot be directly controlled by the Board of
Directors because it depends both on the funding ratio and on the developments in general
pay levels. ABP gives a heavy weighting to the indexation figure in the variable remuneration,
reflecting the pension fund’s political and social position and demonstrating that, if the fund’s
financial position demands a reduction in the level of indexation, it will have a similar effect on the
remuneration of the Board of Directors. Having achieved the performance targets, the members of
the Board of Directors should have been entitled to bonuses of 12.5 per cent but have voluntarily
waived this right.
Long-term incentive (LTI) schemes have also been agreed with members of the Board of Directors.
The incentive takes the form of an annual payment into a separate account which attracts a rate
of return linked to that achieved by ABP. Mr Sluimers’ LTI scheme runs for six years, commen-
cing 1 February 2003. The schemes for Messrs Ten Damme and Van Engelen run for four years,
commencing 1 January 2008. That for Mr Munsters expired in 2008 and was replaced by a new
scheme, running for five years.
Business volume, as defined by the Pension Funds Guideline (CAR 610), amounted to € 13.8
billion in 2008 (2007: € 13.4 billion). Business volume is the sum of the gross contributions and
direct investment income.
The specific definition of business volume which is applicable to pension funds, as laid down
in CAR 610, means that it is not possible to reconcile the above figure with the figures in the
statement of income and expenses and the segment information.
128 Annual Report 2008 ABP
Summary of the principal consolidated equity investments
Entity Established in Held Core activity
ABP Asia Infrastructure NV Amsterdam 100 Infrastructure investment
ABP Asia Real Estate NV Amsterdam 100 Real estate investment
A&C Holdings Ltd Cayman islands 80 Commodities investment
APG Groep NV Heerlen 100 Investment in and provision of services to other companies and
conduct of insurance operations
BRD Vastgoed Holding BV Heerlen 100 Management company for investments in Germany
Britannica Ltd Jersey 100 Real estate investment
CHEP Fund Ltd Jersey 100 Real estate investment
CRM Fund Limited Jersey 100 Real estate investment
Beleggingen Heerlen BV Heerlen 100 Holding company
Imagem CV Hilversum 98 Innovation investment
ING Kantoren Bewaar-
Maatschappij II BV The Hague 100 Custody of assets
Koala Property Inv. Pty Ltd Sydney 100 Real estate investment
Kookaburra Investments LLC Delaware 100 Real estate investment
Limetree Investments Inc. Delaware 100 Holding company
Lumbercy BV Amsterdam 100 Real estate investment
Mauro BV Amsterdam 100 Real estate investment
New Emerging Linkers LLC Delaware 100 Investment in hedge funds
New Holland Absolute
Return Fund I Ltd Cayman islands 100 Investment via hedge funds
New Holland Absolute
Return Fund II Ltd Heerlen 100 Acting as managing partner in limited partnerships
Oiltree Investments Inc Delaware 100 Holding company
Oiltree Investments Holdings BV Amsterdam 100 Investment fund
Parijs Kantoren Fonds BV Amsterdam 100 Real estate investment
PARNIB-ABP Investments BV The Hague 67 Management of private equity investments
Partalia Ltd. Jersey 100 Real estate investment
Parvenor SARL Luxembourg 100 Real estate investment
Platypus Investments LLC United States 100 Real estate investment
Restalux BV Amsterdam 100 Real estate investment
Storm ABP Holding BV Amsterdam 100 Holding company
Terzo Dof Investments CV Amsterdam 100 Real estate investment
Terzo Dof Investments BV Amsterdam 100 Holding company
Tooronga Investments LLC Delaware 100 Real estate investment
Wallaby Investments LLC Delaware 100 Real estate investment
Zoolondon Investments BV Amsterdam 100 Real estate investment
A full list of equity investments (including direct and indirect subsidiaries) has been filed at the Maastricht Chamber of Commerce.
129 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
Company financial statements
Company balance sheet
– real estate 18,167 22,090
– equities 54,339 89,960
– fixed-income investments 91,572 98,053
– derivatives 24,927 6,615
– other investments 8,564 6,716
Other assets and liabilities relating to investments
– securities 29,982 31,424
– receivables, prepayments and accrued income 10,730 4,440
– cash and short-term lending 22,939 20,081
– payables, accruals and deferred income - 79,418 - 54,244
– short-term borrowing - 10,231 - 9,583
- 25,998 - 7,882
Other assets and liabilities
– participating interests 577 521
– tangible assets 93 101
– receivables, prepayments and accrued income 1,016 781
– cash - 14 308
– provisions - -3
– payables, accruals and deferred income - 365 - 747
Fund assets 172,878 216,513
Provision for pension liabilities
– retirement and surviving dependants’ pensions 189,400 150,844
– disability pensions 1,993 2,188
– flexible and early retirement pensions 1,402 1,512
– ABP ExtraPensioen 133 131
General reserve - 20,050 61,838
Company statement of income and expenses 2008 2007
Results of participating interests (after tax) - 78 68
Other income and expenses - 81,810 9,296
Total income and expenses - 81,888 9,364
Since the financial information for ABP is presented in the consolidated financial statements,
the company statement of income and expenses contains just one item disclosing the results of
participating interests after tax, as provided for by Section 2:402 of the Netherlands Civil Code.
130 Annual Report 2008 ABP (in € million) 31-12-2008 31-12-2007
Notes to the company financial statements
The accounting policies for the company financial statements are identical to those applied in
preparing the consolidated financial statements.
The movements in participating interests were as follows:
Opening balance 521 401
Bought 797 52
Sold - 245 -
Change in value - 78 68
Dividend received - -0
Other movements - 418 -
Closing balance 577 521
In effecting the relinquishment of self-administered fund status, ABP sold the administrative
organisation ‘at arm’s length’ to a specially established subsidiary (of a subsidiary). This subsidiary
financed the transaction partly with borrowed capital obtained from ABP. The loan has been
recognised in the carrying amount of the participating interests.
