2005 Report and Financial Statements
Report and Financial Statements
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Contents
Data on Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Members of the Corporate Bodies
Report of the Board of Directors
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Balance sheet and profit and loss account
Annex to the balance sheet and the profit and loss account
Legal certification of accounts
Pension Fund of Banco de Portugal
Financial position and income and expenses account
Notes to the financial position and the income and expenses account
Certification of accounts
Actuarial valuation
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Data on Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. (Banco de Portugal’s Pension Fund
Managing Company) was set up on 3 June 1988, with the purpose of managing and representing
the Pension Fund of Banco de Portugal.
The equity capital of this Managing Company is €1.000.000.
The shareholders are:
• Banco de Portugal, holding 97,7% of the capital; and
• The members and beneficiaries of the Pension Fund of Banco de Portugal.
The head office is located at Rua do Comércio, N.º 148, in Lisbon.
Services are located at Av. da República, N.º 57, 7.º, in Lisbon.
As at 31 December 2005:
• the Managing Company’s net assets amounted to €2.275 thousand;
• the Managing Company’s equity capital amounted to €1.933 thousand;
• the Pension Fund value amounted to €1.181.527 thousand; and
• total liabilities amounted to €1.207.430 thousand.
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2005 Report and Financial Statements
Members of the Corporate Bodies
SHAREHOLDERS’ MEETING
Chairman
Armando da Silva Couto
Secretary
Hernâni Fontoura Pires
BOARD OF DIRECTORS
Chairman
António Manuel Martins Pereira Marta
Member of the Board
Manuel Ramos de Sousa Sebastião
Executive Director
Helena Maria de Almeida Martins Adegas
Single Auditor
Ernst & Young Audit & Associados – SROC, S.A.
Alternate of the Single Auditor
Óscar Monteiro Machado de Figueiredo, C.A.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Report of the Board of Directors
In conformity with the legal and statutory requirements, the Board of Directors hereby submits
to the shareholders of the Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. the Report
and Financial Statements, as well as other documents regarding the fiscal year 2005.
1. BUSINESS ACTIVITY CARRIED OUT
The Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. is responsible for the
management of the Pension Fund of Banco de Portugal, as well as for the actuarial valuations
required for the calculation of its liabilities. Most of this Managing Company’s capital is held by
Banco de Portugal and its staff members are employees of the Bank covered by a secondment
agreement. During the 2005 fiscal year the number of staff was, on average, 35.
The organisational structure of the Managing Company is comprised of the following units:
¾ Financial markets unit
¾ Real estate market unit
¾ Performance evaluation unit
¾ Risk control unit
¾ Pension management unit
¾ Operational and accounting unit
¾ Information systems unit
¾ Administrative support unit
The management of the Pension Fund has given particular relevance to the qualification and
training of its staff and to the modernisation of its information systems.
The training policy has promoted the high qualification of the staff, offering support to those
who are studying for a post-graduation or a masters’ degree. As a reflection of this policy, 68%
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2005 Report and Financial Statements
of the staff holds a degree (broken down as follows: 26% with a graduation, 24% with a postgraduation and 18% with a master’s degree).
Within the scope of the information systems, 2005 saw the implementation of a model for the
analysis, management and integrated simulation of financial risks, the increased utilisation of
electronic platforms supporting the transactions carried out by the front-office, and the
improvement of the IT security infrastructure of the Managing Company.
The Pension Fund of Banco de Portugal, managed by the Managing Company, is composed of
autonomous assets, exclusively earmarked for the fulfilment of Banco de Portugal’s
commitment to pay retirement and survivors pensions as well as other charges laid down in its
deed of constitution. It is a closed pension fund, operating a defined benefit scheme and plays
the role of first pillar of social protection. These benefits cover not only the requirements of the
collective wage agreement prevailing for the banking sector (Acordo Colectivo de Trabalho do Sector
Bancário – ACT), but also other supplementary remunerations received by the employees of
Banco de Portugal.
As to the activity developed in the course of 2005, several changes were introduced at the
actuarial and asset management levels, resulting from the implementation of Notice of Banco de
Portugal No 4/2005 of 28 February. This Notice amends Notice of Banco de Portugal No
12/2001, envisaging the setting up of a new accounting and prudential framework aimed at the
convergence towards the international accounting standards (namely, IAS 19).
The following developments should be highlighted:
•
Transfer to the Pension Fund, from 1 January onwards, of liabilities relating to the
payment of death grants, foreseen within the scope of the ACT, as well as of the
liabilities related to the contributions to be made by Banco de Portugal to Serviços de
Assistência Médico Social – SAMS (Social Health Assistance Service of bank employees),
inherent to the payment of pensions.
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2005 Report and Financial Statements
•
Revision of the valuation methodology of the Pension Fund liabilities, namely the
change in the mortality table, the indexation of the assumptions regarding the growth
rate of wages and pensions to the inflation rate implicit in sovereign euro area inflationlinked bonds, and the adjustment of the assumption regarding retirement conditions.
•
Consequent adjustment in the fixed-income portfolio structure, with a significant
increase in the share of inflation-linked bonds.
2.
PENSION PLANS
The Pension Fund of Banco de Portugal funds seven pension schemes, of which four (generally
known as Base Plans) are aimed at ensuring the benefits arising from the base remuneration,
while the remaining three (known as Regimes) are intended to provide for the payment of
pensions relating to the complementary salary.
All these plans/regimes fall within the defined benefit scheme category, given that the benefits
they offer – retirement or survivors pensions – are previously established. As a consequence, the
cost of these schemes is a dependent non-controllable variable, resulting from the actuarial and
financial assumptions considered. These, in turn, reflect exogenous developments in the
financial markets and demographic variables.
In general terms, benefits funded through the Pension Fund of Banco de Portugal are only
settled in the form of a pension. This excludes two of the pensionable complementary salary
regimes, where employees can opt for the partial capital redemption of the retirement pension.
In addition to retirement and survivors pensions, in 2005, the Pension Fund also started to fund
the death grants, as foreseen in the ACT, as well as the Banco de Portugal’s contributions to the
SAMS, inherent to the payment of pensions.
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2005 Report and Financial Statements
2.1. Characteristics
Base Plans
•
Plan I
This plan covers all employees hired by Banco de Portugal up to 31 December 1994. From that
date onwards, this plan was closed and no more members were admitted.
It is a non-contributory pension plan, insofar as employees do not contribute to its funding,
which is fully ensured by Banco de Portugal.
The benefits offered by this plan consist in attributing a retirement pension equal to the total
last base remuneration earned, in the case of normal retirement, disability or in certain cases of
early retirement, as well as a survivors pension to dependants of deceased employees (either
active or retired).
•
Plan II
This plan entered into force on 1 January 1995 and covers employees hired after that date, who
do not come from other credit institutions covered by ACT as far as social security matters are
concerned.
It is a contributory pension plan, insofar as employees contribute to its funding with 5% of their
pensionable remuneration, as laid down in Clause 137-A of ACT, while the remainder is paid by
Banco de Portugal.
This plan gives the right to a retirement pension calculated according to the base remuneration
and proportional to the years of service, as well as a survivors pension to dependants of
deceased employees (either active or retired).
•
Plan III
This plan covers the members of the Board of Directors of Banco de Portugal and started on 1
February 1998, with the entry into force of Law No 5/98 of 31 January 1998 – Organic Law of
Banco de Portugal.
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2005 Report and Financial Statements
It is a contributory pension plan, where members participate in its funding with a percentage
determined on the basis of the rate fixed in Clause 137-A of the ACT.
•
Plan IV
This plan includes all employees who, although having been hired after 1 January 1995, come
from other credit institutions covered by the ACT as far as social security matters are concerned.
This is a mixed plan, given that it is non-contributory like Plan I, but offers benefits
proportional to the years of service like Plan II.
Pensionable complementary salary regimes
•
General regime
This regime covers staff hired by Banco de Portugal after 1 January 2001.
It is a contributory regime, receiving contributions from both Banco de Portugal and the
employees, with a share of 60% and 40% respectively, including contributions for disability and
death risks. However, the employee’s contribution shall not exceed 10% of the complementary
salary earned.
The benefits offered by this regime consist in the granting of a retirement pension (the
possibility of capital redemptions being excluded) proportional to the period of contribution, as
well as a survivors pension to dependants of deceased employees (either active or retired).
•
Special regime A
This regime covers staff hired by Banco de Portugal before 31 December 1998.
It is a contributory regime to which both Banco de Portugal and the employees contribute
according to the rules established for the General regime. However, in this regime, disability and
death risks are fully funded by Banco de Portugal.
The benefits offered by this regime consist in the granting of a retirement pension
corresponding to 85% of the last complementary salary, when the normal retirement age is
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2005 Report and Financial Statements
reached or in case of early retirement, or calculated proportionally to the years of service for
pension purposes in case of disability (at least 50% of the complementary salary), as well as in
the granting of a survivors pension to dependants of deceased employees (either active or
retired). Upon retirement, employees can opt for the capital redemption of 1/3 of the pension
to which they are entitled.
•
Special regime B
This mixed regime covers staff hired by Banco de Portugal in 1999 and 2000.
In fact, it fully coincides with the mechanism applicable to the Special regime A as regards the
sharing of contributions between Banco de Portugal and the employees, limits on employees’
contributions and coverage of shared risks.
With regard to benefits, this regime coincides with the General regime, except for the fact that it
enables employees to opt for the capital redemption of 1/3 of the pension amount.
2.2. Evolution of the population covered by the Plans/Regimes
Reference should be made to the high maturity of the population covered by the Pension Fund
of Banco de Portugal, whose number of beneficiaries is higher than the number of active staff
members. Therefore, the high share of liabilities relating to pensions in payment compared to
the total liabilities, strongly conditions the Fund’s asset management.
