Report and Accounts
2010
Fundo de Pensões do Banco de Portugal – Benefício Definido
Fundo de Pensões do Banco de Portugal – Benefício Definido 1
TABLE OF CONTENTS
I.
Management Report
1. Executive Summary
2. Macroeconomic Background and Market Developments
2.1.
Financial Markets
2.2.
Real Estate Market
3. Pension Plans
3.1.
Overview
3.2.
Population Covered by the Pension Plans
3.3.
Benefits, Charges and Contributions
3.4.
Actuarial Valuation
3.4.1. Financial and Actuarial Assumptions
3.4.2. Results of the Actuarial Valuation
4. Investment Policy
5. Portfolio Structure and Risk Management
5.1.
Strategic Benchmark
5.2.
Breakdown by Asset Class
5.3.
Breakdown by Region
5.4.
Exposure to Exchange Rate Risk
5.5.
Value at Risk – “Assets – Liabilities”
5.6.
Leverage-Adjusted Modified Duration Gap
5.7.
Breakdown of the Bond Portfolio by Issuer Type
5.8.
Breakdown of the Bond Portfolio by Rating
5.9.
Breakdown of the Real estate Portfolio
6. Results and Statement of Assets and Liabilities of the Pension Fund
7. Closing Remarks
II. Statement of Assets and Liabilities and Income and Expenditure Statements
III. Notes to the Statement of Assets and Liabilities and Income and Expenditure
Statement
IV. Certification of the Financial Statements
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 2
MANAGEMENT REPORT
1.
EXECUTIVE SUMMARY
The Banco de Portugal Defined Benefit Pension Fund was created in 1988 and is a closed fund
composed of an autonomous set of assets exclusively allocated to meeting the liabilities assumed
by the Banco de Portugal in respect of payment of retirement, disability and survivors’ benefit,
as well as payment of post-retirement charges relating to contributions to SAMS - Social Health
Assistance Service for Banking Sector Employees. The Pension Fund was closed to new
employees as a result of their integration in the general Social Security Scheme pursuant to
Decree Law No 54/2009 of 2 March.
The Pension Fund positions itself at the level of the first pillar of social protection until 31
December. Pursuant to Decree Law No 1-A/2011 of 3 January, the payment of the retirement
pensions to employees who reach the statutory retirement age ceases to be the sole
responsibility of the Defined Benefit Pension Fund of Banco de Portugal, being shared in the
future between the Pension Fund and the Social Security.
As at 31 December 2010, the Fund’s assets amounted to 1,230.7 million euros, whereas the
liabilities for past services amounted to 1,230.7 million euros.
The future cash flows related to the liabilities of the Defined Benefit Pension Fund are
discounted using market interest rates. This methodology is grounded on the assumption that
the present value of the liabilities must represent, at each point in time, the capital that would
have to be invested to meet future payments. Thus, based on the nominal interest rates of
inflation-linked sovereign debt of the Euro Area and bearing in mind the time structure of the
Pension Fund’s liabilities, a discount rate of 4.8% was computed. This discount rate was used to
calculate the liabilities value as at 31 December 2011.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 3
The Defined Benefit Pension Fund’s investment policy is not oriented towards an isolated
maximisation of returns from a purely assets perspective. Instead, it aims at maximising the
return of the assets vis-à-vis the liabilities value, prudently limiting market and credit risks
affecting the value of the assets that compose the Pension Fund’s portfolio, and maintaining an
adequate liquidity level to meet the liabilities related to pensions payment.
The management of the Defined Benefit Pension Fund’s assets is also conditioned by the
significant maturity of the population covered by this plan, which leads to a greater number of
beneficiaries (retirees or pensioners) than active staff members (the ration between the former
and the latter stood at 0.63 at the end of 2010), as well as by the resulting weight of liabilities
relating to pensions in payment phase. Thus, from total liabilities, 773.1 million (62.4%) concern
liabilities for pensions in payment phase and the remaining 466.3 million (37.6%) relate to past
service liabilities of active employees.
Consequently, the assets portfolio has a high proportion of bonds, largely inflation-linked and
reflecting the time structure of the liabilities. As at 31 December 2010, the Fund was diversified
between Euro Area sovereign bonds (80.1%), real estate (13.7%) and equities (6.2%).