Other movements relates to the elimination of results on transactions within the group.
Companies preparing their financial statements in accordance with the provisions of Part 9, Book
2, of the Netherlands Civil Code are required to maintain a revaluation reserve equal in amount to
the unrealised gains on assets for which frequently quoted market prices are not available. The
revaluation reserve also prevents creditors from being disadvantaged by dividend distributions out
of reserves that are not available for distribution. Banks and insurance companies are exempted
from this requirement but, curiously, no such dispensation exists for pension funds. Because of
their legal status (foundation), pension funds do not have shareholders and do not make dividend
distributions. Given this situation, no separate revaluation reserve has been recognised. As at
year-end 2008, revaluation reserves would have amounted to € 2.7 billion (2007: € 5.0 billion).
Stakeholders in a pension fund are in any case adequately protected by the rules contained in the
Financial Assessment Framework (FTK).
Pursuant to the provisions of Part 9, section 382a, of the Netherlands Civil Code, the company
financial statements must disclose details, on a consolidated basis, of the total fees charged to
the entity by the external auditors and the accountancy organisation used (complying with the Act
on the Supervision of Accountancy Organisations). The costs charged to the entire group by the
external accountants in the Netherlands in 2008 amounted to € 1.6 million for audit services and
audit related services (only focused on SAS70), € 0 million for tax consultancy and € 0.7 million for
132 Annual Report 2008 ABP
Provisions of the Articles concerning profit appropriation
Although the Articles do not contain any provisions concerning the way in which the result should
be appropriated, the entire amount of each year’s result is added or charged to the general
The annual report was adopted by the Board of Governors of Stichting Pensioenfonds ABP in
the meeting held on 29 April 2009 on the basis of the recommendations of the Participants’ and
Employers’ Councils and other considerations.
133 Annual Report 2008 ABP
Stichting Pensioenfonds ABP in Heerlen instructed Watson Wyatt B.V. to provide an actuarial
statement as referred to in the Pension Act for the 2008 financial year.
The data on which my audit is based have been provided by and prepared under the responsibility
of the management board of the pension fund. My assessment of the fund’s assets and financial
position is based on the financial data that form the basis of the annual accounts. In accordance
with the guideline “Cooperation between auditors and actuaries regarding the audit of the accounts
of insurance institutions”, the pension fund’s auditor informed me regarding the reliability and
completeness of the necessary basic data and the other assumptions that are of importance in
forming my opinion.
In carrying out the assignment, I investigated whether the provisions of Articles 126 to 140 of the
Pension Act have been satisfied.
The administrative base data provided by the pension fund and the findings of the auditor
regarding this administrative base data, are such that these data have been accepted by me as the
starting point for my audit.
As part of the proceedings in carrying out the assignment:
– I investigated, among other things, whether the technical provisions, the minimum regulatory own
funds and the regulatory own funds are determined sufficiently, and
– I formed an opinion regarding the financial position of the pension fund.
I performed my audit in such a way that a reasonable degree of certainty has been obtained that
the results do not contain any material inaccuracies. I formed an opinion about the degree of
certainty that the pension fund will be able to meet its liabilities accumulated to the balance sheet
date. The activities described above and the method with which these were carried out are in
accordance with the standards and practices accepted by the Dutch Actuarial Association, and in
my opinion form a well-founded, reliable basis for my opinion.
Having due regard to the following, I believe that the provisions of Articles 126 to 140, with the
exception of Articles 131, 132 and 133, of the Pension Act have been satisfied.
The technical provisions have been calculated with sufficient accuracy in accordance with the
described accounting rules and assumptions. The amount of own funds of the pension fund as of
the balance sheet date is lower than the minimum regulatory level and lower than the regulatory
level of own funds. Measured against the criterion prescribed by law, the pension fund has a
coverage deficit. As of the balance sheet date, the volume of this coverage deficit is such that the
liabilities are not fully covered by assets.
The financial position of Stichting Pensioenfonds ABP is in my opinion insufficient because of a
coverage deficit. The determining factor in this respect is the degree of probability that the pension
fund will be able to meet its liabilities incurred up to the balance sheet date, taking into account the
intended supplements as announced to those insured and the criteria specified in legislation and
134 Annual Report 2008 ABP
To recover, the pension fund depends to a considerable extent on future excess returns, an
increase of the nominal market rate of interest and the premium margin in relation to unconditional
aspects. In continuing the current policy, the degree to which supplements will be given during the
period of recovery are limited.
Apeldoorn, 29 April 2009
ir drs G Veluwenkamp AAG
affiliated to Watson Wyatt BV
135 Annual Report 2008 ABP
To the Board of Governors of Stichting Pensioenfonds ABP
Report on the financial statements
We have audited the accompanying financial statements 2008 of Stichting Pensioenfonds ABP
(‘the foundation’), Heerlen as set out on pages 83 to 130 which comprise the consolidated and
company balance sheet as at 31 December 2008, the consolidated and company profit and loss
account for the year then ended and the notes.
The Board of Governors’s responsibility
The Board of Governors of the foundation are responsible for the preparation and fair presentation
of the financial statements and for the preparation of the Report of the Board of Governors, both
in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes:
designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on the financial statements based on our audit. We
conducted our audit in accordance with Dutch law. This law requires that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and dis-
closures in the financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the foundation’s preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the foundation’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by the Board of Governors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
In our opinion, the financial statements give a true and fair view of the financial position of
Stichting Pensioenfonds ABP as at 31 December 2008, and of its result for the year then ended in
accordance with Part 9 of Book 2 of the Netherlands Civil Code.