Base plans
As regards the population, the four base plans are characterised as follows:
-
Plan I is closed and will admit no more members. Therefore, its structure will evolve
towards an increase in the number of beneficiaries, against a reduction in the number of
members;
-
Plans II and IV are open, which means that they will cover new hirings by Banco de
Portugal and therefore the number of members will increase. In parallel, given the younger
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2005 Report and Financial Statements
population compared to the other plans, the group of beneficiaries will tend to grow more
slowly;
-
Plan III is open, covering a restricted group of members.
Table 1: POPULATION COVERED BY BASE PLANS
As at
As at
Change
As at
Change
2003/2004 31 Dec. 2005 2004/2005
31 Dec.
31 Dec.
2003
2004
Active staff
1.788
1.737
-51
1.704
-33
Retired staff
1.683
1.724
41
1.744
20
471
474
3
475
1
3.942
3.935
-7
3.923
-12
0,83
0,79
Pensioners
TOTAL
Ratio
0,77
Active staff1/Beneficiaries2
1Members.
2Retired
staff and pensioners.
As at 31 December 2005, total Base Plans funded through the Pension Fund covered 1.704
active staff members, 1.744 retired staff members and 475 pensioners.
Pensionable complementary salary regimes
In terms of population, the three regimes are characterised as follows:
-
The General regime is the only regime which is open to new hirings and is thus expected to
evolve similarly to Plans II and IV;
-
Special regime A, given the time frame it covers, comprehends the most representative part
of the population covered by the Pension Fund. It is an overall closed regime, although
occasionally there may be new admissions, in those cases where a complementary salary is
attributed to employees that were hired by the Bank prior to 31 December 1998;
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2005 Report and Financial Statements
-
Special regime B will always be a small-sized pension scheme, given its short coverage
period. It is an overall closed regime, similarly to Special regime A.
Table 2: POPULATION COVERED BY
PENSIONABLE COMPLEMENTARY SALARY REGIMES
As at
As at
31 Dec. 2003 31 Dec. 2004
Active staff
As at
Change
2003/2004
31 Dec. 2005
2004/2005
1.741
1.696
-45
1.664
-32
91
150
59
191
41
7
8
1
12
4
TOTAL
1.839
1.854
1.867
13
Ratio
17,8
10,7
8,2
Retired staff
Pensioners
Active
Change
staff1/Beneficiaries2
1Members.
2Retired
staff and pensioners.
As at 31 December 2005, pensionable complementary salary regimes funded through the
Pension Fund covered 1.664 active staff members, 191 retired staff members and 12 pensioners.
2.3. Developments in benefits/charges and contributions
Chart 1 shows developments in the volume of benefits and charges paid by the Pension Fund in
the last ten years.
In 2005 the value of pensions paid amounted to €41.069 thousand, accounting for a 4,3%
increase from the previous year. Of this amount, €39.912 thousand originate from the base
plans and €1.157 thousand from the pensionable complementary salary regimes.
The value settled in 2005 as redemption capital amounted to €1.005 thousand, accounting for a 12,6% decrease from 2004.
With regard to the new items supported by the Pension Fund, €216,0 thousand were paid on
account of death grants and €2.701,4 thousand of contributions to the SAMS.
The Pension Fund also paid back the value corresponding to contributions previously made
(plus the respective accumulated income) to a small number of employees, whose contracts with
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2005 Report and Financial Statements
Banco de Portugal terminated. There was also the transfer of pension rights of former
employees who started working in the European Commission.
Chart 1: VOLUME OF BENEFITS AND CHARGES PAID BY THE PENSION FUND
(€ thousand)
50.000
45.000
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
0
1996
1997
1998
1999
2000
Pensions
Contributions to SAMS
2001
2002
2003
2004
2005
Redemption capital
Death grants
As the plans/regimes funded by the Pension Fund are defined benefit schemes, the
contributions are a “dependent variable”. Thus, it is necessary to make periodic adjustments to
regular contribution rates and, in some cases, to add an extraordinary contribution, as a result of
several factors, in particular changes in the behaviour of financial variables or non-projected
developments in benefits.
With regard to developments in the contributions received by the Fund in the past few years, it
should be noted that:
- Current contributions were interrupted in 1996, 1997 and 1998, due to a high funding level
of the Pension Fund at end-1995. They were resumed in 1999.
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2005 Report and Financial Statements
- In early 2002 an amount of €54 million was transferred, as a result of the integration in the
Pension Fund of Banco de Portugal of pensionable complementary salary regimes
previously covered by a group life insurance.
- Extraordinary contributions by Banco de Portugal exhibit an irregular pattern over time. In
late 1995 and early 1996 they were intended to finance the transfer to the Pension Fund of
liabilities relating to pensions in payment that until then had been incumbent on Banco de
Portugal. Between 2001 and 2003 they resulted from unfavourable market developments.
- In turn, in 2005 Banco de Portugal made an extraordinary contribution amounting to €94,9
million. This contribution was intended to finance the transfer to the Pension Fund of
charges relating to post-retirement contributions to the SAMS and death grants. In addition,
this contribution also covered the revision of assumptions regarding the calculation of
liabilities resulting from the changes introduced in the accounting policy in accordance with
the IAS.
- In 2005 regular contributions totalled €19,8 million, of which €1,7 million were paid by
employees and €18,1 million by Banco de Portugal. This figure resulted from an adjustment
to the contribution rates, resulting from the revision of some calculation assumptions at the
end of the 2004 fiscal year.
2.4. Actuarial and financial assumptions
In 2005, in order to increase their adherence to the principles laid down in the IAS, the actuarial
and financial assumptions were revised, as follows:
-
Utilisation, as an assumption for the growth rate of salaries and pensions, of the inflation
rate implicit in sovereign euro area inflation-linked bonds;1
-
Change in the mortality table applied to (male and female) population as a whole for TV
88/90;
1
This is the second stage of the indexation process of actuarial and financial assumptions. The first stage
started in 2001 with the indexation of the discount rate to the yield to maturity of bonds with a high credit rating
issued in the euro area.
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2005 Report and Financial Statements
-
Update of the assumption related to the retirement age (delaying retirement to 65 years of
age).
Thus, at the end of 2005, the discount rate stood at 4,36% and the growth rates of wages and
pensions stood at 3,13% and 2,13% respectively.
Throughout 2005, past service liabilities recorded an overall increase of +16,0%, of which
+4,37% have an extraordinary nature – as they result from the implementation of the new
accounting standards – and +11,14% result from developments in the course of the year. The
latter can be broken down into 2,69% relating to the expected cost for the year and 8,45%
resulting from the combined effect of the indexation of actuarial and financial assumptions
(changes in discount and inflation rates in view of the actuarial valuation in 2004) and other
deviations.
3. MACROECONOMIC FRAMEWORK AND MARKET DEVELOPMENTS
The year 2005 was characterised by a slowdown in economic growth in most developed
economies, except Japan. Economic growth in the euro area declined to 1,4% in 2005, down
from 2,1% in 2004. In the United States, this decline was less marked (an increase of 3,1% in
2005, compared with 3,3% in 2004). By contrast, growth in Japan increased sizably by 4,2% in
2005, up from 0,4% in 2004.
The price of oil continued the steep upward trend seen in 2004, standing at USD 68 per barrel at
the end of 2005, i.e. an increase of around 45%. These developments were driven by demand
from the strongly developing countries, such as China and India, with growth rates of 10% and
7,5% respectively.
In 2005 inflation remained under control in most of the world major economies. In the euro
area, the Harmonised Index of Consumer Prices (HICP) increased by 2,2%. In the United
States, inflation recorded a higher level, i.e. 3,4%. In turn, growth in Japan was slightly negative
(-0,2%), which seems to have marked the end of the deflationary cycle of the past few years.
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2005 Report and Financial Statements
Table 3 – GDP AND INFLATION GROWTH RATES
Gross Domestic Product (%)
p
2007p
2004
2005 2006
2,1
1,4
2,1
2,2
1,2
0,4
0,9
1,8
3,3
3,1
3,5
3,3
1,6
4,2
2
2
Euro area
Portugal
United States
Japan
Consumer prices (%)
p
p
2004 2005 2006 2007
2,4
2,2
2,1
1,6
2,5
2,1
2,4
1,4
3,3
3,4
2,8
2,5
-0,2
-0,1
0,1
0,8
Sources: OECD,, Economic Outlook (November 2005), Eurostat and Banco de Portugal.
(p) Estimates and projections.
In December 2005, against a background of economic recovery and increased inflationary
concerns in the euro area, the Governing Council of the European Central Bank raised again its
key interest rates by 0,25 percentage points, to 2,25%. This move marked the end of a long
period of stable interest rates, as the last change had been a decline in June 2003. The change
made in December 2005 was the first upward movement in five years.
The ECB action, as well as expectations previously generated in the market, led to a rise in short
and medium-term interest rates. With respect to long-term interest rates, prospects of subdued
growth and controlled inflation pressures led to an opposite, downward movement. Hence, at
the end of 2005, the slope of the euro area yield curve was less steep than at the beginning of
the year.
Table 4 – DEVELOPMENTS IN THE MAIN EURO AREA INTEREST RATES
Dec.2004
Dec.2005
Key ECB interest rate
Rate on the main refinancing operations
2,00%
2,25%
0,25
Money market yields (*)
3 months
1 year
2,16%
2,36%
2,40%
2,84%
0,24
0,48
2,48%
3,69%
4,29%
2,86%
3,30%
3,57%
0,38
-0,39
-0,72
Treasury bond yields (**)
2 years
10 years
30 years
Change (p.p.)
(**)
Source: REUTERS.
(*) Euro area benchmark: Euribor rates.
(**) Euro area benchmark: German government debt securities.
