Penformance by by Jasper Haak Roel Nass

Sounds familiar? You want to pay low premiums and have high guaranteed pensions, like we used to have? Room 2, please Pension Consultancy

Industry wide pension funds Changing landscape Industry wide pension funds (compulsory) Company pension funds DB schemes DC schemes

DB and DC and everything in between Guarantees No guarantees DB by insurer CDC DC “Hard” pension promise Conditional indexation Funding is capped DB ambition Pure DC DB ambition DB by pension fund DA Conditional indexation Perceived as hard DB Cut as ultimate resort Conditional indexation Funding is capped DB ambition “Soft” pension promise by definition

Balance in pension Balance What? Pension ambition How much? How? Contribution How? Risk appetite

But how to make educated decisions? I don’t see anything... Look, there waits your pension Exactly!

Penformance = Pension x Performance Support decision making process in pension scheme design Product evaluation tool for providers/insurance companies Governance tool for employers or trustees Investment test: online tool for understanding and evaluating iDC products Investment test consists of Prudency test: quality of life cycle setup Performance test: quality of investments / investment funds Professional investment expertise in an iDC setting made accessible

Life cycle investments in iDC

How to deal with this ICEBERG? Life cycles Investment test Investment funds

Evaluating life cycles

Evaluating budgets

Performance test Scoring iDC products on five criteria. The consultant together with the client determines the weights of all 5 criteria (distributing 10 points). 1. Investment Policy 2. Sustainability Policy 3. Return & risk 4. Costs 5. Reporting

1. Investment Policy Based on different asset allocation theories the selected asset classes and types of funds are analyzed. The different risks that result from choices in asset allocation are identified. Asset Allocation - Equity Developed Markets Emerging Markets Country allocation Sector allocation Asset allocatie - Bonds Government Bonds Corporate Bonds High Yield Bonds Emerging Markets Debts Asset allocatie - Other Unlisted Real Estate Commodities Hedge funds Fonds-selectie Fund Selection Replication methodology Risico- beheersings-beleid Concentration risk Duration buckets Liquidity risk Currency risk Timing risk

Effect of asset allocation A difference of 33% more contribution to the total amount of pension between Euro Stoxx 50 and MSCI World

2. Sustainability policy All efforts to implement sustainable investing are analyzed. Both the policies and the actual implementation. UNPRI Signed by the iDC manager Signed by the selected fund managers Policies – Sustainability SRI policy Exclusion policy Engagement policy Implementation – ESG integration Positive screening Exclusion list Voting / engagement

3. Risk / Return Effects asset allocatie Relative fund returns All equity and fixed income funds are compared to their benchmarks and to comparable mutual funds. Additionally their effects of specific choices in asset allocation are separately quantified. Effects asset allocatie Equity allocation Fixed Income allocation Relative fund returns Equity – fund vs benchmark Fixed Income – Peer group performance fund vs peer group Peer group risk adjusted performance

Effect of mutual fund selection A difference of 25% more contribution to the total amount of pension between best and worst performing equity selected funds

4. Costs All fees that are based on asset under management are compared. Additionally two major other cost factors are analysed. Product expense ratio (PER) Assets under management based costs Standard discounts Tax Level of dividend tax reclaimes Securities lending Fee split of securities lending proceeds

Effect of tax efficient funds A difference of 2% more contribution to the total amount of pension between dividend tax efficient and ineffectient funds

5. Reporting Reporting standards of both the iDC product and the underlying funds are evaluated. Reporting iDC product Availability of investment policy Availability of lifecycle and asset allocation data Availability of fund data Reporting funds Availability of legal and commercial reports (annual report, prospectus and factsheet) Completeness of commercial reports (manager, risk, performance data)