Annual Report Stichting Pensioenfonds Fluor Nederland

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1 Stichting Pensioenfonds Fluor Nederland

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3 Table of Contents Annual Report 5 1. Key figures 7 2. Report of the Management Board 9 3. Report of the Members Representation Council Investment report Report from the Accountability Body 34 Annual accounts Balance sheet as at 31 December Statement of income and expenditure over Cash flow statement over Explanatory notes to the principles Explanatory notes to the balance sheet Explanatory notes to the statement of income and expenditure 61 Other data Appropriation balance of income and expenditure Execution agreement Events after balance sheet date Actuarial statement Audit report of the independent auditor 79 Page 3 of 79

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5 Annual Report Disclaimer: This is a translation of the Annual Report 2012 of. In case of differences between the Dutch and this English translation, the Dutch version will prevail. Page 5 of 79

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7 1. Key figures Members (numbers) Active members Disabled persons Subtotal Former members Pensioners Total number of members 1,969 1,971 1,922 1,925 1,915 Amounts (x 1,000) Investments at the risk of pension fund - Real estate investments 24,194 18,360 19,460 15,723 3,777 - Equities 85,619 62,760 72,625 68,198 41,648 - Fixed-income securities 239, , , , ,418 - Derivatives ,246 - Other investments (including investment claims) 25,361 19,775 21,251 18,083 6,382 - Total investments 375, , , , ,471 Founding capital and reserves 38,327 15,132 21,777 17,751 (4,739) Underwriting reserves 337, , , , ,735 Cover ratio FTK (%) Market interest rate RTS Indexation pensions commenced (%) Premium contributions - Actual premium 11,002 10,564 10,197 11,149 11,274 - Break-even premium 11,645 7,066 11,234 10,606 11,995 - Moderated premium 8,865 6,647 11, Pension benefits paid 10,285 9,190 9,253 7,871 7,466 Past-service single premium 3,831 3, ,166 3,417 Pension administration costs Investment result at the risk of the pension fund 53,400 34,366 34,576 33,049 (27,306) Investment return 1 (%) (12.30) State pension offset 16,900 16,500 16,400 16,000 15,600 FTK = Financial Assessment Framework (Financieel Toetsingskader); describes the basis on which the pension liabilities are calculated effective from 1 January For 2009 this percentage is based on the investment result realised from the moment of transfer of the investments to AEGON Asset Management in early February of 17.7% and the return in the month of January at Fortis ASR of -/-2.7%. Page 7 of 79

8 RTS = Interest Term Structure; a series of interest swap securities in terms of percentage for a period of 60 years. For each year an interest percentage is established by which the commitments for that year are discounted. For commitments with a term exceeding 60 years, the interest percentage of 60 years is used. This interest curve replaces the traditional 4% notional interest rate. The RTS is part of the FTK and is published monthly by the Dutch Central Bank (DNB). UFR = Ultimate Forward Rate; the Ultimate Forward Rate method determines an interest rate curve for longer durations in a different way than that directly derived from market interest rates. The method is used to prevent values past the last liquid point in the swaps market resulting in (excessive) volatility of cover ratios. These values are based on a small number of (market) observations so that it is justified to ask whether this involves a reliable market value. Due to the ongoing exceptional market conditions, DNB has decided to base the RTS on a three-month average from 31 December 2011 onwards. The average is calculated over the interest rate structure of all trading days in the period from 1 October to 31 December inclusive. On 30 September 2012, the interest rate structure for pension funds published by DNB was adjusted through the introduction of an UFR. The three-month average will however be maintained. This will involve an adjustment of the interest rate structure for durations of 20 years or more. For durations of up to and including 20 years, the zero interest rate is equal to the three-month average zero interest rate observed. For durations of over 21 years, the zero interest rate is adjusted by extrapolating the underlying one-year forward interest rate to the UFR of 4.2%. The adjustment of the forward interest rate consists of a fixed weighing of the forward interest rate observed in the market (based on the three-month average swap curve) with the UFR. Page 8 of 79