In 2005 the corporate debt market was marked by the stabilisation, at historically low levels, of
the interest rate spread vis-à-vis the public debt, in a context of growing earnings for the major
companies and decreasing perception of risk by investors.
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Turning to the foreign exchange market, the euro depreciated against the US dollar by
approximately 13%, owing to: the combined effect of the interest rate differential between the
North American and European markets; the increased buoyancy of the US economy; the tax
incentives granted to US companies repatriating profits to the United States; and the rise in US
dollar reserves held by Asian central banks (in particular, by the central banks of China and
India) and by oil-exporting countries.
The performance of equity markets was rather favourable in the course of 2005, in a context of
release of positive data on listed companies and good growth prospects for the future. However,
there were geographical disparities. The European Dow Jones Eurostoxx 50 index recorded an
increase of around 20,5%, compared with a sharp rise of 40% in the Japanese Nikkei 225 index,
and a modest appreciation of 3,84% in the US S&P 500 index.
4. ASSET PORTFOLIO STRUCTURE
The asset portfolio structure of the Pension Fund remained relatively stable throughout 2005,
reflecting an investment policy determined by the structure of liabilities, which are marked to
market. At the end of the year, fixed-income securities represented 77,1% of the assets, real
estate represented 12,9% and the equity portfolio represented the remaining 9,9%.
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Chart 2 - STRUCTURE OF THE PENSION FUND’S PORTFOLIO
(31 DECEMBER 2005)
Equity: 9,9%
2,8%
1,2%
5,6%
0,3%
Real estate:
12,9%
6,1%
35,0%
6,8%
42,1%
Fixed income: 77,1%
Inflation-indexed debt
Real estate investment funds
European equities other than euro area equities
Non-indexed debt
Asia-Pacific equities
US equities
Buildings
Euro area equities
The share of fixed-income securities in the portfolio of the Pension Fund results from the
strategic relevance of making the balance sheet immune to interest rate risk. At the end of 2005,
45% of this portfolio was comprised of inflation-linked bonds.
The equity component is represented by exchange traded funds (ETF) and can be broken down
into four geographical areas, of which the euro area is particularly important.
At the end of 2005, the real estate portfolio was broken down into real estate directly held (53%)
and several participations in domestic and European closed real estate investment funds (47%).
5. PERFORMANCE BY ASSET CLASS
The performance of the Pension Fund’s asset portfolio in 2005 (+10,0%) was largely
determined by the yield on the bond portfolio (+9,8%). The decline in medium and long-term
interest rates had a significant impact on the value of the bond portfolio, which was magnified
by a policy of concentration of investment in long-term securities. As a consequence, the effect
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2005 Report and Financial Statements
of the decline in interest rates on the value of past service liabilities was largely offset, and a large
level of hedging for these liabilities was kept.
Table 5 – YIELD ON THE PENSION FUND’S PORTFOLIO
Yield (1)
Fixed income
Public debt
Corporate debt
Supranational and similar debt
Equity
Euro area
North America
Non-euro area Europe
Asia-Pacific
Real estate
Buildings
Investment funds
Total
Weight (2)
9,8%
76,0%
10,0%
72,9%
2,4%
1,8%
8,5%
1,3%
17,9%
9,7%
23,7%
5,5%
3,8%
2,7%
21,3%
1,2%
43,4%
0,3%
6,4%
14,3%
7,0%
8,1%
5,5%
6,2%
10,0%
100,0%
(1) Time weighted rate of return.
(2) Average weights in 2005.
The significant yield on the equity portfolio of the Pension Fund (+17,9%) was due to the
valuation of the major stock market indices. Considering that this is a portfolio comprised of
exchange traded funds (ETF) and given the exchange rate coverage policy pursued, the results
were chiefly due to the return of the respective indices denominated in the local currency.
Real estate investment generated a return of +6,4% in 2005, while the yield on the buildings
portfolio was +7,0% and the yield on the real estate investment fund portfolio was of +5,5%.
6. RISK CONTROL
The Pension Fund’s investment policy is bound by the applicable regulations set forth by
Instituto de Seguros de Portugal – ISP (Portuguese Insurance Institute), namely as regards the asset
composition and control and the use of derivatives, repurchase agreements and securities
lending. It is also bound by internal rules, which are more detailed and tighter than the
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2005 Report and Financial Statements
regulations. These rules are set out by the Managing Company itself, strictly in line with the risk
profile desired by Banco de Portugal.
In the course of 2005 the portfolio structure was subject to constant analysis and monitoring,
intended to identify the degree of exposure to different types of risk (credit risk, country risk,
market risk, liquidity risk and legal risks). This procedure was also intended to mitigate the risks
through the imposition of limits or the recourse to hedging instruments.
The control of credit risk associated with either the institutions issuing securities included in the
investment portfolio (issuers) or those with whom transactions are dealt (counterparties) is
ensured by restricting the investment to instruments and institutions of recognised safety and
financial soundness. It also implies monitoring the rating given by international agencies, such as
FitchRatings, Moody’s Investor Service and Standard & Poor’s, which must respect the
minimum levels established. The risk diversification policy is executed on an economic group
basis, through the setting of limits to the concentration of exposure to entities belonging to the
same group.
CHART 3: EXPOSURE OF THE FIXED-INCOME PORTFOLIO BY TYPE OF
ISSUER/COUNTERPARTY
(31 December 2005)
At the end of 2005 the Pension Fund’s fixed-income portfolio showed a low level of credit risk
exposure, given the large share of sovereign issuers with a high rating.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Chart 4: EXPOSURE OF THE FIXED-INCOME PORTFOLIO BY RATING OF THE
ISSUER/COUNTERPARTY
(31 December 2005)
9,4%
22,9%
67,7%
AAA
AA
A
The portfolio’s exposure continued to be predominantly concentrated in euro area countries,
accounting for 95,8% of the total at the end of 2005.
Chart 5: GEOGRAPHICAL DISTRIBUTION
(31 December 2005)
0,3%
2,7%
1,2%
95,8%
Euro area
Non-euro area Europe
Ásia / Pacífic
North America
With regard to the market risk and interest rate risk indicators of the assets portfolio, at the end
of 2005:
-
the Value-at-Risk (VaR) of the financial asset portfolio (excluding real estate assets) for a
time horizon of one month with a confidence level of 99% was €35,4 million, i.e. 3,4% of
the portfolio value;
-
the modified duration stood at 12,7.
21
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
These indicators must be supplemented by an “asset-liability” analysis, taking into account the
liabilities structure of the Pension Fund (see section 7. below).
Table 6 – MODIFIED DURATION
31.Dec.2005
Maturity
Up to 1 year
1 to 3 years
3 to 5 years
5 to 7 years
7 to 10 years
Over 10 years
Total
Weight (%) MDuration
31.Dec.2004
Weight (%) MDuration
16,7%
9,0%
1,6%
3,0%
12,7%
57,0%
0,3
2,5
4,0
6,3
11,1
18,8
4,0%
7,9%
9,9%
1,1%
2,4%
74,7%
0,6
1,9
3,1
5,0
7,2
12,4
100,0%
12,7
100,0%
10,0
The management of the investment portfolio’s exchange rate risk continued to be carried out
through forward foreign exchange transactions linked to investments in assets denominated in
currencies other than the euro.
As for legal risks, special emphasis is placed on the analysis of the legal framework and on the
monitoring of strict compliance with the rules and limits of prudential diversification as defined
by the Instituto de Seguros de Portugal concerning the asset composition of the Pension Fund’s
portfolio.
7. FINANCIAL POSITION OF THE PENSION FUND ON AN ASSET-LIABILITY BASIS
As at 31 December 2005, the assets of the Pension Fund of Banco de Portugal amounted to
€1.181,5 million, which represents an increase of €169,3 million compared with a year earlier.
Total past service liabilities amounted to €1.207,4 million, €685,0 million of which are liabilities
relating to pensions in payment and €522,4 million correspond to past service liabilities of active
staff. In 2005 the increase in past service liabilities amounted to €166,5 million, €45,5 of which
result from the implementation of the new accounting standards.
22
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Chart 6: DEVELOPMENTS IN ASSETS AND LIABILITIES OF THE
PENSION FUND
(€ million)
1.400
1.200
1.000
800
600
400
200
0
2001
Pension fund value
2002
2003
2004
2005
Past service liabilities
The transitional regime to the new accounting standards allows for the deferral in financing the
impact of the implementation of the new standards, through a redemption schedule for a
gradual accounting registration. However, this facility was not used as it was considered that it
might jeopardize the smooth operation of the Fund.
At the end of the year, the Pension Fund recorded an overall funding level of 97,9%, ensuring a
full coverage of liabilities relating to pension payments and a 95% coverage of past service
liabilities of active staff (i.e. above the minimum funding level established in the Notices of
Banco de Portugal).
For the purposes of the provisions of Notice of Banco de Portugal No 12/2001, as amended by
Notice of Banco de Portugal No 4/2005, the degree of coverage was 115,4% of the minimum
required. The requirements established by the Instituto de Seguros de Portugal were also fully
complied with, and the coverage of the minimum solvency reached 127,0%.
23
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Table 7: FINANCIAL POSITION OF THE PENSION FUND
(amounts in €)
31.Dec.2004
(1)
(2)
(3)
(4)= (1)/(3)
(5)
(6)= (1)/(5)
(7)
(8)= (1)/(7)
Pension Fund value
Extraordinary contribution
Past service liabilities (PSL)
Actual funding level
Minimum compulsory PSL (Notice nº 04/2005)
Coverage of PSL of compulsory funding
PSL for the calculation of the minimum solvency ratio
Minimum solvency coverage
31.Dec.2005
1.012.217.188 1.181.526.663
0
94.903.638
1.040.908.959 1.207.429.808
97,2%
97,9%
1.006.572.839 1.023.931.378
100,6%
115,4%
870.771.795
930.486.308
116,2%
127,0%
8. ASSETS STRUCTURE OF THE MANAGING COMPANY AND RESULTS FOR
THE YEAR
The own funds of the Managing Company amounted to €1.933.024,54 at the end of 2005,
allowing for a solvency margin of 104,12%, calculated according to the applicable rules.