136 Annual Report 2008 ABP
Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5f of the Netherlands Civil Code, we report, to
the extent of our competence, that the Report of the Board of Governors is consistent with the
financial statements as required by 2:391 sub 4 of the Netherlands Civil Code.
Amsterdam, 29 April 2009
PricewaterhouseCoopers Accountants NV
Original has been signed by Prof dr JA van Manen RA
137 Annual Report 2008 ABP
Management and key representatives
The names of the members of the Board of Governors as at GAA Verkerk
year-end 2008, together with details of the principal offices which Principal office: Mayor of Delft
they hold and any other relevant offices, as well as the names Other relevant offices: Member of the General Committee of
of the members of the various Committees, the Participants’ Association of Dutch Municipal Authorities (VNG), Chairman of
Council, the Employers’ Council and the Accountability Body, are the VNG Labour Affairs Board
Board of Governors Principal office: None
LC Brinkman (retired 31 March 2009) Other relevant offices: Member of the Executive Board of
Principal office: Chairman of Bouwend Nederland Stichting Loyalis, Member of the Council for Civil and Military
Other relevant offices: Vice-Chairman of VNO-NCW, Chairman Care and Research
of the Supervisory Board of APG Groep NV, Member of the
Social and Economic Council, Chairman of the Supervisory K Kruithof (retired 31 March 2009)
Board of RABO-Bouwfonds / Friesch-Groningse Hypotheek Principal office: Adviser to the Executive Board of Vakbond CNV
Bank, Member of the Supervisory Board of Philip Morris Holland, Publieke Zaak (public sector union)
Member of the Supervisory Board of DuPont Nederland, Other relevant offices: Member of the Executive Board of
Chairman of the Supervisory Board of Cultuurfonds Triodos Bank, Stichting VUT-fonds Overheidspersoneel
Chairman of the Supervisory Board of Zuidas Onderneming
Amsterdam (in course of incorporation) CAM Michielse
Principal office: Director of CMHF (Centre of Middle and Senior
LJCM Le Blanc Officers in Government, Educational Enterprises and Institutions)
Principal office: CFO of Urenco Ltd. Other relevant offices: Member of the Executive Board of KPN
Other relevant offices: Member of the Supervisory Board of Pension Fund (representing employees), Member of the Executive
Altarea SCI Board of Pension Fund Cultuur (representing employees),
Member of the Pension Committee of Vakcentrale MHP, Member
CW van Boetzelaer (retired 31 March 2009) of the Social and Economic Council (SER) Balanced Corporate
Principal office: None Governance Committee, Alternate Member of the SER Pensions
Other relevant offices: Chairman of Trust/Houdster Committee, Member of the Executive Board of Spaarfonds SCO,
Maatschappijen Compass (Bata) Groep, Member of the Member of ROP representing CMHF, Member of the Executive
Supervisory Board of IMC BV (up to 31 July 2008), member Board of Stichting VUT-fonds Overheids- en Onderwijspersoneel,
of the Supervisory Board of Loyalis NV (up to 30 June 2008), Member of the Executive Board of CAOP
Member of the Supervisory Board of APG Groep NV
G van der Gaarden (retired 31 December 2008)
HCJL Borghouts (Interim Chairman with effect from 1 April 2009) Principal office: Member of the Executive Board of
Principal office: Queen’s Commissioner in the Province of Onderwijsbond CNV (teachers’ union)
Noord-Holland Other relevant offices: Member of the Executive Board of
Other relevant offices: Member of the Executive Board/Treasurer Stichting VUT-fonds Overheids- en Onderwijspersoneel
of Stichting Bijzondere Leerstoel ‘De overheid als arbeidsorgani-
satie’, Chairman of the Supervisory Board of Expertisecentrum AA Rolvink
Forensische Psychiatrie, Member of the Advisory Council of Principal office: Member of the Executive Board/Treasurer of AOB
Nederlands Genootschap van Burgemeesters Other relevant offices: Member of the Executive Board of
Stichting VUT-fonds Overheids- en Onderwijspersoneel,
JN van Lunteren Member of ROP, Chairman of Stichting Loyalis, Member of the
Principal office: Organisation consultant for Het Expertise Supervisory Board of APG Groep NV
Other relevant offices: Chairman of the Central Committee
for Statistics, Member of the Supervisory Board of Dutch
Infrastructure Fund BV, Member of the Audit Committee of the
Dutch Ministry of Education, Culture and Science
138 Annual Report 2008 ABP
XJ den Uyl FJM Crone
Principal office: General Secretary of ABVAKABO FNV union Principal office: Mayor of Leeuwarden
Other relevant offices: Chairman of ACOP FNV, Chairman of Other relevant offices: Chief of Police of the Friesland Police
the Cooperative Centres for Government Employees (SCO), Force, Chairman of the Regional Friesland Police Force Board,
Chairman/Vice-Chairman of the ROP, Chairman of the Friesland Regional Emergency Services,
Member of the Executive Board of CAOP, Chairman of the Security, Emergency Management and Public
Member of the Executive Board of the Dutch Association of Health Executive Committee for Friesland, Member of the
Industry-wide Pension Funds Security Council (National Council of Security Region Chairmen),
Chairman of Stichting Herdenking Gevallenen 4 mei, Member
J Witvoet of the Executive Committee of Stichting tot Onderhoud van
Principal office: None de Stadhouderlijke Grafruimte in de Grote Kerk, Member of
Other relevant offices: Chairman of Stichting Zorgzaam, Member the Supervisory Board of VARA, Member of the Day-To-Day
