NETHERLANDS - Publishing house Reed Elsevier will pay €54m into its pension fund over the coming five years, to support measures taken to restore the funding shortfall of the scheme.

A letter sent by Pensioenfonds Elsevier-Ondernemingen (SPEO) to its members said by making the additional funding, the Elsevier scheme can then refrain from reducing pension payments and pension rights at this point in time.

The Elsevier fund said it would only have been able to recover approximately 10% of its cover ratio within the coming three-year period had it built a recovery plan based contribution income and investment returns alone.

Pension contributions by Reed Elsevier will be kept at the maximum level of 17% of participants' salaries over the coming five years while pension entitlements will not be linked to indexation until the funding ratio rises above the minimum statutory level of 105%-level. Full indexation will again only be granted once the funding ratio increases further to the requisite level of 130%.

The cover ratio of the fund had declined to 84% by the end of December 2008, and had fallen even further to around 80% by 31 March, when the recovery plan was submitted to the financial regulator DNB.

At the end of 2008, the fund's capital amounted to approximately €436m, which was around 20% less than the year before, as investment returns had been negative on almost all asset categories in 2008, with the exception of government bonds.

Aside from the negative investment returns, the falling interest rate also had a significant impact on the pension fund's funding ratio too, causing the fund's total liabilities to rise by 32% to approximately €522m as the scheme's interest rate risks were only partially hedged.

The Pensioenfonds Elsevier-Ondernemingen started professionalising its asset management operation three years ago. As part of the project, the scheme contracted out the management of its fixed income portfolio to Aberdeen and Fidelity in liability driven mandates. The fund also placed two global equity mandates with AllianceBernstein and JPMorgan.

The fund also increased its investments in property at the time to approximately 10% of total asset allocation.

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