The wage cost containment measures adopted by the Banco de Portugal gave rise to a positive
differential between the inflation rate, decisive for the assets return, and wage increases, which
determine the value of the Pension Funds’ liabilities, having led to a positive impact on the
funding ratio of the Defined Benefit Pension Fund. This effect was, however, counterbalanced
by the improvement in the calculation method of the discount rate, which translated into its
downward adjustment (revision of assumptions, so as to make them more conservative), as well
as by a negative return (-0.8%) of assets versus liabilities.
As at 31 December 2010, the overall funding ratio of the Defined Benefit Pension Fund was
99.3%, remaining unchanged from the previous year and above both the minimum level set out
in the Notice of the Banco de Portugal No 12/2001 (98.2%) and the minimum solvency margin
set out by the Instituto de Seguros de Portugal - The Portuguese Insurance and Pension Funds
Supervisory Authority (85.4%).
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 4
Table 1: Pension Fund - Highlights
31/12/2009
31/12/2010
Active employees
1,655
1,511
Retirees
1,771
1,862
503
534
Discount rate
5.15%
4.80%
Estimated long-term inflation rate
2.68%
2.11%
TV 88/90
TV 88/90
Population Data
Pensioners
Actuarial and Financial Assumptions
Mortality table
Assets (amount and return)
M€
%
Return
M€
%
Return
1,007.9
79.8%
10.3%
985.5
80.1%
-1.1%
Real Estate
171.2
13.6%
1.2%
168.6
13.7%
2.6%
Equity
83.2
6.6%
18.9%
76.6
6.2%
4.6%
Total
1,262.3
100.0%
9.4%
1,230.7
100.0%
-0.5%
Bonds
Liabilities (million €)
1,270.9
1,239.4
Funding ratio
99.3%
99.3%
Mandatory minimum (BdP regulation)
97.9%
98.2%
Minimum solvency (ISP regulation)
85.7%
85.4%
Asset/Liability Return
0.0%
-0.8%
Asset/Liability Risk (1-month VaR, 95%
confidence)
0.9%
1.0%
Coverage Ratio
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 5
2.
MACROECONOMIC BACKGROUND AND MARKET DEVELOPMENTS
2.1. Financial markets
2010 was marked by heightened dichotomies between various countries of the Euro Area. After
a strongly recessive year in 2009, many European countries showed fragile public accounts,
reaching significantly high levels of deficit and sovereign debt in relation to their gross domestic
product (GDP). The difficulty in placing debt in financial markets led Greece and Ireland to
seek a bail-out from the remaining countries of the European Union and from the International
Monetary Fund (IMF).
Despite the problems some countries have been facing, the Euro Zone economy grew around
1.7% in 2010, partially recovering from the GDP contraction of -4.1% in 2009. Average annual
inflation rose to 1.6%, after the low level recorded in 2009 (0.3%).
The Portuguese economy is estimated to have grown 1.3% and to have registered an average
inflation of 1.4% during 2010, after a GDP contraction of -2.5% and a negative inflation of 0.9% in 2009.
The European Central Bank (ECB) and the European System of Central Banks acted with the
aim to support the financial system and the economy. The ECB’s refinancing rate stood at 1%
throughout the year and some of the exceptional measures adopted in 2009 were kept, being
noteworthy the unlimited long-term refinancing operations and the covered bonds purchase
programme. A government debt purchase programme was also launched, in order to support
the Euro zone economies under particular financial markets pressure. Along with these
measures, the ECB’s Governing Council urged all the Euro Area Countries to carry out credible
budgetary consolidation policies on a multiannual basis.
The abundant liquidity provided by the monetary policy and the expectations of maintaining the
stabilization of ECB’s refinancing rate at historically low levels, contributed to the downward
movement of the French sovereign debt medium and long-term interest rates, which fell
between 10 and 64 basis points.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 6
Chart 1
Evolution of the Euro Area yield curves during 2010
5.0
4.0
3.0
2.0
1.0
Taxa de Jur o (%)
0.0
-1.0
0
5
10
15
20
25
30
-2.0
Horizonte Temporal (anos) Maturity (years)
Nominal Interest Rate Yield Curve Dec 2010
Nominal Interest Rate Yield Curve Dec 2009
Real Interest Rate Yield Curve Dec 2009
Real Interest rate Yield Curve Dec 2010
Source: Thomson Reuters & SGFPBP
French real interest rates also fell in 2010, particularly in the shorter maturities. The 1-year
interest rate on inflation-linked bonds of the Euro Area fell by around 100 basis points, while
the 30-year interest rates decreased only by 7 basis points.
