The €208bn civil service scheme ABP says it is essential that a pension fund's board keeps its discretionary competence for decisions about policy on contributions, indexation and investment.

An extended pension contract should largely focus on the moment a board must take action when the cover ratio reaches a set level, as well as on the transparency of the steering instruments, ABP stated in a position paper on the sustainability of the pension system.

"However, an extended contract doesn't mean that the instruments that must be deployed under given circumstances can be indicated in advance," stressed ABP, "The present crisis has shown that the right combination of instruments is difficult to establish."

Although decisions on risks should be well-communicated to participants, they should be based on expertise and on the interests of the different groups of pensioners, rather than on the willingness to risk-taking of individual participants, the pension fund made clear.

ABP further underlined that the social partners of employers and employees must keep their responsibility in the board.

"A board's composition based on part interests of participants, will put pressure on the solidarity and decisiveness of schemes," it argued.

"To ensure a proper balance between a board and stakeholders, the participants council and accountability body should be merged and be given increased competence, comparable to the say of a shareholders meeting," continued the civil service scheme.  

Referring to pending new parameters for the financial assessment framework (FTK), ABP warned against too many rules for prudence, "as this might cause loss of oversight of the securities within the system".

ABP also indicated it prefers wage inflation rather than the consumer index as benchmark for indexation decisions, because a pension is considered as postponed salary.

That said, it noted that the salary index and the consumer index within the civil service sector have developed evenly between 1973 and 2007, indicating that an index switch within this period would not have lead to any cost-cutting.

In the opinion of ABP, a pension fund's long-term focus requires cushioning the volatility of the cover ratio, for example through averaging the market interest rates for accounting liabilities.

Although the pension sector widely agrees on switching from nominal to real cover ratio as guiding principle for pension policy, ABP said it wants to stick with the nominal cover figures in its communication to its participants, "as publishing both ratios will cause confusion"

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