In the course of 2005, management was marked by a cost containment effort, translated into a
reduction by -1,7% of the management fee paid by Banco de Portugal. At the end of 2005, it
accounted for 0,28% of the value of the assets under management, compared with 0,33% at the
end of the previous year.
Developments in the main items in the cost structure:
Supply and services from third parties
Staff costs
Amortizations and depreciations for the year
2004
2005
Change (%)
911.201€
964.569€
+5,9%
2.149.012€
1.944.953€
-9,5%
254.050€
294.875€
+16,1%
The increase in supplies and services from third parties reflects a rise in expenditure on
information services, namely licenses and maintenance of software as well as diversification in
the access to financial information providers.
24
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
The decrease in staff costs results from the smaller average number of staff and from the
significant decline in extra work, which had been recorded in the previous year as a result of the
implementation of an information systems project.
The increase in amortizations and depreciations in 2005 results from the conclusion in mid-2004
of the project referred to above.
9. PROPOSAL FOR THE DISTRIBUTION OF RESULTS
The net profit in the accounts of the Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.,
for the fiscal year 2005, was €23.847,89, which shall be distributed as follows:
Legal reserve
€ 1.192,39
Free reserves
€ 22.655,50
Total
€ 23.847,89
10. FINAL REMARK
The Board of Directors would like to conclude the Report and Financial Statements for the
fiscal year 2005 by thanking Banco de Portugal for its confidence and cooperation.
A word of recognition is also due to Instituto de Seguros de Portugal for the manner in which it
monitored the business activities of Sociedade Gestora do Fundo de Pensões do Banco de
Portugal, S.A..
Finally, reference should be made to the high professionalism and dedication of all the staff of
the Managing Company, who played a decisive role in the results achieved.
Lisbon, 15 March 2006
25
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
BOARD OF DIRECTORS
António Manuel Martins Pereira Marta
Chairman
Manuel Ramos de Sousa Sebastião
Member of the Board
Helena Maria de Almeida Martins Adegas
Executive Director
26
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Balance sheet and profit and loss account
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
NA = Net assets
AA = Accumulated amortisation and provisions
GA = Gross assets
TOTAL ASSETS
Total amortisation
Total provisions
Accountant
ACCRUALS AND PREPAID EXPENDITURE
Accrued income
Prepaid expenses
Deferred tax assets
Bank deposits and cash:
Bank deposits
Cash
Marketable securities:
Other marketable securities
CURRENT ASSETS
Short-term debts of third parties:
Government and other public entities
Other debtors
Fixed assets under construction
Intangible fixed assets
Tangible fixed assets:
Buildings and other constructions
Basic equipment
Office equipment
Other tangible fixed assets
ASSETS
3.935.556
6.849
114.737
960
122.547
395.705
1.247
396.952
801.162
21.040
60.492
81.532
0
117.229
53.227
171.769
2.175.081
17.018
2.417.095
GA
1.661.684
3.842
0
117.229
4.820
99.146
1.422.449
14.199
1.540.613
AA
2005
2.274.833
6.849
114.737
960
122.547
395.705
1.247
396.952
797.320
21.040
60.492
81.532
0
0
48.407
72.624
752.632
2.819
876.482
NA
Fiscal years
2.924.227
25.566
69.142
2.941
97.650
75.871
1.247
77.118
1.115.835
1.115.835
562.223
3.996
566.219
43.252
0
22.820
76.486
919.902
4.947
1.024.154
NA
2004
LIABILITIES
Sub-total..............
TOTAL EQUITY
Board of Directors
TOTAL EQUITY AND LIABILITIES
TOTAL LIABILITIES
ACCRUALS AND INCOME COLLECTED IN ADVANCE
Accrued expenses
Income collected in advance
PROVISIONS FOR RISKS AND CHARGES
Provisions
LIABILITIES
Short-term debts to third parties:
Other shareholders
Other creditors
Suppliers, c/a
Government and other public entities
Net profit for the year
Results carried forward
Reserves:
Legal reserve
Free reserves
Capital
EQUITY
BALANCE SHEET
SOCIEDADE GESTORA DO FUNDO DE PENSÕES DO BANCO DE PORTUGAL, S.A.
2.274.833
341.808
8.168
741
549
3.411
188.535
18.536
211.031
121.868
23.848
1.933.025
102.650
806.526
1.909.177
0
1.000.000
2005
2.924.227
1.015.051
7.726
741
730
760.207
23.550
124.287
908.773
97.810
7.523
1.909.176
102.273
799.380
1.901.653
0
1.000.000
2004
Fiscal years
(EUR)
Accountant
Net profit and loss for the year: (F) - (G) =.....................
Profit and loss before taxes: (F) - (E) =.....................
Current profit and loss: (D) - (C) =..................................
Financial profit and loss: (D - B) - (C - A) =....................
Operational profit and loss: (B) - (A) =.............................
Summary:
TOTAL
(G) .......................................
Net profit and loss for the year
Tax on profit
(E) .......................................
Extraordinary costs and losses
(C) .......................................
Interest and similar costs
Provisions for financial holdings
(A) .......................................
Other operational costs and losses
Taxes
Staff costs:
Compensation
Other staff costs
Provisions
Amortisation of tangible and intangible fixed assets
Supplies and services from third parties
EXPENSES
15.476
3.587
650
30.355
1.894.959
49.995
2005
9.711
16.704
26.415
32.963
23.848
3.318.436
23.848
3.294.588
9.115
3.285.474
6.949
3.278.525
19.064
3.259.461
31.005
1.944.953
24.058
294.875
964.569
2004
8.525
12.950
500
15.647
2.095.651
53.361
Fiscal years
-24.153
29.039
4.886
9.339
7.523
3.379.773
7.523
3.372.249
1.816
3.370.433
989
3.369.445
21.475
3.347.970
16.147
2.149.012
17.560
254.050
911.201
INCOME
2005
Board of Directors
TOTAL
(F) .......................................
Extraordinary income and profits
(D) .......................................
Other interest and similar income
Income from marketable securities and other
financial holdings
Supply of services
Supplementary income
(B) .......................................
INCOME AND EXPENSES ACCOUNT
SOCIEDADE GESTORA DO FUNDO DE PENSÕES DO BANCO DE PORTUGAL, S.A.
3.318.436
3.318.436
13.496
3.304.940
0
35.768
3.258.506
10.666
3.269.172
Fiscal years
2004
3.379.773
3.379.773
5.442
3.374.331
0
50.514
3.313.573
10.244
3.323.816
(EUR)
SOCIEDADE GESTORA DO FUNDO DE PENSÕES DO BANCO DE PORTUGAL, S.A.
PROFIT AND LOSS ACCOUNT
Fiscal year
2005
Operational activities
Net profit and loss
23.848
Adjustments
Amortisation
Provisions
Financial profit and loss
248.404
16.135
Increase in debts of third parties
Decrease in debts of third parties
-56.496
536.426
Increase in inventories
Decrease in inventories
164.985
-857.970
Increase in debts to third parties
Decrease in debts to third parties
Decrease in income collected in advance
Decrease in accrued income
Decrease in prepaid expenses
Decrease in accrued expenses
Profits on the disposal of fixed assets
Losses on the disposal of fixed assets
Decrease in deferred tax assets
Flows from operational activities
18.717
-45.595
442
1.981
.......................................
27.029
Investment activities
Revenue from:
-326.438
100.732
Financial investments
Tangible fixed assets
Intangible fixed assets
Assets under construction
Investment subsidies
Interest and similar income
Dividends
-43.252
Payments relating to:
Financial investments
Tangible fixed assets
Intangible fixed assets
Flows from investment activities
.......................................
-268.958
Financing activities
Revenues from:
Loans received
Equity increases
Supplements and issue premiums
Subsidies and endowments
Sale of shares
Loss coverage
0
0
0
0
0
0
Payments relating to:
Loans received
Repayment of financial leasing contracts
Interest and similar income
Dividends
Capital reduction and supplementary payments
Purchase of own shares
0
0
0
0
0
0
Flows from investment activities
.......................................
0
Cash change and equivalents
Effect of foreign exchange differences
Cash and equivalents at the start of the period
Cash and equivalents at the end of the period
.......................................
.......................................
.......................................
.......................................
319.834
0
77.118
396.952
Accountant
SOCIEDADE GESTORA DO FUNDO DE PENSÕES DO BANCO DE PORTUGAL, S.A.
PROFIT AND LOSS ACCOUNT BY FUNCTIONS
Fiscal years
2005
2004
3.258.506
0
3.313.573
0
3.258.506
3.313.573
10.666
0
3.228.456
24.458
10.244
0
3.331.823
11.694
16.258
-19.700
16.704
0
0
29.039
0
0
32.963
9.339
9.115
1.816
23.848
7.523
Extraordinary profit and loss
0
0
Taxes on extraordinary profit and loss
0
0
23.848
7.523
Sales and supply of services
Cost of sales and of supply of services
Gross profit and loss
.......................................
Other operational income
Distribution costs
Administrative costs
Other operational costs and losses
Operational profit and loss
.......................................
Net financing cost
Income (losses) from branches and associated companies
Income (losses) from other investments
Current profit and loss
.......................................
Taxes on current profit and loss
Current profit and loss after taxes
Net profit and loss
.......................................
.......................................
