The Fonds de compensation commun au régime général de pension (FDC)
The FDC was created with the purpose of letting the reserve of the general pension insurance scheme benefit from financial markets movements by investing this reserve on the financial markets through a diversified portfolio subject to strict risk and return criteria.
To this end, the FDC was created by the amended law of 6 May 2004 concerning the administration of the assets of the general pension insurance scheme and was entrusted with the management of this reserve, in particular through the intermediary of one or more collective investment schemes. The aforementioned law was amended by the law of 13 May 2008 concerning the introduction of a unified statute for the different private sector employees.
The FDC, as a public institution, is subject to the supervision of the Minister of Social Security exercised through the Inspection générale de la sécurité sociale.
The Board of Directors that manages the FDC is composed of twelve members. It is assisted by an investment committee of six members, including three external experts. The task of this committee is to prepare investment decisions for the Board of Directors.
In addition, the Board of Directors set up in 2010 a real estate committee responsible for preparing its decisions regarding direct property holdings and assisting the Board of Directors in the daily management of these holdings.
In 2004, an initial investment strategy was drawn up and its effective implementation began in 2007. This strategy foresaw the creation of different equity, bond and money market portfolios whose maximum quotas were fixed by a Grand-Ducal regulation. This initial investment strategy was revised during 2008 and 2012.
At the end of 2005, the FDC published its articles of association which were amended late 2009 and finalised a first directive of the Board of Directors regarding the investment principles, the management rules and the organisation of the supervision and control of the investments.
In May 2006, a code of ethics was developed for FDC’s collaborators and managing bodies (Board of Directors and Investment Committee). Thus, the behaviour of FDC officials must meet high ethical standards to preserve the interests of both contributors and pensioners. This code is a code of conduct for loyalty in asset management and the Board of Directors has committed to respect the principles set out in this code and has taken all necessary measures relating thereto.
After a first request for proposals completed in late 2006 regarding the awarding of a custodian bank and central administration mandate, the FDC selected in 2007 via another request for proposals thirteen initial fund managers specialised and recognised for their expertise for its different equity, bond and money market portfolios. Within the framework of its investment strategy, further requests for proposals were launched in 2010, 2011, 2013 and 2015.
Creation of FDC's investment vehicle
In July 2007, the FDC created a collective investment scheme in the form of a unit trust (mutual fund), in accordance with the amended law of 13 February 2007 concerning specialised investment funds and with the status of a public limited company, entitled Fonds de Compensation de la Sécurité Sociale, SICAV-FIS. This body, which became FDC’s investment vehicle, is subject to the supervision of the Luxembourgish financial regulatory authority Commission de surveillance du secteur financier.
From August 2007 onwards, the reserve entrusted to the FDC has been gradually invested in the SICAV.
The reserve of the general pension insurance scheme
The reserve of the general pension insurance scheme is not an actuarial reserve for benefits due and even less an actuarial reserve for any expectations of the contributors. The purpose of this reserve is exclusively related to the ability to lessen vulnerability to external perturbations, either with regard to revenues from contributions or to pension liabilities which, even in a pay-as-you-go system, can lead to sharp variations of the contribution rate.
Besides, considering the characteristics of the general pension insurance scheme (pension benefits adapted to the cost of living index and adjusted to the real level of wages and risk community open to future generations), this reserve can only contribute marginally to the long term pension benefits commitment. Indeed, the return of the reserve should primarily be used to compensate, to a certain extent, the growing level of pension benefits and the rising number of contributors in order to maintain its relative level and it is unlikely that the return leads towards a decrease in the contribution rate below the pay-as-you-go level.
On 31 December 2015, the overall reserve of the general pension insurance scheme reached 16.54 billion euros of which 15.81 billion euros were managed by the FDC and 728 million euros were administered by the national pension insurance institution Caisse nationale d'assurance pension. Among the 15.81 billion euros under management at the FDC, 14.28 billion were invested through the SICAV.
Compared to nearly 3.78 billion euros of payable pension benefits, the overall reserve of the general pension insurance scheme thus represented 4.37 times the total amount of annual pension liabilities at the end of 2015.