With the exception of the 1-year maturity segment, nominal interest rates fell more sharply than
real interest rates (interest rates on inflation-linked bonds), reflecting the expected inflation
decrease.
The downward interest rate movement was not widespread, given the widening in spreads
between sovereign debt rates of the countries perceived as having more fragile public accounts
or weaker financial systems when compared to German interest rates.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 7
Chart 2
Interest rate differential between the European and German Sovereign Debt
(10-year maturity)
1,000
900
800
700
600
500
400
300
200
100
0
Fr
Be At
Fi
Nl Gr Pt
30-Dec-09
Es
It
Ir
30-Dec-10
Source: Thomson Reuters and SGFPBP
The Euro depreciated significantly against the major currencies as a result of fears concerning the
solvency of some Member-States. Devaluations varied between 6.7% against the U.S Dollar and
18% against the Japanese Yen.
The crisis that swept across Europe ended up having very positive effects on the German
Economy. On one hand, it benefited from its “safe haven” status, attracting quite a significant
flow of capital and, on the other hand, it took advantage of the strong depreciation of the Euro,
being an export-oriented economy. Thus, while most of the European equity markets devalued,
the German market appreciated by 16%. The DJ Euro Stoxx 50 index depreciated by 5.4%, the
French CAC 40 fell by 2.2% and the Portuguese PSI 20 fell by 10%.
In the U.S, the Federal Reserve carried out a programme, named Quantitative Easing 2, to
stimulate the economy through the purchase of North American sovereign debt. This
programme, as well as the recovery of various macroeconomics indicators, led to an
appreciation in equity markets. The S&P 500 index rose 11.7%.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 8
2.2. Real estate
The first signs of a turnaround in the real estate market sentiment with regard to real estate
assets emerged in 2010.
In fact, the Asia-Pacific, America and Europe’s markets entered into a recovery phase
throughout the year, a trend which became clearer mainly during the second half of the year.
Various real estate indicators recorded maximum values of the past two years. To be highlighted
is the increase in the turnover, as well as in commercial leases and even in prime rents charged in
some markets.
The office segment remained dominant, although with a slight loss of position with regard to
the retail segment, especially in Europe and Asia-Pacific markets, whereas in the U.S a recovery
in the residential segment was noticeable.
In Portugal, the real estate market was hit by the economic conditions and also by the spreading
of the sovereign debt crisis. As a result, 2010 was marked by stagnation and widespread falls in
the assets’ prices and rents.
Nevertheless, the volume of transactions increased slightly compared to 2008 and 2009.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 9
3.
PENSION PLANS
3.1. Overview
The Banco de Portugal ensures, through the Pension Fund , the right to retirement, disability
and survivors’ benefits (including possible supplementary and death benefits), as well as
payment of post-retirement charges relating to contributions to SAMS – Social Health
Assistance Service for Banking Sector Employees.
Pensions paid by way of retirement and survivors’ benefits result from the sum of the amounts
calculated on the basis of each component of pensionable wages, in accordance with the
collective labour agreement and the Bank’s internal regulations.
The Pension Plan encompasses four schemes relating to base remuneration, seniority and three
schemes relating to fringe benefits. All schemes were closed to new employees as a result of
their integration in the general Social Security scheme pursuant to Decree-Law No 54/2009 of 2
March.
Pursuant to Decree-Law No 1-A/2011 of 3 January, active employees on this date, who are
covered by a substitutive social security scheme, provided for in the regulations of the collective
labour agreement for the banking sector, are to be included in the general Social Security
Scheme. In accordance with this decree-law, as from 4 January 2011, these same employees will
be covered by the general Social Security Scheme when they reach the statutory retirement age.
As a consequence of this legislative change, from January 2011 onwards, the payment of
retirement pensions to employees who reach the statutory retirement age ceases to be the sole
responsibility of the Defined Benefit Pension Fund of Banco de Portugal, to be shared, in the
future, between this and the Social Security.
This situation did not entail any change in the amount of past service liabilities calculated at the
end of the 2010 fiscal year.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 10
3.2. Population covered by the Pension Fund
It’s important to highlight the significant maturity of the population covered by the Banco de
Portugal Pension Fund, in which the number of beneficiaries is greater than that of its active
members.
