NETHERLANDS - The Dutch Association of Industry-wide Pension Funds (VB) has raised doubts over the effectiveness of the "z-score" in measuring pension fund performance.
All compulsory industry-wide pension funds in the Netherlands are required to publish performance tests, or z-scores, which assess investment performance against a defined benchmark.
The VB announced that only two of the 65 compulsory funds it is affiliated with failed to achieve the benchmark performance of negative 1.28 in the period 2000 to 2004.
However the association said: “When the z-score is evaluated by the Ministry of Social Affairs and Employment later this year in the context of the exemption regulation, the question of its continued usefulness in an industry whose yardstick is the Financial Assessment Framework (FTK) will certainly come up for discussion.
“The conclusion may well be that an entirely new assessment tool is needed.”
The VB said it was an advocate of performance monitoring for compulsory pension funds but questioned the z-score’s compatibility with FTK.
Industry-wide pension funds publish their z-score in April each year. The VB said good returns on investment, relative to benchmark, were achieved despite the fact that pension funds modified their investment policies in light of solvency requirements.
The benchmark portfolios against which pension funds are measured are set by the board of management of each pension fund on the basis of risk profiles emerging from an asset liability study. Failure to pass the performance test provides grounds for employers to withdraw from mandatory participation in the fund.
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