9 2. Report of the Management Board All amounts are in euros unless otherwise indicated General Scope of application of the Fund The foundation (the Fund ) is the service provider of the pension scheme of Fluor B.V., Fluor Consultants B.V and Fluor Infrastructure B.V. For a description of the scheme executed by the Fund in the 2012 financial year, reference is made to version 5 of the foundation s pension regulations. These regulations can be found on the Fund s website (http://pension.fluor.nl). A simplified version can also be found on the website Reinsurance A five-year reinsurance agreement has been concluded between the Fund and Aegon Levensverzekering N.V. (Aegon), which took effect on 1 January Since September 2011, the asset management is fully carried out by Aegon Asset Management. Aegon Investment Management sends a monthly report to the Fund on these investments. This report is discussed at the monthly board meetings and explained in more detail by the investment committee, after which it is also discussed at the consultative meeting with the Members Representation Council. The investment committee consists of 4 board members and the administrator, and consults with the account manager of Aegon Asset Management each quarter. In addition to compiling the above report, the investment committee also reports monthly to the full Management Board. The investment result fully accrues to or is fully charged to the Fund. The pension commitments for the 2012 financial year are valued at market value as outlined in the Financial Assessment Framework (FTK) prescribed by the Dutch Central Bank (DNB). A profit-sharing scheme has been agreed for the contract years 2009 to 2013 inclusive. The Fund takes a 70% share in any positive result. A negative result will be charged in full to the reinsurer. Although in legal terms this is still referred to as reinsurance, in practice this constitutes an almost fully own-risk bearing fund. The Fund is therefore considered as such and is held to comply with the comprehensive disclosure requirements outlined in the DNB guidelines Course of events in General 2012 was a turbulent year for pensions, with pension funds continuing to find themselves in difficult circumstances. This was due both to the financial markets and to demographic trends. The Dutch population is progressively ageing and the life expectancy of people in the Netherlands is rising incrementally. In spring 2012, the government suggested ways in which the pension system could be made more future-proof. However, the collapse of the governing coalition subsequently threw the Spring Agreement into question once more. Following the installation of a new coalition, the September Pensions Package was drawn up and sent to the newly-elected Lower House. This September Package is discussed in detail in section The alarm again sounded for pension communications in The consequences of the crisis became visible and were felt by many employees and pension beneficiaries. A re-evaluation of the communication plan and especially of the requirements set for communication by the Netherlands Authority for the Financial Markets (AFM) became priority action points for the Management Board. Page 9 of 79

10 In 2012 the issues addressed by the Fund s Management Board included the following: - The financial position of the Fund, - The cover ratio of the Fund, - The evaluation of the short-term and long-term recovery plan, - Training programmes and the expertise plan, - Governance and strengthening of pension fund management boards, - The adjustment of the Actuarial and Technical Business Report (ABTN), - Risk management and a financial crisis plan, - Internal controls of the administrative organisation, - Amendments to the Articles, - The UPO (Uniform Pension Overview 2012), - The proposed closure of the existing pension scheme to new members. These subjects, plus several other matters, will be discussed in this annual report Actuarial assumptions Assumptions relating to commitments In 2012 the Actuarial Association (AG) published new life expectancy tables which cover the commitments made for These new tables imply an increase in the provision for pension liabilities due to higher life expectancy. The consulting actuary has informed the Management Board that the certifying actuary will use these new tables (AG ) as a basis for determining the provisions required. In 2012 the calculations for the cover ratio were based on the tables AG , which replaced the tables AG as used for In addition to the tables AG , a provision was also created based on actual mortality rates (ES-P1) as published by the Dutch Association of Insurers (Verbond van Verzekeraars) (2008). The more stringent life expectancy tables have a negative impact on the cover ratio of 1.1%. Although the life expectancy tables include a trend for the development of life expectancy, the Actuarial Association maintains that it continues to be necessary to publish revised tables every two years. The Fund s premium is based on known life expectancy tables. Hence each time a more stringent table is used, this implies a negative impact on the cover ratio since the increased life expectancy (read: benefit period) has not yet been funded. This remains a significant risk for the Fund and therefore ultimately for its members Recovery on the financial markets and the cover ratio The cover ratio indicates the capital position of a pension fund. A 100% cover ratio means that a pension fund s assets are exactly sufficient to meet its liabilities. The government wants pension funds to have extra cash and requires a cover ratio of at least 105%. A pension fund must also have a reserve that relates to various risks. As a result, the Fund s capital requirement (Vereist Eigen Vermogen; VEV) amounted to 110.3% of its liabilities in This percentage is calculated annually by the Fund s actuary, based on the square root formula which examines several of the risks a pension fund can be exposed to (e.g. interest rate risk, currency risk or underwriting risks). In 2008 the Fund was faced with a funding shortfall (the cover ratio fell below the capital requirement) and in October 2008 this was reported to the Dutch Central Bank (DNB), which supervises the pension funds. In December 2008, the Fund also had to report a situation of underfunding (the cover ratio fell below 105%). As a result, in early 2009 the Fund was forced to submit a recovery plan to DNB in which the Management Board explained how it proposed to correct both the underfunding and the funding shortfall. This recovery plan is evaluated annually, during which the regulator examines the extent of the recovery in each year and what has contributed to it. The evaluation report is published in February. Page 10 of 79

