NETHERLANDS – The Philips Pension Fund says splitting its investments into a liability-matching portfolio and a return portfolio has worked out well.

It returned 13.3% in total in 2005, the fund said.

The liability-matching portfolio - containing 60% of its assets, and 75.6% of its pension liabilities - returned 10.4% from its fixed interest investments. “This is equal to the increase of the liabilities due to the interest changes,” the €14.5bn scheme explained in its annual report.

The return portfolio - mainly equity and direct real estate - returned even 17.8%, exceeding the benchmark by 2.2 points. “The portfolio is destined to generate additional returns, both for the part of the liabilities that can’t be financed from the liability-matching portfolio, and for the indexation of the pensions. This target is been reached”, the scheme added.

Equity – 70.4% of the return portfolio’s assets – yielded 30%. The 21.3% of direct real estate returned 9%. “Due to the yields of the return portfolio, the coverage ratio has risen to 127%, based on market rates,” the pension fund said. “Full indexation will be paid over both 2005 and 2006.”

The fund is a ‘grey’ scheme, with almost 32,000 active members, almost 59,000 pensioners and 39,500 deferred members. Of the active participants, 27,500 are in the flex, or average salary, scheme. “We are expecting a further decrease of the active members,” the scheme said.

During the last year, Philips Pension Fund has introduced a pension planner, which enables participants to calculate their future pension, depending on their planned retirement date, themselves.

In September, the Philips sold the asset management and pension management of its company scheme to Merrill Lynch Investment Management and Hewitt Associates respectively.