Accountant
2005 Report and Financial Statements
Annex to the balance sheet and the profit and loss account
Setting-up and business activity
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. (Banco de Portugal’s Pension
Fund Managing Company) was set up on 3 June 1988 through a notarial deed drawn up
from folio 74 to folio 76 of the deed book No 677 – C of the 9th Notarial Office of Lisbon,
with the purpose of administering, managing and representing the Pension Fund of Banco
de Portugal.
The setting up of this Managing Company was authorised by Executive Order No 245/88
of 20 April 1988 of the Ministry of Finance.
The annex to the balance sheet and the profit and loss account is in line with the number
ordering set out in the Official Chart of Accounts (Plano Oficial de Contabilidade – POC).
Numbers that are not indicated refer to cases where values and situations to be reported are
either irrelevant or non-existent.
3.
Valuation criteria
The Managing Company’s financial statements were prepared in accordance with the
accounting principles generally accepted in Portugal, i.e. going concern, consistency,
historical cost, prudence, substance over form, materiality and the accruals principle.
The valuation criteria adopted by the Managing Company are the following:
• Fixed assets
Fixed assets are valued at acquisition cost.
Depreciation is calculated over the expected lifetime of the asset, on a constant straightline basis. For the assets acquired up to and including 1993 a depreciation method is
used where equal amounts of depreciation expense are taken in each year of the asset’s
useful life. For the assets acquired after this date, a “month convention” is used,
corresponding to the number of months as of the month when the asset was placed in
service.
32
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Depreciation rates are in conformity with the Portuguese tax legislation. The resulting
lifetime is close to that of assets.
Depreciation rates are charged as follows:
Annual percentage
Basic equipment
10%
Office and social equipment and sundry furniture
10 to 33.33%
Other tangible fixed assets
12.50 %
• Marketable securities
Marketable securities are valued at acquisition cost, which includes all acquisition-related
costs.
Provisions were set up aimed at a full coverage of the value of capital losses in the
securities portfolio and corresponding to a decline in the market value vis-à-vis the
acquisition cost of securities, where the former is lower.
• Recognition of costs and income
Costs and income are recognised when they occur, taking into account the period to
which they refer and regardless of their actual financial settlement.
6.
Deferred taxes
The tax effect of temporary differences between the accounting and tax results was
recognised in terms of the corporate income tax. These differences regard provisions for
securities portfolio depreciation. The deferred tax amounted to €960 (€2,941.17 in 2004).
7.
Staff
During 2005 the average number of staff in the Managing Company was 34.
33
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
10. Fixed assets
Movements in this item were as follows:
(EUR)
INITIAL
BALANCE
TANGIBLE FIXED ASSETS
Gross assets
Buildings and other constructions
Basic equipment
Office equipment
24,912.80
154,804.69
2,119,627.97
Other tangible fixed assets
Intangible fixed assets
Fixed assets under construction (i)
WRITEOFFS/
WRITEDOWNS
28,314.00
16,964.76
55,452.91
FINAL
BALANCE
53,226.80
171,769.45
2,175,080.88
17,018.00
17,018.00
117,229.01
117,229.01
43,251.70
43,251.70
-
43,251.70
2,534,324.14
2,476,844.17
100,731.67
(2,092.87)
(2,727.23)
(4,820.10)
(78,318.62)
(20,827.11)
(99,145.73)
(1,199,726.16)
(269,193.32)
(12,071.35)
(2,127.25)
Accumulated depreciation
Buildings and other constructions
Basic equipment
Office equipment
INCREASES
Other tangible fixed assets
Other Research and Development
expenses
46,470.74
(14,198.60)
(117,229.01)
(1,409,438.01)
NET ASSETS
1,067,406.16
(1,422,448.74)
(117,229.01)
(295,874.91)
46,470.74
(1,657,842.01)
46,470.74
876,842.13
(i) See Note 14.
14. Fixed assets under construction
At the end of the fiscal year 2005, no fixed assets under construction were recorded.
34
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
17. Marketable securities
This item is composed as follows:
(EUR)
2005
2004
523,048.55
861,512.50
-
-
523,048.55
861,512.50
1.15
1.15
278,113.07
266,085.54
278,114.22
266,086.69
(3,841.65)
(11,764.69)
797,319.97
1,115,834.50
FIXED INCOME SECURITIES
Public debt
Sundry
VARIABLE INCOME SECURITIES
Equity
Mutual funds
Provisions for cash investments
NET VALUE
32. Guarantees provided
As at 31 December 2005 the Managing Company had provided guarantees to the
amount of €1,845,363.12, mostly related to pending judicial proceedings.
During the fiscal year 2005 and within the scope of one judicial proceeding, the bank
guarantee for possible contingencies of the Pension Fund was renewed, to the amount of
€1,795,362.12.
35
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
34. Movements in provisions
Movements in the item “Provisions for cash investments” were as follows:
(EUR)
INITIAL INCREASE
BALANCE
CANCELLA
TION
FINAL
BALANCE
Provisions for cash investments (i)
11,764.69
3,587.38
11,510.42
3,841.65
Provisions for risks and charges
97,810.00
24,058.00
0.00
121,868.00
(i) See Note 3.
Provisions for risks and charges were set up in order to meet possible judicial contingencies
of a compensatory nature.
35. Equity capital
The Managing Company’s equity capital totals €1,000,000, being fully subscribed and paid
in, and is represented by 200,000 shares with the nominal value of €5 each.
The equity capital results from the redenomination and equity increase through the
incorporation of reserves of the Managing Company’s equity capital, as approved at the
Shareholder’s Meeting held on 30 March 2001.
37. Share in the subscribed capital
Banco de Portugal holds 97.71% of the capital, corresponding to 195,414 shares.
36
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
40. Movements in equity capital
Movements in the fiscal year were as follows:
(EUR)
INITIAL BALANCE
INCREASES
DECREASES
FINAL
BALANCE
Capital
1,000,000.00
-
1,000,000.00
Legal reserve
102,273.44
377.00
102,650.44
Free reserves
799,380.15
7,146.56
806,526.71
7,523.56
23,847.89
7,523.56
23,847.89
1,909,177.15
31,371.45
7,523.56
1,933,025.04
Profit and loss for the year
Increases in the fiscal year were in line with the proposal for the distribution of net profits
for 2004 submitted by the Board of Directors and approved at the Shareholders’ Meeting.
45. Financial statements
(EUR)
COSTS AND LOSSES
Interest paid
2004
499.31
Provisions for cash investments
Losses from the sale of cash investments
Other financial costs and losses
Financial result for the year
2005
- Interest obtained
3,587.38
12,950.00
13,073.90
6,512.50
1,902.91
PROFITS AND GAINS
2005
35,767.91
50,514.25
-
-
35,767.91
50,514.25
2,012.53 Gains from the sale of cash
investments
16,704.41
29,039.22
35,767.91
50,514.25
TOTAL
2004
37
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
46. Extraordinary results
(EUR)
COSTS AND LOSSES
Other extraordinary costs and
losses
2005
2004
PROFITS AND GAINS
2005
2004
11,510.42
5,339.28
1,249.50
0.00
736.29
101.51
0.03
1.20
13,496.24
5,441.99
Decreases in amortisation and
6,949.03
Losses in fixed assets
0.0
988.92 Provisions
0.0 Gains in fixed assets
Corrections to previous fiscal years
Other extraordinary profits and gains
Extraordinary results
6,548.21
4,453.07
13,496.24
5,441.99
TOTAL
48. Other relevant information
• Bank deposits
This item is broken down as follows:
(EUR)
Demand deposits
Time deposits
2005
2004
45,705.00
75,870.78
350,000.00
-
395,705.00
75,870.78
• Income taxes - corporate income tax
Taxes on profits are calculated on the basis of the value forecast to be paid, at the rates
prevailing on the balance sheet date, being recorded under “Government and other
public entities”.
In accordance with the legislation in force, during a four-year period the tax
administration may appraise the values mentioned above. This may lead to corrections to
the tax base and to additional settlements with regard to the fiscal years from 2001 up to
and including 2005. The Board of Directors assumes that additional settlements will
have no significant impact on the financial statements.
38
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
• Supply of services
The supply of services refers exclusively to management fees, whose amount is set on an
annual basis according to the management agreement signed between Banco de Portugal
and the Pension Fund Managing Company.
By decision of the Managing Company’s Board of Directors, management fees in 2005
were set at €3,258,505.75.
• Supplementary income
This income results from a sub-lease contract.
• Staff costs
This item includes training costs directly borne by the Managing Company and costs
with staff members, who are covered by a secondment agreement concluded with Banco
de Portugal.
• Accounts of the Pension Fund of Banco de Portugal
Pursuant to paragraph 3.1 of Regulatory Norm No 12/95-R of 6 July 1995 of Instituto de
Seguros de Portugal - ISP, the accounts of the Pension Fund of Banco de Portugal are
recorded under class 0 – Off-balance sheet accounts, in the following main accounts:
01 - Pension Fund of Banco de Portugal; and
02 – Management of the Pension Fund of Banco de Portugal.
As at 31 December 2005, these accounts were balanced (01 equalled 02) and amounted
to €1,081,526,663.
Accountant
Board of Directors
39
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Legal certification of accounts
ERNST & YOUNG
Ernst & Young & Associados-SROC, S.A.
Edifício República
Avenida da República, 90 – 6.º
1600-206 Lisboa
Portugal
Tel.: (351) 217 912 000
Fax: (351) 217 957 586
LEGAL CERTIFICATION OF ACCOUNTS
Introduction
1.
We have audited the financial statements of Sociedade Gestora do Fundo de Pensões do Banco de
Portugal (Banco de Portugal’s Pension Fund Managing Company), which comprise the balance sheet as at
31 December 2005, with a total of €2,274,833 and a total equity capital of €1,933,025, including a net profit
of €23,848. The financial statements also include the Profit and Loss Account by category and by functions
and cash flows for the year then ended, as well as the corresponding Annex.