11 The cover ratio showed a recovery in 2012 which was entirely due to an improvement on the financial markets. The cover ratio increased from 105% to 111.4% at the end of Despite this increase, the Fund still has a funding shortfall. Based on the long-term recovery, the fourth quarter of 2012 was the first quarter since 2008 in which the Fund had a cover ratio that was higher than the capital requirement of 110.3%. Under the DNB guidelines, a pension fund can only be regarded as no longer having a funding shortfall if it has a cover ratio in excess of its capital requirement for three consecutive quarters The September Agreement on pensions In June 2011, the government reached an agreement with the employers organisations and trade unions on the future of the pension system. This pension agreement contains measures designed to keep pension provisions affordable, such as a higher retirement age and a flexible state pension (AOW). The main items agreed were: - Raise of the state pension (AOW) age - Raise of the retirement age: Witteveen Framework - Lower premium, longer period of pension build-up - Increase in the state pension (AOW) - Flexible AOW - More transparency concerning pension-related risks - Lower incomes to qualify for higher elderly person s tax credits - Stable pension premiums - Vitality package: earned income tax credit and mobility tax credit - Strengthening the management board of pension funds Following the collapse of the coalition government in May 2012 and the election of a new government in September 2012, the Ministry of Social Affairs and Employment formulated the September Pensions Package. The package focuses on the transitional year 2013 and consists of four measures: 1) adjustment of the interest rate curve for pension funds, 2) a temporary reprieve for the requirement that the premium must contribute to recovery, 3) a conditional option to spread the necessary curtailments, 4) incentive to make pension schemes more future-proof by These measures are explained in more detail below: 1. DNB decided to adjust the interest rate curve for very long-term liabilities as from October 2012 and to bring them into line with the interest rate curve which has applied to insurers since 30 June This interest rate is known as the Ultimate Forward Rate (UFR). The introduction of the UFR had a positive effect on the cover ratios in DNB decided to allow a further temporary reprieve in 2012, which means that during this period the premium did not have to contribute to recovery and only related to pension funds which had not applied for a reprieve in DNB extended the short-term recovery plan for the relevant pension funds in 2009 from three to five years. If there is still a funding shortfall at that time, the fund will have to curtail the pensions and the entitlements accrued. DNB will allow the funds (where applicable) to limit this curtailment to 7% on condition that the remaining curtailment is implemented by the end of The target retirement age will be increased to 67 from 1 January Increases in life expectancy will also be charged to the pensions and the entitlements accrued at all times. DNB is also proposing to increase the lower limit from which funds can start to index-link to 110%. This will be included in the new FTK (Financial Assessment Framework) which will be introduced in Many topics in the Pension Agreement and the September Package are likely to be discussed more fully in the 2013 annual report, which will include a more in-depth explanation. Page 11 of 79