The non-renewal of the active population covered by the Fund, as a result of the integration of
new banking sector employees, after 3 March 2009, in the general Social Security Scheme and
the resulting closing of the Fund to new members, highlights the reduction in the active
members/beneficiaries ratio.
As a result, liabilities for pensions in payment phase represent a significant portion of total
liabilities and strongly restrict the attitude adopted in respect of the management of the Fund’s
assets.
Table 2: Population covered by the Pension Fund
Active
Retirees
Pensioners
Total
1
31-12-2008
1,688
1,739
504
3,931
31-12-2009
1,655
1,771
503
3,929
Change
2008/2009 31-12-2010
-33
1,511
32
1,862
-1
534
3,907
-2
0.75
0.73
0.63
2
Assets/Beneficiaries Ratio
1Members; 2Retirees
Change
2009/2010
-144
91
31
-22
and Pensioners
On 31 December 2010, the Pension Fund covered 1,655 members (active employees), 1,862
retirees and 534 pensioners.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 11
3.3. Benefits, charges and contributions
Chart 3 shows the evolution of the volume of benefits and charges paid by the Pension Fund in
the last 10 years.
In 2010, the amount of matured pensions reached 50.5 million euros, which represents an
increase of 4.4% compared to the preceding year.
Sums paid by way of redeemed capital reached 2.2 million euros in 2010, despite there being still
sums to be paid regarding employees reaching the retirement phase at the end of 2010.
Sums paid by way of death benefits reached 0.4 million euros and charges in respect of
contributions to SAMS concerning pensions paid amounted to 2.96 million euros.
Contributions totalling 30.4 million euros were paid in 2010. This sum includes extraordinary
contributions with a view to reduce the effect, in the funding of the Pension Fund, of the
human resources policy decisions made by the Banco de Portugal.
Chart 3: Volume of benefits and charges borne by the Fund
(thousand euros)
60,000
50,000
40,000
30,000
20,000
10,000
0
2000
2001
Pensions
2002
2003
Redeemed capital
2004
2005
2006
Death benefits
2007
2008
2009
2010
Contributions to SAMS
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 12
3.4. Actuarial valuation
3.4.1. Financial and actuarial assumptions
The main actuarial assumptions are those listed in this point.
Assumptions
Growth rate - pensions
(*)
1st year
2nd year and following
1st year
Growth rate - wages
2nd year and following
Discount rate
Mortality table
Disability table
Turnover table
Statutory retirement age
Number of monthly pension/wage installments
Minimum monthly guaranteed wages in
following years
Percentage of married staff
Age difference between spouses
(male individuals being older)
31-12-2009
31-12-2010
1,000%
0,000%
2,684%
2,108%
2,000%
0,000%
3,684%
3,108%
5,148%
4,802%
TV 88/90
TV 88/90
1978 - S.O.A. Trans. Male (US) 1978 - S.O.A. Trans. Male (US)
T-1 Crocker Sarason (US)
T-1 Crocker Sarason (US)
65 years
65 years
14
14
475.00 €
485.00 €
80%
80%
3
3
(*) Equal to the updating rate of the remunerative tables of the banking sector and of the Minimum Guaranteed
Retribution/Income
These assumptions are occasionally adjusted in line with specific characteristics of the
population groups.
The discount rate determined at the end of 2010 and used to calculate liabilities as at 31
December was 4.80%. This rate is based on the nominal interest rate of inflation-linked Euro
Area sovereign bonds taking into account the maturity structure of the Pension Fund’s liabilities.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 13
As a result of the behaviour of inflation-linked sovereign debt market in the Euro Area, for the
period corresponding to the maturity of the liabilities, the discount rate decreased by -0.35
percentage points compared to the end of the preceding year. As for the expected inflation rate,
this moved in the same direction, also decreasing by -0.58 percentage points. This resulted in an
increase in the real discount rate of +0.24 percentage points.
In accordance with the wage-cost containment measures adopted by the Banco de Portugal, the
assumptions regarding the growth of pensions and wages were considered null for 2010.
In 2010, the TV 88/90 mortality table for men and women, already adopted in preceding years,
continued to be used. This table’s grip to reality was confirmed by an empirical study performed
on the basis of the Pension Fund’s demographic data up to 2006.