Responsibilities
2.
It is the responsibility of the Board of Directors to prepare financial statements that give a true and fair
view of the Managing Company’s financial position, its profit and cash flows, as well as to adopt adequate
accounting policies and criteria and to maintain an appropriate internal control system.
3.
Our responsibility is to express an independent professional opinion based on our audit to those financial
statements.
Scope
4.
We conducted our audit in accordance with the Examination/Audit Technical Rules and Guidelines of
Ordem dos Revisores Oficiais de Contas (the Portuguese Statutory Auditor Institute), which require that we plan
and perform our audit to obtain reasonable assurance that the financial statements are free of material
misstatement. For this, the audit included:
•
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements
and an assessment of estimates used in their preparation, which were based on judgements and criteria
defined by the Board of Directors [or Management];
assessing whether the accounting policies adopted and their disclosure are appropriate to the
circumstances;
assessing whether accounts are prepared on a going concern basis; and
evaluating the overall adequacy of the presentation of information in the financial statements.
•
•
•
5. Our audit also assessed the consistency between the financial information included in the management
report and financial statements.
6.
We believe that our audit provides a reasonable basis for our opinion.
40
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Opinion
7.
In our opinion, the financial statements give a true and fair view in all material respects of the financial
position of Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. as at 31 December
2005 and of its profit and cash flows for the year then ended, in accordance with the accounting principles
generally accepted in Portugal.
Lisbon, 13 March 2006
ERNST & YOUNG AUDIT & ASSOCIADOS – SROC, S.A.
Sociedade de Revisores Oficiais de Contas (No 178)
Represented by:
João Carlos Miguel Alves (ROC No 896)
Ana Salcedas
41
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Pension Fund of Banco de Portugal
42
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Financial position and income and expenses account
43
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Financial position
(EUR)
Fund investments
Note
2005
2004
Land and buildings
4
81,072,500
85,702,501
Credit securities
5
1,085,135,059
896,559,234
Cash and bank deposits
6
102,502,675
7,334,745
General debtors and creditors
7
(103,375,280)
3,703,251
Accruals and prepaid expenditure
8
16,191,709
18,917,457
1,181,526,663
1,012,217,188
(EUR)
Fund value
Note
Initial assets
2005
2004
4,987,979
4,987,979
1,007,229.209
935,613,577
169,309,475
71,615,632
1,181,526,663
1,012,217,188
Accumulated profit and loss and
contributions:
Previous fiscal years
For the year
9
(See annexed Notes)
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Income and expenses account
(EUR)
Fund value increases
Note
2005
2004
Contributions
10
114,742,331
17,613,570
Income
11
57,701,929
42,496,619
Capital gains
12
212,959,168
87,983,331
73,322
20,891
385,476,750
148,114,411
Other revenue
(EUR)
Fund value decreases
Note
Pensions paid
13
Mediation fees
Taxes
2005
2004
45,053,006
40,604,034
-
-
29,011
25,881
Capital losses
12
167,578,327
34,830,775
Other expenses
14
3,506,931
1,038,089
216,167,275
76,498,779
169,309,475
71,615,632
Profit and loss for the year
(See annexed Notes)
45
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Notes to the financial position and the income and expenses account
46
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Notes to the financial position and the income and expenses account
1. Setting-up and business activity
The Pension Fund of Banco de Portugal (Fund) was set up by Banco de Portugal, in its
capacity as founder associate, through a public deed signed on 15 September 1988 in the
9th Notarial Office of Lisbon. The second party to the Deed of Constitution was
Sociedade Gestora do Fundo de Pensões do Banco de Portugal (Banco de Portugal’s Pension Fund
Managing Company) in its capacity as managing company. This capacity had been
granted to it in a previous Fund management agreement with Banco de Portugal.
The Pension Fund is composed of autonomous assets exclusively earmarked for the
payment of the pension plans in force. Under this Fund, the employees of Banco de
Portugal are entitled to receive deferred instalments, in accordance with the Deed of
Constitution and the collective wage agreement prevailing for the banking sector.
2. Financial statements
The accounts in annex were prepared in accordance with the accounting records of
Banco de Portugal’s Pension Fund Managing Company.
These accounts summarise the Fund’s transactions and net assets. They do not take into
account liabilities relating to pensions or other benefits payable in the future. The Fund’s
actuarial position, including these liabilities, is shown in the actuarial report. The
financial statements should be read in conjunction with this report (see Note 15).
3. Accounting principles
a) General
The financial statements were prepared in line with the accounting principles
generally accepted in Portugal and in accordance with the rules of Instituto de Seguros
de Portugal – ISP.
The accounts were prepared under the historical cost convention (modified to
include the revaluation of investment in land, buildings and credit securities) and on
the basis of the going concern principle, in conformity with the basic accounting
principles of consistency, prudence and accruals.
b) Land and buildings
Land and buildings are initially recognised at acquisition cost plus acquisition
expenses. Subsequently, this value is reassessed by independent entities, according
47
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
to the valuation regime laid down in Regulatory Norm No 16/99 of 29 December
1999 of Instituto de Seguros de Portugal - ISP.
Unrealised capital gains and losses arising from the revaluation of the real estate are
recorded in the income and expenses account, in the fiscal year in which the
revaluation was made.
c) Credit securities
Portfolio financial investments as at 31 December 2005 are valued at fair value in
accordance with Regulatory Norm No 26/2002 of 31 December 2002 of Instituto de
Seguros de Portugal - ISP. In fulfilment of this Norm, an economic methodology
adjusted to the type of financial asset in question is applied to quoted securities not
valued at fair value.
The difference between the securities’ fair value and the respective acquisition cost
is recorded under Capital gains and losses of the income and expenses account. The
difference between the proceeds from the sale of securities and the value for which
they were recognised is also recorded under the same items.
d) Contributions
Upon actual receipt, Banco de Portugal’s contributions to the Fund are recorded
under Contributions to the income and expenses account (see Note 10).
e)
Income
Income from real estate rents and securities is recorded in the period to which it
refers, except for share dividends, which are only recognised upon actual receipt.
f)
Pensions
Pensions are paid to the beneficiaries by Banco de Portugal, which is subsequently
repaid in full by the Fund, on a monthly basis (see Note 13).
g)
Fees
Outstanding fees are recorded in the respective income and expenses account item
in the period to which they refer, regardless of their date of payment.
Fees that are not yet settled are recorded as the counterpart of the Accrued
expenses item. Fees paid in advance are recorded under the Prepaid expenses item
(see Note 8 a)).
h) Derivatives
Foreign exchange forward contracts, conducted with the purpose of hedging
foreign exchange risk in the securities portfolio, are revalued at the foreign exchange
48
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
rates corresponding to the time to maturity. These rates are implied in the forward
foreign exchange quotes (average between bid and ask) released by internationally
recognised financial information systems at the revaluation date. The differences
between the equivalent in euro to the forward revaluation rates applied and the
equivalent in euro to the rates agreed represent the revaluations’ income or cost,
which is recorded under Fund value increases or decreases respectively, namely
under “Capital gains or losses”, against “Accruals and prepaid expenditure”.
i)
Applicable taxation regime
Pension Funds are exempt from the payment of corporate income tax and
municipal real estate tax (Imposto Municipal sobre Imóveis), in accordance with the Tax
Incentives Statute.
4. Land and buildings
(EUR)
Date of
last
assessment
2005
Acquisition
value
2004
Adjustments
Balancesheet value
Balancesheet value
Av. da República, 57
2005
8,055,046
10,406,954
18,500,000
17,462,000
Arquiparque
2004
11,652,914
(1,848,713)
9,804,201
9,804,201
Av. da Liberdade – Edifício Libersil
2003
7,817,898
4,082,102
11,900,000
11,900,000
Quinta da Fonte
2004
-
-
-
5,813,000
Edifício Pinta
2005
11,127,433
1,798,567
12,926,000
12,781,000
Av. de Berna - Espaço Berna
2003
12,796,688
1,053,312
13,850,000
13,850,000
Linda-a-Velha - Edifício Securitas
2004
14,355,004
(262,704)
14,092,300
14,092,300
65,804,983
15,267,518
81,072,501
85,702,501
The acquisition value includes the base price, legal charges and other expenses. The
adjustment value corresponds to potential capital gains in the fiscal year 2005
(€1,193,000) and in previous years (€14,931,542).
Assessments should be made every three years, or earlier, when there are materially
relevant mismatches between the building’s net value and its market value.