of the Executive Board of Stichting VUT-fonds for Government Management Committee of the Councillor of Chiefs of Police in
Employees, Member of the Executive Board of Stichting the Netherlands, Member of the Supervisory Board of Stichting
Ziektekosten Verzekering Krijgsmacht (SZVK), Member of the Energy Valley
Members’ Council of ACHMEA, Chairman of the ABP Appeals
Members of the Board of Governors
LC Brinkman, Chairman
LJCM Le Blanc
G van der Gaarden
Principal office: None
Other relevant offices: Chairman of the Investigative Committee
of KAS BANK Pension Fund, Member of the Advisory Committee
of Pensioen Bestuur & Management, Member of the Supervisory
Board of Graphic Holding BV, Chairman of the Internal Super-
vision Committee of Stichting Pensioenfonds Unilever Nederland
‘Progress’, Member of the Investigative Committee of Stichting
T de Swaan (up to 20 March 2009)
Principal office: None
Other relevant offices: Chairman of the Supervisory Board of
Van Lanschot NV, Vice Chairman of the Supervisory Board of
Ahold, Member of the Supervisory Board of DSM, Non-Executive
Director of GlaxoSmithKline, Non-Executive Director of Zurich
Financial Services, Treasurer of Koninklijk Concertgebouworkest,
Treasurer of the Supervisory Board of NKI/AvL, Chairman of the
Advisory Board of RSM, Chairman of Stichting Steun VUmc MS
139 Annual Report 2008 ABP
Fund Policy Committee Participants’ Council Employers’ Council
LC Brinkman, Chairman ACOP Secondary Education Council (MBO)
CW van Boetzelaer SJP Bakker WGG van Dalen (Council Chairman)
LJCM Le Blanc JMH Beurskens
JN van Lunteren AGJ Boender Primary Education Council (PO)
CAM Michielse JF Custers JAP Veringa
XJ den Uyl AJM Debie PH van der Veen
BHJJM Völkers M van de Grift
AA Rolvink JJJ Grobbée Further Education Council (VO)
JHO Grönloh LFP Niessen
Investment Policy Committee JM de Jong-de Leeuw H Schutt
LC Brinkman, Chairman JA van Nie
CW van Boetzelaer CAM Oostvriesland-van der Zanden University Medical Centres (NFU (UMCs))
LJCM Le Blanc JHM Rutten JA Wenneker
JN van Lunteren W Salverda
CAM Michielse FW Sluijter Higher Education Council (HBO)
J Witvoet L Vliet –
XJ den Uyl A van Wamelen
MN Kleefstra († 1 December 2008) Central Government
Investment Committee BM Baert
External members CCOOP CA van Ogtrop
P Lambert, Chairman up to 31 December EWP van Boven (Council Chairman) PAJ Sieverding († 23 May 2008)
2008 GAMC Dijkers
F Fröhlich, Chairman as from 1 January B Koolwijk Defence
2009 FJG Hintzen AJ van der Knaap
P de Grauwe CM Kruf
L de Bever FJC van der Looy Police
S Evans HG de Pee K de Neef
KN Kjaer MJ de Sutter-Besters
Appeals Committee AC H Springer
Members of the Board of Governors PGJ Jong
J Witvoet, Chairman RWE Raats (Council Vice-Chairman) Municipal Authorities
K Kruithof JCH Kessen WFM Heijmans
RH Roggema († 13 November 2008) J Boere
R Barnhoorn CMHF Provincial Authorities
M van Seventer JBA Kipp WH Brinkman
MJF Stelling WBM Treu
ESM van Zadelhoff AW Verburg Water Boards
AC van Pelt M Weusthuis –
Remuneration Committee NVOG representing pensioners Research Organisations (WVOI)
LC Brinkman, Chairman B Koster MJ Mathot
CW van Boetzelaer S van der Schoot
XJ den Uyl Association of Universities (VSNU)
JN van Lunteren –
Dutch Energy and Utilities Employers’ As-
PCF vd Vlugt
140 Annual Report 2008 ABP
Accountability Body Administrative Office
Employers’ Representatives NJM Beuken, Manager
JA Wenneker M Wiesemann, Deputy Manager
WGG van Dalen
PH van der Veen External Actuaries
JAP Veringa (Vice-Chairman) Watson Wyatt BV
BM Baert External Auditors
CA van Ogtrop PricewaterhouseCoopers Accountants NV
AJ van der Knaap
PCF van der Vlugt
Active Participants’ Representatives
JM de Jong-de Leeuw
JA van Nie
CAM Oostvriesland-van der Zanden
EWP van Boven (Vice-Chairman)
HG de Pee
JJJ Grobbée, (Accountability Body
A. van Wamelen
S van der Schoot
Employers’ Council Complaints
GAW van Dalen
MGW Robbers-van der Borg
141 Annual Report 2008 ABP
Abbreviations and definitions Collateral fund Fund holding furnished security obtained and
provided (bonds or cash)
Abbreviations Commodities Investments in assets such as grain and other
AAOP ABP incapacity pension foodstuffs, metals and raw materials generally
ABTN Actuarial and technical business report (actuariële en Compliance Specifically, acting in accordance with internal and
bedrijfstechnische nota) external rules and regulations including the requirements of the
ALM Asset and liability management law
AKP ABP KeuzePensioen Corporate governance The proper conduct of business and
AOP Incapacity/disability pension company management aimed at ensuring honest and transparent
APG APG Algemene Pensioen Groep, (APG Groep NV, a wholly dealings and proper reporting of activities
owned ABP subsidiary) Cross-currency swap A contract to exchange interest flows in
CBS Centraal Bureau voor Statistiek – Statistics Netherlands different currencies without exchange of the principal
CEM Cost-effectiveness measurement Defined benefit scheme A pension system in which the pension
CSR Corporate Social Responsibility rights are expressed as a percentage of final or average pay (i.e.
FP Flexible pension the amount of the pension is certain)
FPU Flexible and early-retirement benefits Defined contribution scheme A pension system in which the
FTK Financial Assessment Framework pension rights are based on an annual contribution which is
HPT Redeployment benefits invested on behalf of the plan member at the member’s risk (i.e.