The actuarial and financial assumptions used in the Minimum Solvency scenario determined by
the Instituto de Seguros de Portugal are the following:
Assumptions
31-12-2009
31-12-2010
st
0,000%
0,000%
2 year and following
2,684%
2,108%
Growth rate - wages
0,000%
0,000%
Discount rate
4,500%
4,500%
TV 73/77
TV 73/77
1 year
Growth rate - pensions
nd
Mortality table
Disability table
Turnover table
Statutory retirement age
Number of monthly pension/wage installments
Minimum monthly guaranteed wages in
following years
Percentage of married staff
Age difference between spouses
(male individuals being older)
1978 - S.O.A. Trans. Male (US) 1978 - S.O.A. Trans. Male (US)
-/65 years
-/65 years
14
14
475.00 €
485.00 €
80%
80%
3
3
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 14
3.4.2. Results of the actuarial valuation
As at 31 December 2010, total past service liabilities amounted to 1,239.4 million euros, of
which 773.1 million corresponds to liabilities for pensions in payment phase and 466.3 million to
past service liabilities of active employees.
( EUR)
31-12-2009
Liabilities for past services (LPS)
Retirees and pensioners
Active employees
1,270,946,154
723,224,958
547,721,196
31-12-2010
1,239,417,671
773,106,594
466,311,077
Past service liabilities decreased by -31.5 million euros in 2010.
This reduction corresponds to an overall annual decrease of -2.5% in the amount of past service
liabilities, as a result of the following combined effects:
a. Annual expected increase of +2.31% in liabilities;
b. Unquantifiable annual decrease of -4.79% in liabilities, in decreasing order of relevance,
to a financial departure resulting from:
-
Indexation of the assumptions (nominal interest rate and inflation rate) to market
rates;
-
Wage-cost containment measures adopted by the Sponsor;
-
Revision of discount rate and long term inflation assumptions.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 15
4.
INVESTMENT POLICY
The Pension Fund’s investment policy is defined within the applicable regulatory provisions
issued by the Instituto de Seguros de Portugal (ISP) and more restrictive internal regulations laid
down by the Sociedade Gestora itself pursuant to the risk profile approved by the Banco de
Portugal.
Its purpose is to maximise the return on assets under management in comparison to the value of
the assumed liabilities and to limit the downside risk of the funding ratio.
This goal is pursued by taking into account the need to ensure at all times:
•
The maintenance of an appropriate liquidity level to address liabilities regarding
pensions in payment phase and redeemed capital;
•
The limiting of the risks affecting the Fund’s assets value through the adoption of
prudential criteria for the selection of instruments and institutions eligible for
investment;
•
The diversification of the investments, so as to avoid risk accumulation, as well as
an excessive concentration in any asset, issuer or group of companies.
5.
PORTFOLIO STRUCTURE AND RISK MANAGEMENT
Throughout 2010, the portfolio structure was analysed and permanently monitored, so as to
identify the level of exposure to different types of risk, as well as its form of mitigation. Limits
were imposed and risk measures were closely monitored. No breaches regarding the principles
and prudential rules applicable to pension funds have been detected.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 16
5.1 Strategic benchmark
For the dual purpose of limiting the risk of a reduction in the funding ratio and maximising the
return on the portfolio, a strategic benchmark was selected for the Pension Fund’s portfolio
structure in 2010. Its breakdown, which is summarily presented below, conforms to the
established risk profile laid down by the Banco de Portugal.
Chart 4 – Strategic benchmark in 2010
Average annual breakdown
BONDS
EQUITIES
REAL ESTATE
13.4%
7.1%
79.5%
Breakdown of the bond component
4.8% 1.2%
Breakdown of the equity component
Inflation-linked
sovereign debt
Fixed-rate
sovereign debt
7.9%
USA
39.8%
Asia-Pacific
Switzerland
42.3%
Euro Area
Other
5.2% 4.8%
94.1%
United Kingdom
Breakdown of the real estate component
39.9%
60.1%
Buildings
Funds
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 17
5.2 Break down by asset class
The portfolio breakdown by asset class was determined with reference to the breakdown of the
strategic benchmark. In order to incorporate short-term expectations concerning market
developments, some deviations were assumed, which were conflict with the limits imposed by
the internal rules.
Over 2010, the average exposure to bonds represented 79.7% (almost entirely sovereign debt),
while real estate and equities represented 13.4% and 6.9%, respectively. With regard to the
previous year, it is worth of note a higher exposure to the equity market, in exchange for a lower
investment in bonds.
The bond component of the portfolio was mostly made up of inflation-linked debt (77.0%).