12 The Pensions Register and the Pension websites The Pensions Register is an initiative of the joint Dutch pension funds, the pension insurers and the Social Insurance Bank (SVB). The partnership s website is available for all Dutch citizens. The website enables all Dutch citizens to view their current and future pension entitlements with pension funds and pension insurers, and their state pension (AOW) rights. Use of the Pensions Register is free of charge and is regarded as a public facility. Stichting Pensioenregister further updated the website in Approximately 99% of pension providers and insurers are currently linked to the Register. SVB has also extended its information, notably by providing AOW data individually (married/unmarried; with or without curtailment). The Fund provides pension data via Aegon. The Fund s website was also updated in The communication work group is now translating it into English. A link on the website (under the tab Actueel ) refers to Ganeo, Aegon s employee portal. Ganeo contains a substantial quantity of information on pension matters and allows visitors to surf to the government website and to log in to the AEGON PensionSite (APS), where they can find their personal pension information. Access codes are required for both websites. Members have received a user code and password from Aegon for the APS, and will need their DigiD to log in at The Financial Assessment Framework The Financial Assessment Framework (FTK) is the part of the Pensions Act in which the statutory financial requirements for pension funds have been laid down. The FTK is built around the principles of fair value, riskbased financial requirements and transparency. The FTK sets rules for the valuation of the investments and obligations, the self-funding premium, the structure of the recovery plans, the pension entitlements and any curtailments thereto, and the funding of the conditional granting of supplements. Explicit attention is paid to how sound and ethical operational management is established. The latter is reflected for example in the reporting, the ALM study and the legally prescribed continuity analysis. The Financial Assessment Framework will be reviewed in Activities Management Board Meetings of the Management Board The Management Board met twelve times in The main agenda items were: asset management, cover ratio, adjusting the ABTN, communication, OPF code of conduct and expertise matrix, an analysis of the standard model capital requirement (VEV), analysis of the administrative procedures and Uniform Pension Overviews. Considerable time was also spent on the evaluation of the recovery plan, drawing up the Financial Crisis Plan and examining the effects on the Fund of the Pension Agreement and the September Package. In the autumn of 2012 the Management Board also began evaluating the Aegon contract which was concluded in January 2009 and which is due to expire at the end of Page 12 of 79

13 Legal documents The following legal documents were amended in 2012: - the ABTN (actuarial and technical business report) has been updated and version 5 has been submitted to the regulator (DNB). - the pension regulations have been placed on the website in an improved format (version 5). - the Articles have been reviewed in accordance with the requirements laid down in the Pensions Act. In terms of adjusting the referendum in the Articles, it was decided to set up a work group to produce a proposal for an amendment of the Articles. The original purpose of the deleted article with regard to the referendum would be reinstated as far as possible, while complying with the Pensions Act. The work group has now come up with a proposition and submitted it to the Members Representation Council and to the Fund s Management Board. They have all accepted the proposal and have agreed to submit the adjustments to Loyens en Loeff (civil-law notary) before implementing them in the Articles Asset and Liability Management Study (ALM) The previous annual report mentioned that the Fund had received a letter from the Board of Directors of Fluor asking it to investigate the possible consequences for the Fund if the present pension scheme were to be closed to new members. In 2010, Ortec carried out an ALM study showing the effects of closing the scheme for the employer. The Management Board also conducted its own survey in 2011 and 2012 and shared its findings with the employer. The Management Board is currently awaiting the decision of the Board of Directors. However, the Pension Agreement and the provisions of the coalition agreement governing the AOW and pension legislation have now placed the discussion in an entirely new perspective. In 2013 it will be examined what effects the Pension Agreement will have on the Fund and what the employer will be adjusting in the employment condition pension. The next annual report will include a detailed description of the adjustments. Due to the temporary continuation of the final-pay scheme, the Management Board is compelled to start a new ALM study in the year 2013 which will focus on the policy of the Fund for the coming years. Ortec will carry out this ALM study for the Fund Provision of Uniform Pension Overview (UPO) In 2012 all the active members received a UPO from Aegon, together with all pensioners and noncontributory policyholders ( sleepers ). This statement shows all their individual s pension rights and, where applicable, their AIP capital. The insurer (Aegon) is obliged to provide active members and pensioners with a UPO annually (Section 38 paragraph 1 of the Pensions Act). The Pensions Act also specifies that noncontributory policyholders ( sleepers ) must receive an overview every 5 years was the first year in which non-contributory policyholders received an overview from Aegon DNB and AFM Under the Financial Supervision Act, which took effect on 1 January 2007, the Fund must formally deal with two regulators: the Financial Markets Authority (AFM) for the supervision of the conduct of business and the Dutch Central Bank (DNB) for prudential supervision. Neither regulator made any direct inspection of the Fund in the 2012 financial year. In 2012 the Fund coordinated its communication policy with the AFM. No questions concerning the conduct of policy were received in 2012 from either DNB or AFM Pension Fund Governance Page 13 of 79