LTI Long-term incentive the amount of the pension is uncertain)
NP Surviving dependants’ benefit Derivatives Financial instruments based on an underlying
OP Retirement benefit instrument and used in the management of balance sheet and
SLA Service level agreement investment risks and to achieve the strategic asset mix
StAr Labour Foundation Deterministic A forecast based on a particular expected future
UPO Uniform pension overview scenario for interest rates or rates of return
VUT Voluntary Early-Retirement Scheme Duration The weighted average maturity of an investment, taking
WGA Return to Work (Partially Disabled) Regulation account of the timing of cash flows generated by the investment
Wet BPF Occupational Pension Scheme (Obligatory Participation) and from its repayment
Act Equities and alternative investments (excluding hedge funds)
The asset categories of equities, private equity, commodities and
Definitions real estate
ABP KeuzePensioen The ABP pension product offering the Exposure The market value at risk of an asset or, in the case of
flexibility of converting the basic retirement pension into a partner derivatives, the value of the underlier
pension and of taking a part-time pension Fixed-income investments Investments with a fixed maturity
Absolute return strategies See hedge funds and an agreed interest and repayment schedule, such as private
Active risk The risk due to the difference in the asset mix placements, bonds and mortgage loans
between a managed portfolio and a benchmark Former participants Members of a pension fund who are no
Administrative organisation The in-house pension administration longer building up pension rights in the fund
activities of ABP (prior to relinquishment of self-administered Forward currency contract A contract to buy or sell a given
status) amount of a currency at a agreed exchange rate on an agreed
Asset Any investment future date. The agreed forward rate is based on the spot rate at
Asset-backed securities (ABS) Marketable financial instruments the time of entering into the contract plus a markup reflecting the
backed by assets (debt), other than real estate and mortgage- interest rate differential between the two currencies concerned
backed securities FPU transitional rights When the FPU scheme was discontinued
Asset and liability management Modelling of asset and liability for new members at the end of 2005, the essentials of the
movements to assist in the evaluation of policy on contributions, scheme continued to apply for existing participants born before
indexation and investment 1950 and with uninterrupted membership of ABP since 1 April
Basis point 0.01 of a percentage point 1997 by way of transitional rights to the new scheme, although
Benchmark Standard against which the costs and performance the participants concerned in fact have to continue working a few
of institutions in the same sector are compared months longer in order to attain the same level of benefit
Cash collateral Security received in the form of cash Funding ratio The extent to which defined benefit obligations are
Coinciding service Years of service built up over the same period covered by the existing capital
by participant and partner Future A contract that can be traded on an exchange under
142 Annual Report 2008 ABP
which there is an obligation to deliver the underlying value at a Repo Short for a ‘repurchase operation’, involving a repurchase
future date for an agreed price agreement, i.e. a contract to sell securities and buy them back
Hedge funds An investment fund which, by pursuing a at a specified time and price. In effect, it is a way of borrowing or
predetermined strategy, seeks to achieve a positive return lending stock for cash, with the stock serving as collateral
irrespective of the market return. Hedge funds are often closed- Securities lending The lending of securities for a consideration,
end funds operating with borrowed capital and employing beneficial ownership being retained by the lender
derivatives. Alternatively referred to as absolute return strategies Short position A position in which an obligation to deliver
High-yield A description of an investment that generates a high securities at a future date is assumed without actually possessing
level of returns but has a commensurately high risk profile them when the obligation is assumed, the counterparty’s risk
Indexation In the case of pensions, adjustment of the promised being mitigated by furnishing collateral
benefits in line with the general rate of wage inflation year on year. Spread The difference in return between two assets
For ABP, indexation is not automatic but strictly conditional Stochastic Description of an analysis method using a large
Index-linked bonds Bonds on which the coupon is adjusted for number of possible future scenarios, showing both the likely
inflation outcome and the range of possible outcomes
Inflation The reduction in the amount that money will buy Swap A derivative instrument involving the exchange of cash
Initial margin The margin lodged when opening a futures position flows or risks
Intraday facility Short-term funding instruments settled within one Swaption An option on a swap contract, used, for example, in
day controlling the duration
Investment grade Description of the quality of, for example, Tracking error The difference in return between a portfolio and its
a bond, the credit rating being an important indicator. Any benchmark
investment with a rating better than BBB is relatively secure and Z score A measure of the difference between the actual return
pension funds are often prohibited from investing in lower-grade and the return on the predefined norm portfolio, net of expenses
Mandatory reserve A minimum reserve that is not available for
Minimum funding ratio The funding ratio at which the obligations
are just to say funded, i.e. the fund is not in deficit
Mortgage-backed securities (MBS) Marketable financial
instruments issued by mortgage lenders and backed by
Nominal When referring to an amount of money or a percentage,
the face value, without allowing for future wage or price inflation
Norm portfolio A predetermined investment portfolio mix, with
related benchmarks, against which the actual investment return is
Option (traded option) A right to buy or sell a given quantity of an
underlying asset etc. on an options exchange at a predetermined
price at any time within a certain period
Pension administrator The pension administration activities
of the company contracted by ABP to perform the pension
administration, viz. APG (following relinquishment of self-
Private equity Investment in the risk-bearing capital of unlisted
Provision for insurance liabilities The present value of all
expected future insurance liabilities under existing policies. Also
referred to as a technical provision
Provision for pension liabilities The present value of all expected
future benefit payments to which active participants and former
participants as well as pensioners are entitled. Also referred to as
a technical provision
Real estate fund An investment fund investing in real estate
144 Annual Report 2008 ABP
1. Age profiles of active Dutch labour force and ABP active participants (percentages), year-end 2008
11.5% 22.6% 27.5% 25.0% 13.4% Active Dutch
labour force* - men
4.7% 15.7% 21.8% 33.7% 24.2% ABP-active
participants - men
12.5% 25.0% 27.9% 24.6% 10.0% Active Dutch
labour force* - women
5.3% 24.1% 27.3% 29.4% 13.9% ABP-active
participants - women
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
15 - <25 yr 25 - <35 yr 35 - <45 yr 45 - <55 yr 55 - <65 yr
ABP’s active participants are clearly an ageing population. The percentage in the youngest age
group is less than half that for the Dutch working population as a whole. There is also a difference
in the next two age groups, but not as pronounced and even less so for women.
