Brans Brief number 2, year 9, February 2006

In this issue of the Brans Brief:
 

	Tiel Sub-district Court: Reduction in indexation level does not infringe on pensioners’ rights
	Entry into force of the PSW Amendment and the Minimum Own Funds Decree
	Adjustment of the WIA makes working more profitable for the partially disabled
	Seminar on Portable Alpha and Beta

Tiel Sub-district Court: Reduction in indexation level does not infringe on pensioners’ rights

Background

The pension fund Stichting Pensioenfonds Campina (referred to below as 'the fund') informed its pensioners that the indexation level for 2001 would be 3% despite the fact that the price index for 2001 came out at 3.7%. The employer was not prepared to supplement the indexation by 0.7% and, according to the pension regulations, the fund was not allowed to grant an indexation of more than 3% without Campina’s permission. The pensioners received a letter informing them that the trade unions had agreed with Campina that active participants and pensioners would have to temporarily pay an extra contribution. This meant a 1.2% reduction in the indexation level for the pensioners for the years 2004 to 2008. A provision was added to the regulations to allow the 1.2% reduction for the aforementioned years. The pensioners in the fund did not agree to the limit of 3% placed on the indexation level for 2002 and 2003, nor to the 1.2% reduction in the indexation level for 2004 to 2008.

The pensioners substantiated their argument as follows:

1. The limitation of the indexation level and the reduction thereof contravene both the pension regulations and the Actuarial and Technical Business Reports (Actuariële en Bedrijfstechnische Nota, referred to below as 'the ABTN') because the indexation level is described unconditionally in these documents;
2. Based on the old article in the pension regulations, the limitation of the indexation level and the reduction thereof are only possible if the available resources of the fund do not permit indexation. According to the pensioners, there can be no question of inadequate resources, since former members of the Campina Board had stated that the capital in the fund would be supplemented if necessary in connection with a refund paid by the fund to Campina between 1994 and 2001.

Judgement of the sub-district court

The court established that the pensioners were not a party to the agreements made between the trade unions and Campina and are thus not bound by the agreement to reduce future indexation levels. The text of the pension commitment therefore prevails. Furthermore, the court concluded that it follows from the text of the ABTN and the pension regulations that Campina should pay the indexation costs to the fund and that Campina is not at liberty not to pay the indexation. According to the court, the indexation up to 3% is an unconditional right for the pensioners because Campina is obliged to pay these indexation costs and in principle there can be no question of insufficient resources in the fund. The right to indexation above 3% is conditional because it requires prior permission from Campina. The court therefore ruled that the claim made by the pensioners with regard to the limitation of the indexation level to 3% for 2002 and 2003 should be rejected because the limitation had been imposed in accordance with the pension regulations.

With regard to the reduction in the indexation level for the years 2004 to 2008, the court commented that, in principle, the pensioners had a justified claim to payment of the indexation up to 3%. This only alters if it has to be concluded that the change to the pension regulations in connection with the 1.2% reduction in the indexation level was made unlawfully. However, the court is of the opinion that the change to the pension regulations was made in a legally valid way. In addition, the court considers that there is no question of an infringement on entitlements or rights already obtained, if only because the indexation percentage had not been fixed in advance. As has already been said, the change to the pension regulations was made in a legally valid way and there are no circumstances that require a different ruling in the interests of reasonableness and fairness.

For more information contact: Mark Boleij.

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Entry into force of the PSW Amendment and the Minimum Own Funds Decree

The amendment to the Pensions and Savings Fund Act (PSW) in connection with the pension funds directive and the accompanying Minimum Own Funds (Pension Funds) Decree (Besluit minimumbedrag eigen vermogen pensioenfondsen)came into force on 8 February 2006.

The Decree applies to company pension funds, industrial pension funds and occupational pension funds that are not fully reinsured. The Decree lists the capital components that may be included when establishing the total amount of own funds. The Decree also contains further requirements with which subordinated loans must comply to be included in own funds.

The requirements are as follows:

1. Subordinated loans will be included up to a maximum of 50% of the own funds or the minimum own funds, depending on which amount is the lowest.
2. Subordinated loans will be included insofar as sums have been deposited.
3. Subordinated loans with a fixed term to maturity will be included if the original term to maturity was at least five years.
4. Subordinated loans without a fixed term to maturity will be included if they are being or will be repaid subject to at least five years notice or if the Dutch Central Bank (De Nederlandsche Bank) has permitted repayment.
5. The loan agreement contains no provisions on the basis of which the subordinated loan must be repaid before the end of the term to maturity, other than if the pension fund is wound up.

A number of calculations are included in the Decree for old-age pension, surviving dependents’ pension and supplementary pension schemes with which the minimum required own funds must comply. According to the memorandum on Main Points for the Financial Assessment Framework (Hoofdlijnen voor het FTK) the minimum required own funds is approximately 5% of the technical provisions. The Decree thus adds further details to this approximately 5%. We would like to point out that the result of the calculation in the Decree will not be precisely equal to 5%. Incidentally, establishing the required own funds is not part of the Decree.

For more information contact: Harmen Pullen.

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Adjustment of the WIA makes working more profitable for the partially disabled

A significant section of the new incapacity for work Act, the WIA, which entered into force on 29 December 2005, will be amended as of 1 January 2007.

It is possible for people who are partially unfit for work and who earn more than the maximum daily wage to meet all the conditions to claim benefit and at the same time make full use of their remaining earning capacity, but they still do not receive any benefit.

This unintended effect of the Return to Work (Partially Disabled) Regulations (regeling Werkhervatting gedeeltelijk arbeidsgeschikten, WGA) will be removed. To this end, it will be enacted that from 1 January 2007, loss of wages above the maximum daily wage (€ 43,848 annually) will also be included when determining earning capacity. This is intended to make it more profitable also for people with a higher income to work (or work more) if they become partially disabled. The exact form of the change in the law is not yet known. We will of course keep you informed of developments in this area.

For more information contact: Sandra Bertram.

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Seminar on Portable Alpha and Beta

Watson Wyatt Investment Consulting is organising a seminar entitled “Portable Alpha and Beta” on Wednesday 22 March 2006. A Portable Alpha is a relatively new concept in which the outperformance of the manager (alpha) is separated from the market return (beta). In other words, the outperformance achieved by a (good) manager for a certain and/or additional asset class is isolated and added to the total return without changing the underlying asset allocation. This concept thus enables the risk budget to be filled in more efficiently.

Roger Urwin – Global Head of Investment Consulting – will give his vision of the ‘Portable Alpha concept’. In addition, Gerard Roelofs – Head of the Investment Consulting Practice in the Netherlands – will give details of the more practical points relating to this concept. The programme for this afternoon seminar is as follows:

15.00 – 15.30 hrs	Welcome and registration
15.30 – 16.00 hrs	Gerard Roelofs – “Portable Alpha: A travel survival kit for the road”
16.00 – 16.45 hrs	Roger Urwin – “Portable Alpha: Renaissance of risk management or science fiction?”
From 16.45 hrs	Drinks

You can register to take part in this seminar, which will be held in the Rosarium in Amsterdam, on our events page. If you require more information, please contact Irene Duinhoven or Ilse van Kuijk, by phoning +31 (0)20 543 3000.

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Questions or Remarks?

If you have any questions or remarks concerning this issue of the BransBrief, please let us know.

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