49
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
In 2005 the buildings Av. República, 57 and Edifício Pinta were revalued, and the following
potential capital losses were recorded:
(EUR)
Potential capital gain/(loss)
Avenida da República, 57
1,038,000
Edifício Pinta
145,000
1,183,000
5. Credit securities
(EUR)
2005
Adjustments
Acquisition
value
2004
Market value
Market value
Variable income securities
Shares
67,227
(67,227)
-
-
Equity
-
-
-
-
163,162,798
26,136,653
189,299,451
158,940,168
829,456,003
39,397,108
868,853,112
726,570,179
19,938,300
1,289,369
21,227,669
2,489,131
4,720,623
1,034,204
5,754,827
8,559,756
1,017,344,952
67,790,107
1,085,135,059
896,559,234
Mutual fund units
Fixed income securities
Bonds
Government
of other supranational issuers
of other issuers
Adjustment values correspond to potential capital gains or losses calculated as the
difference between the market value and the historical acquisition value. In 2005 the net
value of potential capital gains and losses recorded in the income and expenses account
amounted to €24,842,779 (see Note 12 b). The remaining €42,947,328 relate to previous
years.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
6. Cash and bank deposits
This item is broken down as follows:
(EUR)
2005
2004
719
719
16,839,134
827,896
Demand deposits abroad
44,149
27,990
Time deposits in Portugal
85,618,673
6,506,130
102,502,675
7,334,745
Cash
Demand deposits in Portugal
7. General debtors and creditors
This item is broken down as follows:
(EUR)
2005
2004
811,919
713,961
50,995
50,968
Defaulting bond holders (c)
138,728
138,728
Lease-holders (d)
333,294
366,724
-
2,709,387
410,668
461,400
1,745,604
4,441,168
1,365,633
100,564
101,451,706
-
345,377
506,535
1,771,165
-
-
21,962
86,617
-
100,386
108,856
105,120,884
737,917
(103,375,280)
3,703,251
Current assets
Taxes (a)
Corporate income tax – Current account (b)
Derivatives (e)
Other
Current liabilities
Taxes
Brokers and financial intermediaries
Creditors – Buildings (d)
Creditors – Other
Contributions and pensions to be settled
Derivatives (e)
Other
Net value
51
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
a)
Taxes - VAT
This item essentially comprises VAT paid in the reconversion works of Edifício
Libersil, to be recorded in subsequent periods.
b) Corporate income tax - Current account
The current account with the State Treasury records the net value of corporate
income tax withheld in the acquisition and sale of securities.
c)
Defaulting bond holders
These values are covered by provisions recorded under the Accruals and prepaid
expenditure (see Note 8 b)).
d) Creditors - Buildings – Lease-holders/Provisions for non-performing loans
This item essentially comprises €301,644 regarding fully provisioned nonperforming debts of Edifício Libersil’s lease-holders.
e)
Derivatives
The derivatives policy was exclusively based on the use of foreign exchange forward
contracts to hedge the foreign exchange risk in exchange traded funds denominated
in four currencies: pound sterling, US dollar, Japanese yen and Swiss franc, to the
notional amounts of GBP 6,315,303, USD 36,433,095, JPY 337,794,511 and
CHF 3,540,256 respectively.
8. Accruals and prepaid expenditure
This item is broken down as follows:
(EUR)
Interest receivable
from credit securities
from time deposits
Rents received
Other accruals and prepaid expenditure
Interest in arrears – b)
Accrued expenses – Fees – a)
Contributions receivable
Prepaid expenses – Real estate
Prepaid expenses – Fees – a)
Income collected in advance – Real estate
Other
a)
b)
2005
2004
16,441,647
53,410
(23,389)
19,170,984
470
(51,258)
(138,728)
(141,560)
329
(138,728)
(64,339)
328
16,191,709
18,917,457
Note 3 g)
Note 7 c)
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
9. Fund value
Changes in the fund value were as follows:
(EUR)
Fund value as at 31 December 2004
1,012,217,188
Increases due to contributions (Note 10)
Current
19,838,693
Extraordinary
94,903,638
114,742,331
Decreases due to pensions paid (Note 13)
(45,053,006)
Financial profit and loss
99,620,250
Profit and loss for the year
169,309,475
Fund value as at 31 December 2005
1,181,526,663
10. Contributions
Banco de Portugal’s contributions to the Fund are broken down as follows:
(EUR)
2005
2004
Current contributions
19,838,693
17,613,570
Extraordinary contributions
94,903,638
-
114,742,331
17,613,570
Current contributions, in addition to the component relating to the sponsor, also
include contributions from the staff of Banco de Portugal, under the conditions set out
by their plans. Extraordinary contributions in 2005, to the amount of €94,903,638,
resulted from the need to ensure the coverage of liabilities, as required by Notice of
Banco de Portugal No 12/2001 of 23 November.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
11.
Income
This item represents income arising from:
(EUR)
Land and buildings
Credit securities
Shares
Equity
Real-estate based and mutual fund units
Bonds
Government
of other public issuers
of other issuers
Demand deposits
Time deposits
2005
5,539,011
2004
6,042,748
719
12
5,690,725
542,800
229
2,335,940
45,362,511
706,207
33,018,464
176,900
82,208
51,842,381
281,216
33,476,580
24,876
295,661
320,537
57,701,929
21,556
76,766
98,322
42,496,619
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
12. Capital gains and losses
Capital gains and losses for the year are broken down as follows:
(EUR)
2005
Potential capital gains and losses
Land and buildings
Capital gains
Capital losses
2004
a)
1,183,000
1,183,000
(2,449,633)
(2,498,249)
b)
123,259,033
(98,416,254)
24,842,779
102,196,152
(72,354,668)
29,841,484
-
4,610
(2,255)
-
2,355
187,000
187,000
-
24,890,982
(820,382)
2,107,732
(632,522)
24,070,600
1,475,210
63,437,695
68,338,577
4,993,978
(2,040,896)
(4,900,882)
2,953,082
1,458
(3,115)
(1,657)
-
212,959,168
(167,578,327)
87,983,331
(34,830,775)
45,380,841
53,152,556
Credit securities
Capital gains
Capital losses
Assets
Capital gains
Capital losses
Realised capital gains and losses
Land and buildings
Capital gains
Capital losses
Credit securities
Capital gains
Capital losses
Derivatives
Capital gains
Capital losses
Other
Capital gains
Capital losses
Total capital gains
Total capital losses
Net value
a)
b)
Note 4
Note 5
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
13. Pensions and capital paid
Pensions are granted to individuals who retire on account of age limit, disability or
early retirement, as well as to those that are entitled to survivors pensions.
This item is broken down as follows:
(EUR)
Retirement pensions on account of age limit
Disability pensions
Early retirement pensions
Survivors pensions
Repayments
Capital paid
Transfer of rights
Charges with the payment of pensions
Death grant
2005
2004
3,715,281
2,435,882
29,674,983
5,242,551
15,060
1,004,974
46,828
2,701,476
215,971
45,053,006
3,368,175
2,313,543
28,651,800
5,070,921
60,668
1,137,978
949
40,604,034
14. Other expenses
This item is broken down as follows:
(EUR)
Financial - a)
Buildings - b)
Extraordinary expenses
Other expenses
a)
2005
2004
527,581
2,960,244
1,760
17,345
3,506,931
320,687
698,120
10,812
8,470
1,038,089
Financial expenses
This item covers expenses borne by the Pension Fund, regarding global custodian
services of financial assets.
b)
Expenses on buildings
This item covers normal costs with the management and maintenance of real estate.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
15. Actuarial report information
The Managing Company publishes, as part of its accounting report, the actuarial results
of the Pension Fund of Banco de Portugal, as at 31 December 2005.
16. Tax liabilities
Banco de Portugal assumes tax liabilities, under the provisions of the agency agreement
signed with the Managing Company on 6 April 2004. Pursuant to it, the Bank shall:
a) pay retirement and survivors pensions to the respective beneficiaries on behalf and
for the account of the Managing Company;
b) withhold at source the contributions and taxes due for subsequent delivery to the
competent authorities, and meet the corresponding tax reporting obligations;
c) settle through an offsetting procedure the amounts paid and the contributions due
to the Pension Fund related to the Bank’s employees, under the terms of subparagraph a).
Banco de Portugal has complied and will continue to comply with the agreement
referred to as long as it remains in force. Within the scope of this agreement the Bank
will assume all inherent responsibilities.
17. Contingent liabilities
a) Edifício Libersil
Judicial proceedings continue with regard to four actions brought before Court by
four former shopkeepers against the Managing Company. In the view of the
lawyers, it is unlikely that the Company will be sentenced.
b) Edifício Armazéns de Alverca
There is a judicial proceeding in which a third party claims the amount of
€1,771,165, invoking that the Pension Fund assumed the obligation to pay this
amount in the deed of purchase and sale of the property, signed on 1 August 1998.
These buildings were resold to the former owner on 31 July 2001, after detection of
some structural, geotechnical and construction problems. These gave rise to
additional costs paid by the Pension Fund, to the amount of €2,507,646, for which
the Managing Company claims the right to compensation.
In 2004 the Managing Company submitted to Court a bank guarantee to the amount
demanded by the party involved in the building sale, as a guarantee for this alleged
responsibility, with the purpose of withholding execution for debt.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Even though, in the view of the Managing Company’s lawyers, it is not possible to
predict which responsibilities the Court will eventually decide to assign, a provision
was set up, during the fiscal year 2005, to the amount of €1,771,165.
c) Edifício Pinta
The owner of the building next to Edifício Pinta brought an action before Court
against the Fund, to the amount of €433,491, as compensation for the damages
caused to his building when Edifício Pinta was constructed.
In the view of the lawyers of the Managing Company, it is not possible to predict
which responsibilities the Court will eventually decide to assign.
d) Future subscription of “Office Park Expo” real-estate based fund units
The Pension Fund subscribed “Office Park Expo” real-estate based fund units, to
the total amount of €26.249.997,77. Under the terms of the Partnership Agreement,
the total investment may amount to €50,000,000.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Certification of accounts
59
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
ERNST & YOUNG
Ernst & Young & Associados-SROC, S.A.
Edifício República
Avenida da República, 90 – 6.º
1600-206 Lisboa
Portugal
Tel.: (351) 217 912 000
Fax: (351) 217 957 586
CERTIFICATION OF ACCOUNTS
Introduction
1.
We have audited the financial statements of Fundo de Pensões do Banco de Portugal (Fund),
which comprise the financial position as at 31 December 2005, showing total investments of
€1,181,526,663 and a fund value to the same amount, including the profit for the year, to an
amount of €169,309,475 and the Income and Expenses Account for the year then ended, as well
as the corresponding Notes.
Responsibilities
2.
3.
It is the responsibility of the Board of Directors of Sociedade Gestora do Fundo de Pensões do Banco de
Portugal (Banco de Portugal’s Pension Fund Managing Company) to prepare financial statements
that give a true and fair view of the Fund’s financial position and its profit, as well as to adopt
adequate accounting policies and criteria and to maintain an appropriate internal control system.