At the other end of the age range, the two oldest age groups are relatively strongly represented
among the ABP population compared with the Dutch working population as a whole and, once
again, the difference is greatest among men.
*) The figures for the Dutch working population were provided by CBS Statline.
145 Annual Report 2008 ABP
2. Age profile of active participants, year-end 2008 – individuals
25,000 20,000 15,000 10,000 5,000 0 5,000 10,000 15,000 20,000 25,000
number of individuals
3. Trend in numbers of active participants, analysed by age group and gender
2008 2007 2006 2005 2004
age group men women men women men women men women men women
15-<25 26,125 28,561 26,181 27,389 25,159 25,836 24,758 25,789 24,872 27,013
25-<35 87,969 130,188 88,216 128,160 88,671 126,548 90,395 125,622 92,362 125,400
35-<45 122,476 148,211 127,707 148,965 133,173 148,443 139,622 148,766 146,239 148,935
45-<55 191,425 160,592 197,000 156,994 201,984 152,773 205,214 148,243 207,949 143,005
>=55 158,473 78,891 149,212 71,662 138,694 64,559 134,293 59,576 138,615 58,240
total 586,468 546,443 588,316 533,170 587,681 518,159 594,282 507,996 610,037 502,593
The ratio of men to women has shifted in recent years, with the number of men falling 4.0% and
the number of women rising 8.0%. As at year-end 2008, 51.8% of active participants were men,
compared with 54.8% as at year-end 2004.
An increase in the average age is observable for both men and women in the two highest age
groups, where the proportion has risen from 56.8% to 59.7% for men and from 40.0% to 43.8%
146 Annual Report 2008 ABP
4. Age profile of active participants, year-end 2008 – FTEs
25,000 20,000 15,000 10,000 5,000 0 5,000 10,000 15,000 20,000 25,000
5. Trend in active participants analysed by age and gender – FTEs
2008 2007 2006 2005 2004
age group men women men women men women men women men women
15-<25 23,379 22,748 23,535 22,026 22,746 20,489 22,130 20,191 22,609 22,367
25-<35 84,813 109,660 85,212 107,981 85,038 105,840 85,562 103,576 88,031 104,038
35-<45 118,554 109,025 123,815 109,124 128,577 107,368 133,429 105,128 140,264 105,200
45-<55 185,538 120,473 191,211 117,388 195,268 113,053 195,801 107,264 198,731 103,788
>=55 148,722 58,845 139,689 53,169 126,516 47,349 123,833 41,893 123,149 39,296
total 561,006 420,750 563,462 409,688 558,145 394,100 560,755 378,052 572,785 374,689
The average number of full-time equivalents is obtained by dividing the number of FTEs by the
number of individuals. The figure is 0.96 (2008) for men, 0.77 for women and 0.87 for the total
population. These average FTE figures remain fairly constant over the years.
147 Annual Report 2008 ABP
6. Distribution of active participants by full-time annual income, divided into quartiles, year-end 2008
Number of individuals
Full-time annual income
The peaks in the distribution are caused by concentrations of individuals in certain salary bands.
This is particularly noticeable among women.
The chart analyses the population by gender and shows the quartiles separately for men and
women (solid lines). The boundary between the second and third quartiles, the median, divides the
population into two groups of equal size (dashed lines). The median for men is close to the third-
quartile boundary for women.
7. Average length of service and numbers of individuals, year-end 2008
average length of service number of individuals
age group men women total men women total
15-<20 0.89 0.61 0.81 3,632 1,536 5,168
20-<25 2.32 1.43 1.83 22,493 27,025 49,518
25-<30 4.01 3.60 3.76 40,637 62,494 103,131
30-<35 6.62 6.13 6.33 47,332 67,694 115,026
35-<40 9.69 8.07 8.78 55,716 71,711 127,427
40-<45 14.05 10.37 12.09 66,760 76,500 143,260
45-<50 19.99 13.22 16.70 88,618 83,537 172,155
50-<55 25.24 15.50 21.07 102,807 77,055 179,862
55-<60 29.95 17.18 25.42 101,829 55,865 157,694
>=60 32.71 18.57 28.62 56,644 23,026 79,670
total 19.23 10.50 15.02 586,468 546,443 1,132,911
As the table shows, the number of years of service accrued by women is considerably less than
the figure for men. The difference is accounted for by part-time working – which is more prevalent
among women – and by career interruptions in connection with family commitments.
148 Annual Report 2008 ABP
8. Percentage distribution of benefit recipients by benefit band and type of benefit
2008 2007 2006 2005 2004
men women men women men women men women men women
individuals 265,611 131,650 256,469 124,941 249,152 119,311 242,792 114,564 237,182 109,746
benefit <5 22.8% 56.8% 24.3% 58.2% 25.4% 59.1% 26.0% 59.4% 26.6% 59.5%
band 5-<10 20.1% 18.5% 21.1% 18.5% 21.9% 18.6% 22.3% 18.4% 22.6% 18.4%
(x € 1.000) 10-<20 28.2% 18.4% 28.7% 17.9% 28.9% 17.4% 28.6% 17.4% 28.5% 17.3%
20-<30 17.5% 5.0% 16.4% 4.4% 15.4% 3.9% 14.9% 3.9% 14.3% 3.8%
30-<40 7.2% 1.0% 6.3% 0.9% 5.6% 0.8% 5.4% 0.8% 5.2% 0.8%
>=40 4.1% 0.3% 3.3% 0.2% 2.9% 0.2% 2.8% 0.2% 2.8% 0.2%
The benefit on which the benefit band classification is based is the supplementary pension
(second pension) only and does not include state old-age pension (AOW).