14 In 2012 the Management Board was also involved in Pension Fund Governance activities. In accordance with the provisions of the Pensions Act governing internal supervision, the Fund opted for an on-site review committee (visitatiecommissie) and an accountability body (verantwoordingsorgaan). As stated in the previous annual report, the Management Board had the on-site review carried out in 2010 by an external agency, VC-Holland. The main conclusion reached by the on-site review committee was that the Fund was well managed by the Management Board and that the latter responded proactively to developments that were relevant to the Fund. The final report stated that the implementation of the new Pensions Act (PW) and the introduction of the Financial Assessment Framework (FTK) had been handled expeditiously. There is sufficient expertise within the Fund, which was clearly demonstrated during the interviews conducted and was also supported by the expertise matrix used. The Pensions Act specifies that the Fund must have an onsite review carried out every three years. In late 2012 the administrator was asked to seek three tenders for conducting a new on-site review. The Accountability Body was established and started its work in summer It is composed of active members, pensioners and representatives of the employer. Following extensive consultations with the Members Representation Council, it was decided that the entire Members Representation Council should be represented on the Accountability Body, together with two employer representatives. In 2012 Mr. Van Heijningen retired from the Accountability Body as employer representative and was succeeded by Mr. C. de Wit. The three components of the Accountability Body have one vote each. The Accountability Body is entitled to issue annual assessments of: - the performance of the Management Board based on the annual report, the financial statements and other relevant information; - the policy pursued by the Management Board in the past year; - decisions relating to the future. The Accountability Body issues an annual report and publishes its findings in the Fund s annual report (see below). These findings and recommendations will be communicated to the Fund s Management Board. Openness and transparency are regarded as essential Board meetings 2012 The Fund s Management Board meets every last Friday of the month, except in July (holiday period). In addition to an extensive agenda, they also draw up a list of action points. This list indicates which committees will handle a pension-related subject (action point) which needs to be worked out in more detail, such as the regulations and Articles, the ALM study, details of the Pension Agreement, measures to make the pension scheme more flexible, preparation of the quality manual and monitoring the costs of asset management. The committees meet on a regular basis. A committee consists of a chairman and a number of committee members, in all cases supplemented by the administrator. The committee chairman acts as point of contact and reports on the activities to the full Management Board at the board meeting. All resolutions taken at board meetings are minuted on the list of resolutions Supplements to pensions as at 1 January 2013 The Fund conditionally grants supplementary benefits for pensions that have already commenced. The accrued rights of the sleepers are index-linked in the same way as the active pensions that are already being paid out. The Fund wants to increase the pensions of pensioners and sleepers by the CPI-based Consumer Price Index for all householders. The ALM shows that the realisation of this goal is not entirely feasible due to the current financial position of the Fund (premium, investment return, etc.). Page 14 of 79

15 No supplements to pensions were granted during the past four years (2009 to 2012 inclusive). In 2009 it was decided in consultation with the Members Representation Council to include a basic decision-making model in the ABTN. It should be noted that granting supplements is ultimately the decision of the Management Board. However, after seeking advice from the Members Representation Council and based on the preliminary figures, the Management Board decided to not grant any voluntary supplementary benefits on the pensions taken out as at 1 January This is in accordance with the guideline for indexation in the ABTN. The Management Board of the Fund based its decision on the following: 1. The Fund still has a funding shortfall. Based on the long-term recovery plan, this is the first quarter in which the Fund has a cover ratio (111.4%) exceeding the capital requirement (VEV). However, according to the DNB guidelines, a pension fund can only be regarded as no longer having a funding shortfall if it has a cover ratio exceeding the capital requirement in three consecutive quarters. In the event of a funding shortfall, the Fund will not grant any supplementary benefits in order to avoid compromising recovery from the funding shortfall. 2. In September 2012, an increase in pension liabilities took place following the issuing of new life expectancy tables (AG ) by the Actuarial Association (Actuarieel Genootschap). This increase applies to all pension rights and is funded from the capital as no premium is paid for it. 3. The Fund uses an indexation policy that takes account of the growth in the cover ratio over the past four quarters and the possible indexation effect of the pensions already commenced. The indexation policy emphasises the recovery of the cover ratio before supplementary benefits can be granted on pensions commenced. 4. It is likely that the financial market will show only a moderate return in the forthcoming years. Due to the Fund s current financial situation, the Management Board does not consider it possible to grant any supplements. It should be noted, however, that no curtailment of the pension entitlements has been executed either Consultation with the Members Representation Council (Deelnemersraad) in 2012 Five consultative meetings took place between the Members Representation Council and the Management Board in The 2012 annual report was discussed at a consultative meeting with the Management Board and the Members Representation Council on 6 June. The meeting studied the report in more detail and discussed the remarks and comments made by the Members Representation Council. Adjustments were made where deemed necessary. The Management Board later submitted a request for advice to the Members Representation Council regarding the 2011 annual report. At the board meeting of 13 June 2012, which was also attended by representatives of KPMG, Milliman actuaries, Aegon and the Members Representation Council, the 2011 annual report was unanimously approved by the full Management Board, which was given positive advice by the Members Representation Council. The additional consultative meetings of 7 March and 26 September were used to explain the financial position of the Fund in more detail. The meetings also discussed communications, the amendment of the legal documents and developments surrounding the September Package on pensions and the coalition agreement in more detail. Page 15 of 79

