Pension funds in the Netherlands are in somewhat better shape again, but are far from out of the woods. The investment results were ultimately better than expected in 2016, but we are dealing with a low market interest rate, which means that the coverage ratios still remain on the low side. The financial situation of Mars Pension Fund (MPF) has also improved. I would like to take you through the current developments and their financial impact on our pension fund.

Lowest point policy funding ratio over?

In 2016, our policy funding ratio was initially around 116% due to ever-decreasing interest rates. Towards the end of the year and in the beginning of 2017, the monthly coverage ratio rose to 130.7% due to good investment results and slightly rising interest rates. We are currently almost at our required capital.

Given our investment policy, the Dutch Central Bank (DNB) wants us to maintain a buffer of over 30%. We can therefore state that the fund's liabilities are currently almost sufficiently covered. It should be noted, however, that the liabilities are still very high at the moment because we have to reckon with a market interest rate that is still very low. Because the policy coverage ratio (average of the last 12 monthly coverage ratios) was below the required coverage ratio at the end of 2016, MPF again submitted an adjusted recovery plan by April 1, 2017.

At the beginning of 2017, interest rates appear to have stabilized and, while slightly above the 2016 low point, are still at historically low levels. If interest rates do not start to fall again, we should expect a funding ratio above 125% for the foreseeable future.

Compared to other funds, we are doing well. In the last quarter of 2016, the average policy coverage ratio of all funds was around 100%. MPF's was 116.6% in the same quarter.

Inflation

The European Central Bank's (ECB) policy objectives include stimulating the economy and preventing deflation. Inflation has recently risen slightly, although below the ECB target of 2%. If this continues, we expect interest rates to rise again. Although it will be a bit sparse for the time being. We expect such a development to have a positive impact on the (policy) funding ratio. That's good because we depend on the policy coverage ratio to increase pensions with a supplement. So if inflation picks up, we expect to be able to (partially) index existing pensions in line with the pension commitment.

Our ambition remains to rise above a policy coverage ratio of approximately 130%. At that point, we will be able to grant full indexation.

A good return of investment

Finally, a word on investments. The financial markets have performed better than we expected. In these turbulent times, it is especially important to spread risks well. Over 2016, a nice return of 7.5% was achieved under difficult circumstances. 2017 also got off to a good start; we are above 2% for the first 2 months. Over the past 10 years, the fund has managed to achieve an annual return of 7%, so that despite the extremely low interest rate, our coverage ratio has remained at a reasonable level in recent years.

Greetings, also on behalf of the rest of the board,

William van Ettinger

Chairman of the Board of Mars Pension Fund