Surviving dependants/orphans’ benefit
2008 2007 2006 2005 2004
men women men women men women men women men women
individuals 21,242 178,167 20,228 177,571 19,566 176,588 18,678 176,074 17,907 175,315
benefit <2.5 51.3% 20.9% 53.3% 22.0% 55.1% 22.9% 55.5% 23.2% 56.0% 23.6%
band 2.5-<5 22.0% 21.4% 21.9% 22.1% 21.5% 23.0% 21.6% 23.2% 21.7% 23.4%
(x € 1.000) 5-<10 14.9% 25.3% 14.3% 25.5% 13.8% 25.3% 13.8% 25.3% 13.8% 25.3%
10-<15 6.4% 14.9% 6.0% 14.4% 5.6% 14.0% 5.4% 13.8% 5.0% 13.6%
15-<20 3.1% 8.0% 2.7% 7.8% 2.5% 7.5% 2.3% 7.4% 2.3% 7.2%
>=20 2.2% 9.5% 1.8% 8.1% 1.5% 7.3% 1.4% 7.1% 1.3% 6.9%
The high proportion in the lower benefit bands produces a distribution which is different from that
for retirement benefit.
2008 2007 2006 2005 2004
men women men women men women men women men women
individuals 31,830 38,521 34,251 40,223 36,301 41,596 38,476 43,369 40,302 44,597
benefit <2.5 32.4% 53.3% 36.9% 58.3% 41.7% 62.7% 39.6% 61.0% 40.7% 61.4%
band 2.5-<5 24.0% 23.8% 24.3% 23.6% 22.2% 21.3% 23.3% 22.5% 23.3% 22.4%
(x € 1.000) 5-<7.5 14.3% 11.8% 13.5% 10.0% 12.6% 8.8% 13.0% 9.1% 12.7% 9.0%
7.5-<10 8.9% 5.3% 7.9% 3.9% 7.5% 3.4% 7.5% 3.5% 7.4% 3.4%
10-<20 16.5% 5.1% 14.3% 3.8% 13.3% 3.4% 13.7% 3.5% 13.1% 3.3%
>=20 3.9% 0.6% 3.0% 0.5% 2.8% 0.4% 2.8% 0.4% 2.7% 0.4%
The high proportion in the lower benefit bands is even more pronounced in the case of disability
pension. Again, this is partly due to the supplementary nature of the benefit, the purpose of which
is to top up the state disability benefit (WAO/WIA). As from 2007 these figures also include, in
addition to recipients of IP/HPT benefit (disability pension), also recipients of ABP disability pension
(AAOP) and occupational disability pension (AOP) (1,668 individuals as at year-end 2008).
149 Annual Report 2008 ABP
Flexible/early retirement benefit
2008 2007 2006 2005 2004
men women men women men women men women men women
individuals 59,323 23,381 64,099 24,535 67,572 25,252 67,924 25,032 52,746 19,128
benefit <5 4.5% 14.4% 4.6% 16.0% 4.6% 16.8% 4.2% 17.3% 3.5% 17.5%
band 5-<10 10.6% 20.7% 11.4% 21.5% 11.7% 21.8% 11.1% 22.2% 9.5% 23.4%
(x € 1.000) 10-<20 17.5% 27.2% 16.8% 27.3% 16.1% 27.8% 16.5% 28.9% 16.7% 29.9%
20-<30 19.4% 17.4% 21.7% 17.5% 23.6% 18.1% 25.7% 17.9% 28.2% 16.6%
30-<40 19.2% 11.6% 19.6% 10.8% 19.5% 9.6% 19.5% 8.6% 20.8% 8.6%
>=40 28.8% 8.7% 26.0% 6.8% 24.5% 6.0% 23.0% 5.1% 21.3% 4.0%
The flexible/early retirement benefit is different from the other benefits because it is in the nature of
150 Annual Report 2008 ABP
9. Age profile of disability benefit recipients, year-end 2008
4,000 3,000 2,000 1,000 0 1,000 2,000 3,000 4,000
number of individuals
Recipients of disability benefit are mainly in the older age groups. There is a preponderance of
women in the younger age groups, but from age 55 onwards, the men are in the majority.
This population is expected to decline sharply in the years ahead, given the more stringent
requirements to be met by new claimants.
10. Trend in numbers of disability benefit recipients, by age group and gender
2008 2007 2006 2005 2004
age group men women men women men women men women men women
15-<25 0 4 2 7 2 8 2 20 1 26
25-<35 97 485 114 619 141 758 176 962 222 1,195
35-<45 1,141 3,982 1,341 4,466 1,571 4,977 1,899 5,723 2,137 6,300
45-<55 7,198 12,308 8,215 12,964 9,095 13,561 10,165 14,263 11,262 14,694
>=55 23,394 21,742 24,579 22,167 25,492 22,292 26,234 22,401 26,680 22,382
total 31,830 38,521 34,251 40,223 36,301 41,596 38,476 43,369 40,302 44,597
151 Annual Report 2008 ABP
11. Average retirement age of early retirement benefit recipients
60.5 60.4 60.4
60.3 60.3 60.3
59.8 60.0 60.0
59.6 59.8 59.8
age in years
beneﬁt payment starting year
Prior to 1997, early retirement was only possible under the old VUT scheme. The scheme was
replaced with effect from 1 April 1997 by the FPU scheme, as a consequence of which the average
age of early retirement has risen in the years since 1997.