16 Consultation on the granting of supplementary benefits On 28 November 2012 a consultative meeting was held between the Members Representation Council and the Management Board. The main agenda item was the conditional granting of supplementary benefits in Based on preliminary figures, the Management Board, having obtained the advice of the Members Representation Council, decided to not grant a conditional voluntary supplement to the pensions commenced as at 1 January This is in accordance with the ABTN indexation guidelines. The Fund s Management Board explained its decision as outlined in the paragraph above Investment policy and performance The general objective of the Fund s investment policy is to obtain the best possible return within the conditions of an acceptable risk. In order to secure the intended pension benefits in the short and long term, the Management Board wishes to invest the assets entrusted to the Fund in a solid and responsible manner. The main object of the investment policy is therefore to realise the best possible return based on the strategic investment policy and at an acceptable level of risk, with due regard for the Fund s liabilities structure. Although high priority is given to achieving a good return on the portfolio, this is always achieved with a somewhat defensive investment policy and a cautious risk-return ratio applied. The Fund s liabilities are characterised by a duration which changes to become a progressively shorter term. The term is the average weighted duration of the benefits of the Fund s pension commitments. A 60-year-old member thus has a shorter average benefit term than a 30-year-old member. However, the average pension commitment of a 60-year-old is higher than that of a 30-year-old. The shorter the term, the more prudent the investment, since the Fund needs more certainty to guarantee the benefit promised. Broadly speaking, the Fund has invested 64% in fixed-income securities and 36% in real assets. All the investments are hedged against euro currency risks since the Fund pays out in euros. If the term further declines, the investment portfolio will be adjusted in order to strike the right balance between risk and return on investments. Aegon Asset Management provides a detailed explanation further on in this report (in the investment report) of the policy and its investment performance Current pension news Change of state pension (AOW) age and the effect of this on pension accrual The government has announced a raise of the state pension age and an adjustment to the rules governing pension funds and pension accruals. - The state pension age is to rise by monthly increments from 2013 onwards. After that it will increase in stages. The Rutte-Asscher government wants the increase to progress faster after Under the latest plan, the state pension age will be 66 in 2018 and 67 in Subsequent increases will be based on the trend in life expectancy. - The age for the (additional) pension accrual under favourable tax conditions will be increased to 67 in This scheme, which is referred to as the Witteveen Framework, will be adjusted under a government proposal. The aim is to lower the fiscally allowed accrual rate by 0.4%. The government also wants to restrict tax relief on additional pension accruals for individuals with incomes in excess of 100, Lastly, the government intends to revise the Financial Assessment Framework (FTK). The FTK sets out the financial conditions that must be met by pension funds. The FTK will be adjusted to limit the risks involved. Page 16 of 79