Given the expectation of a reduction in break-even inflation rates, the portfolio exposure to
inflation linked bonds was lower than in the preceding year, as well as below the corresponding
2010 strategic benchmark exposure.
The breakdown of the equity component shows a portfolio overweight relative to the strategic
benchmark in the Euro Area, with a total exposure of 66.2%.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 18
Chart 5 – Portfolio in 2010
Average annual breakdown
BONDS
SHARES
REAL ESTATE
13.4%
6.9%
79.7%
Breakdown of the bond component
Breakdown of the equity component
4.9%
Inflation-linked
Sovereign debt
3.6%
19.4%
20.6%
2.1%
6.0%
Fixed-rate
sovereign debt
USA
Asia-Pacific
Switzerland
Euro Area
77.0%
Other
United Kingdom
66.2%
Breakdown of the real estate component
39.9%
60.1%
Buildings
Funds
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 19
Chart 6 – Evolution of the breakdown of the portfolio by asset class in 2010
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Bonds
Equities
Real Estate
Chart 7 – Breakdown of bond portfolio in 2010
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Inflation-linked debt
Fixed rate debt
Other
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 20
5.3 Breakdown by region
The Pension Fund’s asset portfolio registered a reduction in 2010 in its exposure to the Euro
Area countries in comparison to that observed in 2009 (-2.8 percentage points). Nevertheless,
this exposure remained predominant (96.8%).
Table 3 – Average region exposure of the portfolio
Total average region exposure of the portfolio
Euro Area
96.8%
Europe (Excluding the Euro Area)
0.7%
Asia and Pacific North America
0.2%
2.3%
5.4 Exposure to exchange rate risk
The Pension Fund exposure to exchange rate risk, resulting from the exposure to equity markets
and bonds outside the Euro Area, was very limited, having represented, on average, 3.2% of the
portfolio.
Table 4 – Average exposure of the portfolio to exchange rate risk
Average exposure of the portfolio to exchange risk
JPY
0.2%
CHF
0.4%
GBP
0.3%
USD
2.3%
5.5 Value-at-Risk “Assets-Liabilities”
The downside risk of the pension Fund’s funding ratio is assessed and monitored by calculating
the 1-month Value-at-Risk for a 95% confidence level.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 21
Chart 8 – 1 month Value-a- Risk – Assets-Liabilities
2.0%
1.8%
1.6%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
This risk measurement figure corresponds to the maximum reduction in the funding ratio in
percentage points, for a confidence level of 95%, over a 1-month period.
The evolution of the Value-at-Risk during 2010 reflected, on one hand, tactical adjustments in
the investment portfolio and, on the other, the volatility of interest rates.
5.6 Leverage-adjusted modified duration gap
The sensitivity of the Pension Fund’s funding ratio to changes in real interest rates is assessed by
calculating the leverage-adjusted modified duration gap. This gap corresponds to the difference
between the duration of liabilities and the duration of the bond portfolio adjusted so as to
reflect the size differences between these two aggregates.
Table 5 – Leverage-adjusted modified duration gap
a)
b)
c)
d)
Modified duration of liabilities for past services
Modified duration of bonds
Portfolio exposure to bonds
Funding ratio
Leverage-adjusted modified duration gap = b)
x c) - a) / d)
Average 2010 values
14.6
14.0
78.6%
99.6%
-3.7
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 22
The modified duration of bonds was relatively close to the modified duration of liabilities in
2010. However, taking into account the fact that the investment policy also includes assets with
low interest rate-sensitivity, the leverage-adjusted differential registered a negative average value
(-3.7 years).
The negative differential experienced in 2010 indicates that the asset portfolio value is less
sensitive to changes in interest rates than the value of liabilities. Given that real interest rates
rose significantly in 2010, this position had a positive contribution to the “asset-liability” return.
5.7 Breakdown of the bond portfolio by issuer type
The credit risk control is ensured by restricting investments to instruments and institutions of
reputed safety and financial robustness, as well as by monitoring the ratings assigned by
international agencies, supplemented by permanent attention to available market information.
Bearing in mind that Euro Area inflation-linked bonds play a crucial role in the Pension Fund
Asset-Liability Management and also that these same bonds are almost exclusively issued by
sovereign states, the sovereign debt represented virtually all the bond portfolio in 2010 (96.7%),
being the remainder invested in bonds issued by supranational institutions and by financial
institutions guaranteed by the Portuguese Government. Given the bond markets instability and
the fact that they remained focused on credit risk, the fixed rate segment was also highly
concentrated on sovereign debt.