In 1988 and 1989, steps to encourage part retirement in the education sector (DOP scheme) had
the effect of reducing the average benefit payment starting age.
In the FPU era, 2004 and 2005 stand out because of a drop in the retirement age, mainly due to
schemes introduced by many employers to shed older employees, in anticipation of government
policy to encourage people to work longer. The effects of the changes in the rules are clearly
reflected in the rise in the average retirement age since 2005.
152 Annual Report 2008 ABP
12. Trend in number of FP early retirement benefit recipients, analysed by age and gender
age at 2008 2007 2006 2005 2004
year-end men women men women men women men women men women
55 0 0 0 0 0 0 1,640 655 654 296
56 0 0 0 0 1,793 712 2,245 899 1,207 543
57 0 0 1,785 710 2,916 1,205 3,149 1,261 2,502 988
58 1,777 707 3,111 1,389 3,981 1,595 5,430 1,990 3,521 1,495
59 3,405 1,629 4,231 1,831 6,323 2,403 7,078 2,778 2,909 1,262
60 5,667 2,266 7,813 2,771 9,287 3,264 6,263 2,270 4,887 1,702
61 8,964 3,454 11,494 4,367 8,432 3,170 9,803 3,546 8,191 2,891
62 14,469 5,719 10,461 3,996 11,524 4,250 11,326 4,175 9,573 3,375
63 11,484 4,468 12,274 4,592 11,945 4,478 10,584 3,868 9,536 3,267
64 12,448 4,709 11,977 4,542 10,628 3,899 9,608 3,340 9,143 3,085
65 1,109 429 953 337 743 276 798 250 623 224
total 59,323 23,381 64,099 24,535 67,572 25,252 67,924 25,032 52,746 19,128
Retirement benefit becomes payable as from the first of the month following the 65th birthday. This
explains the small group of flexible/early retirement benefit recipients aged 65.
153 Annual Report 2008 ABP
13. Age profile of retirement benefit recipients, year-end 2008
10,000 5,000 0 5,000 10,000 15,000 20.000
number of individuals
The population of retirement benefit recipients is made up largely of men, who outnumber the
women by more than two to one. In the older age groups, however, the proportion of women
increases, reflecting the longer life expectancy of women.
14. Trend in numbers of retirement benefit recipients, analysed by age group and gender
2008 2007 2006 2005 2004
age group men women men women men women men women men women
65-<70 87,255 44,667 82,076 41,796 77,999 39,225 75,177 37,595 72,190 35,611
70-<75 64,907 32,371 63,243 30,783 62,471 29,892 61,743 29,001 61,849 28,256
75-<80 51,937 24,891 52,149 23,915 52,474 22,981 52,918 21,876 53,317 20,753
80-<85 38,267 16,297 36,839 15,649 34,948 14,867 32,884 14,322 31,047 13,781
85-<90 17,159 8,875 16,493 8,303 16,002 8,036 15,170 7,643 14,188 7,239
90-<95 5,225 3,481 4,890 3,489 4,533 3,353 4,253 3,228 4,011 3,243
95-<100 806 949 733 914 685 877 605 817 534 780
>=100 55 119 46 92 40 80 42 82 46 83
total 265,611 131,650 256,469 124,941 249,152 119,311 242,792 114,564 237,182 109,746
154 Annual Report 2008 ABP
15. Distribution of retirement benefit recipients by benefit amount, divided into quartiles
number of individuals
The benefit distribution curve is different from the income curve for the active participants because
the benefit is a second-pillar benefit which supplements the state old-age pension (AOW).
The skew in the distribution makes the quartiles increasingly wide (solid lines). The median (second
quartile boundary) is around € 12,300 for men and € 3,900 (dashed line) for women. The median
for the total population is € 8,900 per year.
16. Trend in numbers of recipients of surviving dependants/orphans’ benefits, analysed by age group and gender
2008 2007 2006 2005 2004
age group men women men women men women men women men women
0-<10 503 546 516 558 559 572 602 562 614 578
10-<20 4,009 3,676 4,037 3,734 4,153 3,851 4,108 3,873 4,158 3,875
20-<30 865 859 818 794 826 806 809 785 808 814
30-<40 162 455 169 480 171 497 171 536 173 590
40-<50 1,039 3,352 1,104 3,607 1,160 3,836 1,177 4,030 1,221 4,258
50-<60 3,679 13,678 3,533 13,979 3,452 14,430 3,346 14,885 3,088 14,805
60-<70 4,524 29,807 4,121 29,185 3,700 28,571 3,260 27,828 3,109 27,888
70-<80 3,902 52,426 3,613 53,745 3,448 54,605 3,262 55,697 3,022 56,487
80-<90 2,245 59,641 2,039 58,326 1,840 57,017 1,706 55,933 1,508 54,622
90-<100 310 13,461 274 12,900 251 12,171 232 11,729 205 11,177
>=100 4 266 4 263 6 232 5 216 1 221
totaal 21,242 178,167 20,228 177,571 19,566 176,588 18,678 176,074 17,907 175,315
Higher life expectancy is reflected in the increase in the numbers of individuals in the higher
155 Annual Report 2008 ABP
17. Age profile of surviving dependants/orphans’ benefit recipients, year-end 2008
8,000 6,000 4,000 2,000 0 2,000
number of individuals
Of the individuals in receipt of surviving dependants’ benefit, 90% are women. This is partly because, in the
older generations, the breadwinner was usually the man but also because widowers’ pensions were only
introduced in 1989. Because women also live longer than men on average, few men are in receipt of surviving
The gender balance among recipients of orphans’ benefit is more or less equal. The fact that orphans’ benefit
ceases to be payable at the end of the month in which the recipient attains the age of 21 explains the small
number of orphans’ benefit recipients aged 21.