17 - These adjustments are intended to provide more clarity concerning the risks involved and to ensure that agreements are made in advance to mitigate these risks. - Investments must focus more on the long term; windfalls and setbacks must be more evenly spread over several years. - The revised FTK also states that premium levels cannot be increased or lowered automatically during adverse or favourable conditions. - Funds may conclude conditional pension agreements. In the FTK, the government states that employers can adjust their pension arrangements to take account of fluctuations on the financial markets and increasing life expectancy. Partner s pension on termination of employment or retirement It is important for members of the pension scheme to be aware that following the introduction of the new pension scheme in 2005, only half of their partner s pension is now capitalised and they will only be able to build up 35% of their partner s pension. Since this will continue to be an annual focus of interest for all active members of the pension scheme, it will be included in the Fund s annual report each year. If a member dies after reaching the age of 65 or after terminating their employment, the effect of this will become very visible. Partners will, in that case, not receive 70% of the employee s retirement pension entitlements, but less. If membership began after 1 January 2005, the partner s entitlement will be only 35%. If the member dies during employment, it will be 70% of his/her prospective pension, because in addition to the 35% accrual of the capital sum for the partner s pension, the other 35% is insured on a risk basis. The pension regulations provide that when the pension is taken out, the partner s pension will automatically be increased to 70% of the retirement pension. This will however be deducted from the employee s retirement pension. This measure has been included in the regulations to maintain the duty of care towards the dependant. This automatic exchange can however be reversed. The member and his/her partner will need to sign a statement agreeing to waive this automatic exchange The A.I.P. scheme In 2012, policyholders of the former Additional Individual Pension Scheme (AIP) who were born before 1 January 1950 could only have their AIP capital paid out in 36 instalments over 3 years and from the age of 62. The option of having the capital paid out over five years is no longer legally permissible. From 2015 onwards, the three-year option will also be abolished and from then on the AIP capital will only be able to be converted into a lifelong entitlement. From then on, it will only be possible to convert the AIP capital into a lifelong retirement pension combined with a partner s pension or a lifelong retirement pension alone. Aegon will send future pensioners a quotation approximately one month before they retire Annuity The third pension pillar specifies how an employee can make supplementary individual (additional) savings for his/her pension, in addition to receiving the state pension (AOW) and company pension. Annuities are tax-deductible (within certain fiscal limits) and it is possible to calculate this extra scope via a maximum annual annuity premium tax relief calculation and/or reserve margin calculation. Annuities are paid out periodically over a specified period (e.g. a maximum of five years), beginning at a pre-defined age. It is not possible to convert the capital accrued into lifelong retirement pension payments and/or partner s pension payments General Dependants Act (ANW) Very important (please check your personal situation in relation to this provision) Page 17 of 79

18 All individuals residing or working in the Netherlands are entitled to General Dependants Act (Algemene nabestaandenwet; ANW) benefits. Payments are however subject to various conditions. Claimants may only receive benefit if they are below the age of 65 and if their deceased partner lived or worked in the Netherlands. The following (additional) conditions also apply: - you were born before 1950; - or you are caring for a child younger than 18 years; - or you are registered occupationally disabled for at least 45%. If you do not meet at least one of these conditions when your partner dies, you will NOT quality for ANW benefit, which may imply a substantial drop in your income. Fluor has therefore included the Dependants Protection Plan in its group insurance contract with Centraal Beheer. The plan protects your dependants through a monthly payment that continues until the partner reaches the age of 65. However, the insurance must be taken out individually by the employee (but qualifies for a Fluor group discount). You are urgently requested to examine whether you require this insurance. Relevant information can be obtained from the Human Resources department or the Fund s administrator From the administration The Management Board is responsible for the overall policy and reporting by the Fund. Day-to-day policy is determined by the full Management Board, for which the Executive Committee (i.e. the chairman, secretary and the administrator of the Fund) is the direct point of contact. The Management Board has delegated various powers, fully or in part, to the administrator or one or more committees appointed by the Management Board from within its own members. Individuals to whom powers have been delegated are accountable to the Management Board at all times. The administrator organises the monthly board meetings, compiles the agenda, keeps the minutes and informs the Management Board of all relevant ongoing matters. With regard to auditing the administration, the administrator notifies the Management Board of matters relating to: - processing changes, - the annual work planning, - updating the Funds website and providing relevant advice, - current issues relating to pensions and statutory amendments, - asset management, - reporting to DNB and AFM, - feedback on reviews carried out by the accountant and the actuary, - miscellaneous administrative matters. The Executive Committee / administrator and Aegon s relationship manager and account manager meet twice a year to discuss the provisions laid down in the Service Level Agreement. They work with Aegon s financial administration, which is responsible for preparing the annual report, to formulate the annual work schedule stating who provides what input for the annual report and by when it must be submitted. This schedule applies to the auditor, the actuary, Aegon s financial administration and the Fund s administrator. The annual work schedule covers a 6-month period of activities. The administration also reports monthly to DNB (in digital form). Page 18 of 79