Table 6 – Exposure of the bond portfolio by type of issuer
Average 2010 values
Sovereign debt
Supranationals
Financial Institutions
96.7%
0.9%
2.5%
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 23
5.8 Breakdown of the bond portfolio by rating
The creditworthiness of the Pension Fund bond portfolio showed a slight deterioration in
comparison to 2009, as a consequent of the downgrades of several Euro Area sovereign states
by the main rating agencies. Nevertheless, the portfolio maintained a high exposure to debt
rated as AA or higher (86.0% on 31 December 2010).
Assets with a BBB rating were sold in May 2010. Thus, at the end of the year, the bond
portfolio was 100% composed of assets rated as A- or higher.
Chart 9 – Evolution of the breakdown of the bond portfolio by rating
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
AAA
AA
Jul-10
A
Aug-10
BBB+
Sep-10
Oct -10
Nov-10
Dec-10
BBB
5.9 Breakdown of the real estate portfolio
As at 31 December 2010 the total value of real estate assets under management amounted to
168.6 million euros, representing 13.7% of the Pension Fund total portfolio.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 24
The real estate portfolio includes real estate investment funds (60%) and properties directly
owned by the Pension Fund (40%). This portfolio, mostly invested in Portugal (96%), is
diversified through the following segments:
Offices (68%), Tourism and Leisure (12%), Retail (6%), Logistics (6%), Residential (5%) and
Land (1%).
6.
RESULTS AND STATEMENT OF ASSETS AND LIABILITIES OF THE
PENSION FUND
The assets and the liabilities of the Pension Fund were both influenced by the rise in inflationlinked sovereign debt real interest rates.
Liabilities for past services are valued at market prices by taking into account interest rates and
expected inflation levels. In 2010, the expected inflation embedded in Euro Area inflation-linked
sovereign debt decreased more than the fall in nominal interest rates. As a consequence, real
interest rates rose.
This movement had a negative impact on the value of liabilities that nearly canceled the
additional liability resulting from interest cost. In 2010, liabilities grew at an adjusted rate of
+0.3%, which sets the reference for the rate of return on assets, from an integrated management
of assets and liabilities point of view.
The increase in real interest rates also conditioned the return on both the strategic benchmark
and the portfolio, given the asset-liability emphasis of the investment policy. In fact, the goal of
limiting the risk of reduction in the funding ratio translated into a strong exposure of both the
strategic benchmark and the portfolio to assets highly correlated to liabilities, in particular longterm inflation-linked Euro Area treasury bonds.
Having benefited from the exposure to equities denominated in foreign currency, the strategic
benchmark achieved, in 2010, a return of 0.8%, higher than the adjusted change to the value of
liabilities and, consequently, a positive on asset-liability return (+0.5%).
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 25
In the portfolio, the composition of the equity segment was overweighed in the Euro Area,
which would have a damaging effect given the underperformance of equity markets in that
region and the devaluation of the single currency in 2010.
Table 7: Portfolio and strategic benchmark return
Adjusted change in liabilities
Strategic benchmark return
Portfolio return
0.3%
0.8%
-0.5%
The total return on assets stood at -0.5% in 2010, which compared with the adjusted value of
liabilities (+0.3%) led to an asset-liability return of -0.8%.
Table 8: Portfolio return by asset class
Portfolio return
-0.5%
Bonds
Real estate
Equities
-1.1%
2.6%
4.6%
At the end of the year, the Pension Fund’s funding ratio stood at 99.3%, the same level as in the
end of 2009.
Table 9: Financial condition of the Pension Fund
31-12-2009
31-12-2010
Assets portfolio
1,262,326,043
1,230,687,429
Liabilities for past services
1,270,946,154
1,239,417,671
Funding ratio
99.3%
99.3%
Minimum mandatory funding ratio (BP Notice no. 12/2001 (*))
97.9%
98.2%
101.5%
101.2%
85.7%
85.4%
115.9%
116.2%
Level of coverage achieved against the minimum mandatory funding ratio
Minimum Solvency funding ratio
Level of coverage achieved against the minimum solvency funding ratio
(*) As amended by BP Notice No 4/2005
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 26
For the purposes of the provisions of the Banco de Portugal Notice No 12/2001, as amended
by Notice No 4/2005, the cover ratio stood at 101.2% of the minimum required.
