Apart from the coronavirus crisis, what were the administrative priorities of TNO Pension Fund in 2020? You can read about it here, followed by a short preview. Would you like to know more? Then be sure to take a look at our 2020 annual report.
Preparing for the new pension system
In 2020, we monitored developments relating to the system change that will take effect no later than 2027. The main issues for TNO Pension Fund are the expected abolition of the average contribution and the introduction of an individual pension scheme. In the coming period, we will continue to investigate how the pension agreement will be implemented in practice by the pension fund. We will keep you informed.
Establishing a new contribution agreement
The five-year contribution agreement ended in 2020. TNO’s social partners faced a difficult dilemma in establishing the new contribution agreement. The Board had established the basic criteria and the social partners of TNO had to make a decision: a higher contribution or a lower accrual. In the end, they decided to take the middle road. This austerity measure was unfortunately necessary due to current regulations. Lower interest rates and a lower expected return compared with the previous period must be taken into account.
Composition of the Board and committees
Just like any organization, the Board has to deal with personnel changes as well as with maximum terms of office. In order to manage this and function well as a team, succession planning that includes a training plan is a focus point for management. We have been working on this. And the outcome? All foreseen personnel changes in 2020 have been dealt with well, which guarantees continuity in the committees.
Ratio between costs, return, and risk
The Board strives for a good balance between risk, return, and costs. This takes into account the structure of the membership base, the required solvency and the desirability of stable premiums. In 2020, this triangle of 'return-risk-costs' was mapped out. This showed that the ambitions of TNO Pension Fund and the risks are in line with the current investment policy.
Risk appetite framework
The risk appetite framework must be established each year. In 2020, this was accomplished for the supplementary pension scheme by means of an online survey. It looked at how much risk members can and are willing to take. The results indicate that many supplemental pension scheme members could choose a higher risk profile than they currently do. Do you participate in this scheme? Please read the advice.
Preparing impact investment
In 2020, the long-term plan for ESG (Environment, Social and Governance) policy was rolled out. In 2020, we have again achieved important milestones. Impact investment is also part of this long-term plan. Together with sponsor TNO, we looked at which of the seventeen United Nations Sustainable Development Goals (SDGs) are of interest to TNO Pension Fund. Two investment projects will then be selected in 2021: possibly one with a link to TNO and one with a link to the climate plan.
In addition to these priorities, we had to deal with the coronavirus crisis
Both large and small companies have been hit hard by the coronavirus crisis. The uncertainty that this entailed had an impact on the financial markets and thus on the financial position of pension funds. We have also noticed this at TNO Pension Fund. The coverage ratio fell sharply in March last year. The Board then immediately took measures aimed at continuity. The crisis team convened and periodic consultations have been held with the advisors on possible additional measures.
All things considered, the continuity of operations of TNO Pension Fund was not affected by the coronavirus crisis in 2020. All current obligations could be met. There were positive results despite the coronavirus crisis.
Furthermore, the branch meetings planned for 2020 have been converted into a webinar. This was so successful that we organized another webinar this year. In this way, the coronavirus crisis has also given us something. However, this is in stark contrast to what the coronavirus crisis meant for many of us on a personal level.
Two issues will play a role in the coming period
First of all, the long-term impact of the coronavirus crisis is difficult to assess. The stock exchanges have shown a rapid recovery, but we do not yet know how things will progress. The general expectation is that a severe recession is inevitable, and it is unclear how long the recovery will take. For a limited number of Dutch sectoral pension funds, the coverage ratio at the end of 2020 was so low that reductions were unavoidable. This did not apply to TNO Pension Fund. As in previous years, the coverage ratio of TNO Pension Fund is higher than that of most major sectoral funds. Fortunately, the pension fund is also in relatively good shape in the first months of 2021. However, the risk of reductions has increased given the uncertainty in financial markets; we must be realistic about this.
Another issue is the new pension system
The financial impact of the coronavirus crisis has accelerated the urgency of changing the system. This can also be seen in the new contribution of the pension fund. The persistently low interest rates lead to ever higher contributions or lower pension accrual. In the new system, interest rates become less important. On 1 January 2023, the law for the new pension agreement will come into force, after which further decision-making will start. It will then become more concrete step by step. A good transition to the new system is a priority for the Board.
We will therefore remain alert and continue to work towards an adaptable and resilient pension fund. This is also important in order to be able to properly transition to a new system.