19 Because AEGON is responsible for the pension administration, it is also the primary contact. Employees with questions can contact AEGON s Pension Advice Centre (PAC) on +31 (0) The PAC is the first point of contact. If members require additional information, they are put in touch with the relationship manager, who is the second point of contact. The pension administrator is the third point of contact. In recent years, the role of administrator has increasingly become a policy-related function, with the work of administration itself performed by the insurer. Further information about the Fluor pension scheme and pension-related matters can be found on the Fund s pension website at Risk management Introduction The Management Board is responsible for the organisation and proper functioning of the internal risk management and control system for all risks to which the Fund is exposed. In 2012 the Management Board conducted an audit to highlight all the risks and the appropriate risk management. This part of the annual report briefly summarises the main risks and the decisions taken in 2012 to manage them. The purpose of risk management is to control these risks and to render account of the risk management applied. The Management Board also prepared a Financial Crisis Plan which is included in the ABTN. The Financial Crisis Plan is discussed in more detail in the section on risk Risk management process The risk management process is as follows: 1. identifying the risks, 2. assessing the risks, 3. assessing the control measures, 4. formulating a policy. In 2012, the Management Board systematically identified the risks and assessed to what extent they were relevant and compelling. A number of risks were identified in These risks and the appropriate control measures were subsequently assessed to see if the four steps (identification, policy formulation, implementation and monitoring) had been applied. The Management Board was assisted by the report compiled by the on-site review committee. Based on the results, the Management Board drew up a policy relating to risk management and to a number of specific risks. An analysis of supervisory legislation showed that solvency, liquidity and the organisation and control of sound operational management were particularly sensitive to risks and lend themselves for assessment of their risk-based supervision. DNB supervises pension funds and insurers using the Focus (formerly Firm) system to manage and supervise risks. DNB introduced the new Focus system in Focus is the provisional final stage of DNB s reforms to bring about more effective and forceful supervision. Focus builds on FIRM, the risk method which was used by DNB in recent years but which has now had several major improvements added. For example, all supervised institutions are now divided into five categories of risk analysis. The bigger the impact of the risks on DNB s supervision goals, the more intensive the risk analysis. DNB has defined four stages of risk mitigation: a) identifying risks, b) quantifying risks, c) defining intervention strategy, d) implementing and monitoring. Page 19 of 79

20 DNB has stated that these changes, supplemented by Focus, are designed to put a regulatory framework in place that contributes to a stable financial sector. The Financial Crisis Plan In 2012, DNB stated that all pension funds must draw up a Financial Crisis Plan. The crisis plan consists of nine articles which are based on DNB s Policy Rules governing financial crisis plans for pension funds (Beleidsregel financieel crisisplan pensioenfondsen) of 5 December 2011 in the context of Section 145 of the Pensions Act and Section 24 of the Pension Funds (Financial Assessment Framework) Decree (Besluit Financieel Toetsingskader pensioenfondsen). The objective of the Financial Crisis Plan is to: - describe the administrative steps to be taken in a financial crisis, - specify what the Management Board views as a financial crisis, - what the decision-making process is with regard to the financial consequences of the crisis for groups of stakeholders (active members, pensioners and sleepers). The decision-making process must always feature a balanced weighing of interests. A Management Board risk management committee has compiled an initial version of the crisis plan. The plan will be developed further in the spring of The Financial Crisis Plan was added to the Actuarial and Technical Business Report (ABTN). Governance structure The governance structure relating to risk management is determined by several internal and external entities whose roles and interrelationships are shown on a diagram. These entities have their own allocated responsibilities with regard to risk management. - The Management Board assumes final responsibility for risk management and determining policy. - The executive committee (chairman and secretary) have risk management as a specific focus area. Based on this mandate, they supervise the implementation of policy and ensure that the Management Board has all the information it needs concerning risk management. - An external party helps the Management Board to analyse the risks and control measures. The Management Board invites an on-site review committee (visitatiecommissie) to conduct a review every 3 years. The results, conclusions and action points in the committee s report help to improve risk management. The most recent review was conducted in The committee s recommendations were re-examined in late 2012 and the Fund s current situation was assessed, after which it was agreed to have an on-site review conducted in spring The Accountability Body (Verantwoordingsorgaan), which consists of representatives of the pensioners, the active members and management, also exercises control over the risks within the Fund. This is based partly on an analysis of the annual report. Action items individual risks This section describes a number of specific action points for addressing the identified risks. If no action points are stated for certain risks, the Management Board feels that the level of risk combined with the strength of the control was acceptable in These points are also discussed elsewhere in this report, but have been included here in relation to specific risk management. Underwriting risk Page 20 of 79

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