NETHERLANDS - The €1.3bn pension fund for the Dutch meat-processing and snacks industry (VLEP) said its coverage ratio dropped to 78.2% at June-end in the wake of falling long-term interest rates.

The funding ratio has fallen by 4.7 percentage points against the same period last year, leading the beleaguered scheme to warn that additional austerity measures might be needed to achieve the required minimum coverage ratio of 104.5% at the end of 2013.

Based on its financial position at year-end, the meat scheme had already decided to increase its average contribution to 21% of the pensionable salary, while "temporarily" lowering the yearly pension accrual to 1.7% to reach a cost-covering premium that contributes to its recovery.

In addition, VLEP decided to implement a 7% rights cut on 1 April 2013, to be followed by an extra discount of 6%.

The industry-wide scheme reported a return of 4.8% over 2011, falling short of its benchmark of 6%.

Its equity portfolio generated a loss of 9.9%, whereas its fixed income holding delivered 16.1%, beating its norm portfolio by 0.7 percentage points.

The pension fund said its policy of avoiding the government bonds of Greece, Italy, Ireland, Portugal and Spain - and divesting its holdings in French bonds - had positively contributed to the performance of its fixed income holdings, consisting of approximately 58% of its portfolio.

VLEP added that it had invested in Spanish government paper in December.

That said, the board conceded that, in hindsight, its approach to fixed income - an underweight in bonds and an overweight in liquid assets, due to an anticipated interest rate increase - had been too cautious.

It added that it had also hedged 40% of the interest risks on its liabilities.

Because no more than 15% of investments are in foreign currency, it had covered its currency risks through ad hoc short-term forward contracts, rather than through a structural hedge.

VLEP has 18,850 active participants, 47,395 deferred members and 6,100 pensioners, affiliated with 1,120 participating employers.

It has contracted out its asset management to Robeco Institutional Asset Management, BlackRock Institutional Trust Company and JP Morgan Asset Management.

Its pensions provider is Syntrus Achmea.

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