NETHERLANDS - The €300m pension fund of glass manufacturer Vereenigde Glasfabrieken is looking back in regret after it was ordered to slash its 13% gold allocation to 3% by pensions supervisor De Nederlandsche Bank (DNB).

At the start of this year, the scheme lost its legal request to overturn the decision of the watchdog, which ruled that the investment carried a concentration risk that could lead to a coverage shortfall if the gold price imploded.

The DNB suggested that, given pension funds' commodities allocation of 2.7% on average, the scale of the investment was at odds with the 'prudent person' approach.

Rob Daamen, board member of the scheme, said: "Our gold allocation could not have been large enough given the current prices. But because we wanted to stick to the rule of law, we have decreased our gold holdings to approximately 3%."

Since the glass scheme had purchased the gold in 2008-09, the price of the precious metal has almost tripled.

In October 2009, the pension fund doubled its gold allocation to more than 13% - at the expense of its equity holdings - on the assumption that the markets' rise would not be sustainable, and that a considerable downward correction was likely to follow.

The assets that have become available from the divestment of the gold have been re-invested in AAA government bonds of the Netherlands, Germany and Switzerland, and have been added to the scheme's 85% allocation to government bonds, Daamen said.

According to the board member, the Stichting PensioenfondsVereenigde Glasfabrieken is currently preparing a procedure on the merits of the case.

"We still don't agree with the DNB's arguments, and we want to look at the options to claim compensation if it turns out that the DNB's decision has caused any losses for our pension fund," Daamen said.

According to Daamen, the pension fund's current coverage ratio is approximately 105%, barely higher than its funding at the start of the year.

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