Our responsibility is to express an independent professional opinion based on our audit to those
financial statements.
Scope
4. We conducted our audit in accordance with the Examination/Audit Technical Rules and Guidelines of
Ordem dos Revisores Oficiais de Contas (the Portuguese Statutory Auditor Institute), which require that we plan and
perform our audit to obtain reasonable assurance that the financial statements are free of material misstatement.
For this, the audit included:
•
•
•
•
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements
and an assessment of estimates used in their preparation, which were based on judgements and criteria
defined by the Board of Directors of the Banco de Portugal’s Pension Fund Managing Company;
assessing whether the accounting policies adopted and their disclosure are appropriate to the
circumstances;
assessing whether accounts are prepared on a going concern basis; and
evaluating the overall adequacy of the presentation of information in the financial statements.
5. Our audit also assessed the consistency between the financial information included in the management
report and financial statements.
6. We believe that our audit provides a reasonable basis for our opinion.
Opinion
7.
In our opinion, the financial statements give a true and fair view in all material respects of the financial
position of Fundo de Pensões do Banco de Portugal as at 31 December 2005 and of its profit for the
60
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
year then ended, in accordance with the accounting principles generally accepted in Portugal and
consistently with the Rules set forth by Instituto de Seguros de Portugal for Pension Funds.
Lisbon, 13 March 2006
ERNST & YOUNG AUDIT & ASSOCIADOS – SROC, S.A.
Sociedade de Revisores Oficiais de Contas (No 178)
Represented by:
João Carlos Miguel Alves (ROC No 896)
Ana Salcedas
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
Actuarial valuation
ACTUARIAL RESULTS OF THE PENSION FUND OF BANCO DE PORTUGAL AS AT 31
DECEMBER 2005
1. INTRODUCTION
2. POPULATION DATA
3. ACTUARIAL AND FINANCIAL ASSUMPTIONS
4. ACTUARIAL RESULTS AND STATUTORY MINIMUM FUNDING LEVELS
Lisbon, 21 February 2006
Actuary,
Rita Ornelas Marques
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
1. INTRODUCTION
The implementation of IAS 19 in the reporting of liabilities relating to post-employment benefits by the
Sponsor was reflected in the Pension Fund of Banco de Portugal, in terms of the definition of calculation
assumptions, as well as of the benefits and charges supported by the Fund as from 2005.
In accordance with the international accounting standards, the Pension Fund started to fund death
grants, foreseen within the scope of the collective wage agreement for the banking sector, as well as the
charges inherent to the payment of pensions relating to contributions to the SAMS (social health
assistance service).
In compliance with the provisions laid down in Notice of Banco de Portugal No 4/2005 of 28 February,
liabilities as at 31 December 2004 were recalculated, in order to estimate the impact of the adoption of
IAS 19 on the Pension Fund’s liabilities. Both the new charges borne by the Fund and the changes in
actuarial and financial assumptions were taken into account, viz. the change in the mortality table, the
indexation of the pensions and wages growth rate to inflation implied in euro area inflation-linked bonds
and the assumption regarding retirement conditions.
The Pension Fund’s liabilities as at 31 December 2004 increased from €1,040.9 million to €1,086.4
million, accounting for a 4.4% overall increase on this date.
Between 31 December 2004 and 31 December 2005 the Fund’s liabilities rose by €121.0 million,
considering the actuarial and financial assumptions defined in section 2.
In 2005 the funding target of the Pension Fund was established as follows: the full coverage of liabilities
relating to pensions in payment and the funding of 95% of past-service liabilities of active staff. For this
reason and given the extraordinary change in the Fund’s liabilities, the Sponsor made an additional
contribution to the Fund to the amount of €94.9 million.
The values shown in section 4 comply with the minimum regulatory levels established in Notice of
Banco de Portugal No 4/2005 (115.4%) and the minimum solvency ratio defined by Instituto de Seguros de
Portugal (127.0%).1
For the calculation of the value of liabilities use was made of the Projected Unit Credit Cost Method.
1
The verification of the minimum funding level is made for end year values.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
2. POPULATION DATA
Defined Benefit Scheme for base remuneration (DB for base remuneration)
Plan I
Plan II
Plan III
Plan IV
Active
members
1,384
305
6
9
Sub-total
Total
1,704
staff Retired members
Pensioners
1,736
2
6
0
475
0
0
0
1,744
475
2,219
DB wage supplement
Special regime A
Special regime B
General regime
Active
members
1,503
52
109
Sub-total
Total
1,664
staff Retired members
Pensioners
189
1
1
12
0
0
191
12
203
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
3. ACTUARIAL AND FINANCIAL ASSUMPTIONS
3.1 FOR THE ACTUARIAL VALUATION
Identification
Assumption
Assumptions resulting from the Plan
Expected date of retirement
- Plan III
1st occurrence (a)
65 years
- Other Plans and Regimes
14
Pension payments per year
14
Wage payments per year
Actuarial and technical assumptions
Mortality table
TV 88/90 (b)
Disability table
1978 – S.O.A. Trans. Male (US)
Turnover table
- Plan III
………………………..
- Other Plans and Regimes
T-1 Crocker Sarason (US)
Wages growth rate
- Plan III
2.133%
- Other Plans and Regimes
3.133%
Pensions increase
2.133%
Wage scale increase
2.133%
National minimum wage increase
2.133%
Wages rate of increase 2004/2005
- Plan III
2.600%
- Other Plans and Regimes
2.600%
Discount rate
4.355%
Discount rate – portability (c)
3.777%
National minimum wage in the following year
€385.90
Share of married members
- Plan III
real situation
- Other Plans and Regimes
80%
Age difference between members and spouses
- Plan III
real situation
- Other Plans and Regimes
3 (male individuals being the oldest)
(a) Consider the first occurrence among the following:
- 65 years of age; 35 years of service or 95 points – for the Plan III members that are employees of
Banco de Portugal;
- (Estimated) term of office date – for the Plan III members that are not employees of Banco de
Portugal.
(b) In the calculation of transfers – due to dismissals/hirings already occurred – the TV 73/77
mortality table continued to be used, given that this table is considered to be inherent to the
calculation of the minimum solvency ratio at the expected transfer date.
(c) Discount rate in the period after dismissal from Banco de Portugal for the purpose of calculating
liabilities relating to the portability of rights inherent to potential and actual dismissals/hirings
(transfers). Average yield on euro area 30-year zero-coupon bonds as at 30 December 2005.
The assumptions used in the actuarial valuation comply with the principles set forth in IAS 19.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
3.2 FOR THE CALCULATION OF THE ISP MINIMUM SOLVENCY RATIO
Identification
Assumption
Assumptions resulting from the Plan
Expected date of retirement
- Plan III
1st occurrence (a)
65 years
- Other Plans and Regimes
14
Number of monthly pensions
14
Number of monthly wages
Actuarial and technical assumptions
Mortality table
TV 73/77
Disability table
1978 – S.O.A. Trans. Male (US)
Wages growth rate
- Plan III
0.000%
- Other Plans and Regimes
0.000%
Pensions increase
2.133%
Wage scale increase
0.000%
National minimum wage increase
0.000%
Wages rate of increase 2004/2005
- Plan III
0.000%
- Other Plans and Regimes
0.000%
Discount rate
4.500%
Discount rate – portability (b)
3.777%
National minimum wage in the following year
€385.90
Share of married members
- Plan III
real situation
- Other Plans and Regimes
80%
Age difference between members and spouses
- Plan III
real situation
- Other Plans and Regimes
3 (male individuals being the oldest)
Consider the first occurrence among the following:
- 65 years of age; 35 years of service or 95 points – for the Plan III members that are employees of
Banco de Portugal;
- (Estimated) term of office date – for the Plan III members that are not employees of Banco de
Portugal;
(a)
(b) Discount rate in the period after dismissal from Banco de Portugal for the purpose of
calculating liabilities relating to the portability of rights inherent to actual dismissals/hirings
(transfers). Average yield on euro area 30-year zero-coupon bonds as at 30 December 2005.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
2005 Report and Financial Statements
4. ACTUARIAL RESULTS AND STATUTORY MINIMUM FUNDING LEVELS
DB
for
base
remunerati
on
Retired members and pensioners
Active staff members
Total
625,901,461
394,998,683
1,047,900,145
DB for
wage
suppleme
nt
Retired members and pensioners
Active staff members
Total
32,070,187
127,459,477
159,529,664
Total
Past service liabilities (PSL)
(euro)
Retired members and pensioners
Active staff members
Total
684,971,648
522,458,160
1,207,429,808
39,343,881
157,375,523
1,023,931,378
84.8%
Funding target
Pension Fund value as at 31 Dec. 2005
1,181,306,900
1,181,526,663
Funding level
97.9%
100.0%
115.4%
Pensionabl
e
base
remunerati
on
Retired members and pensioners
Active staff members
Total
567,723,341
254,412,889
822,136,230
Pensio
nable
wage
supple
ment
Overall
Funding target (a)
Minimum level set out in Notice of
Banco de Portugal No 4/2005
Retired members and pensioners
Active staff members
Total
28,033,657
80,316,421
108,350,078
Total
Minimum Solvency Value
(ISP)
Redemption to be recognised in 2005
Value to be redeemed after 2005 – Notice of Banco de Portugal No 4/2005
Minimum compulsory PSL (Notice of Banco de Portugal No 4/2005)
As a % of PSL
Retired members and pensioners
Active staff members
Total
595,756,998
334,729,310
930,486,308
Funding target of the minimum solvency value
127.0%
(a) A funding target was set at 100% for liabilities relating to pensions in payment and at 95% for past
service liabilities regarding active staff members.
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.