The requirements issued by the Instituto de Seguros de Portugal were also met, the minimum
solvency coverage having reached 116.2%.
The components identified in Table 10 explain the stability of the funding ratio.
Table 10: Change in the Pension Fund’s funding ratio
% of the value of liabilities
Change in the funding ratio
Asset-Liability Return
Review of assumptions
Exogenous factors to financial management
0.0%
-0.8%
-1.4%
2.2%
The considerable impact of exogenous factors, outside the control of the Pension Fund AssetLiability Management on the funding level is chiefly due to the wage-cost containment measures
adopted by the Banco de Portugal.
These measures led to a positive differential between the expected inflation rate, crucial to
determine the return of the portfolio (highly exposed to inflation-linked instruments) and wage
increases, which determine the rate of change.
This favourable effect on the funding level of the Pension Fund, due to an expected loss of
purchasing power of the bank employees in 2011, was counterbalanced by the negative “assetliability” return, as well as by the improvement in the calculation method of the discount rate,
which translated into its downward adjustment (revision of assumptions, so as to make them
more conservative).
Thus, the overall effect was the stabilisation of the funding ratio at 99.3%.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 27
7.
CLOSING REMARKS
The Board of Directors would like to conclude the 2010 Report and Accounts by thanking the
Banco de Portugal for its confidence and cooperation.
A word of recognition is also due to the Instituto de Seguros de Portugal for the way it
monitored the business of the Sociedade Gestora do Fundo de Pensões do banco de Portugal,
S.A..
Finally, we would like to highlight the high level of professionalism and dedication of all the
staff of the Sociedade Gestora.
Lisbon, 28 February 2011
António Manuel Martins Pereira Marta
Vítor Manuel da Silva Rodrigues Pessoa
Helena Maria de Almeida Martins Adegas
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 28
FUNDO DE PENSÕES
DO BANCO DE PORTUGAL
BENEFÍCIO DEFINIDO
Statement of Assets and Liabilities and
Income and Expenditure Statement
Notes to the Statement of Assets and Liabilities
and Income and Expenditure Statement
Certification of the Financial Statements
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 29
STATEMENT OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2010
EUR
Notes
31-Dec-10
31-Dec-09
APPLICATIONS OF THE FUND
Land and building
Securities
Cash and bank deposits
Debtors and creditors
Accruals and deferrals
4
5
6
7
8
Total investment of the fund
67,313,830.00
68,674,344.00
1,148,139,734.96
1,157,189,762.52
7,527,736.15
27,239,668.33
-2,936,964.22
10,643,092.10
9,441,532.36
-219,264.38
1,230,687,428.99 1,262,326,042.83
VALUE OF THE FUND
Opening assets
4,987,978.7
Profit (loss) and accumulated contributions from preceding years
Profit (loss) and accumulated contributions for the year
Total value of the fund
The Accountant
Paulo José Antunes Jorge
9
4,987,978.97
1,257,338,063.82
1,156,319,844.33
-31,638,613.80
101,018,219.53
1,230,687,428.99 1,262,326,042.83
The Board of Directors
António Manuel Martins Pereira Marta
Vitor Manuel da Silva Rodrigues Pessoa
Helena Maria de Almeida Martins Adegas
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 30
INCOME AND EXPENDITURE STATEMENT AS AT 31 DECEMBER 2010
EUR
Notes
31-Dec-10
31-Dec-09
INCREASES IN THE VALUE OF THE FUND
Contributions
10
30,446,538.17
Income
11
33,653,837.37
30,987,628.12
Capital gains
12
97,798,685.59
133,610,036.81
Other income
13
34,446.25
192,728.92
161,933,507.38
212,025,845.53
56,117,588.48
54,042,630.17
15.00
1,435.00
Total increases in the value of the fund
47,235,451.68
DECREASES IN THE VALUE OF THE FUND
Matured pensions
10
Taxes
Capital losses
12
136,890,536.71
56,322,369.29
Other expenses
14
563,980.99
641,191.55
Total decreases in the value of the fund
PROFIT (LOSS)
The Accountant
Paulo José Antunes Jorge
193,572,121.18
111,007,626.01
-31,638,613.80
101,018,219.52
The Board of Directors
António Manuel Martins Pereira Marta
Vitor Manuel da Silva Rodrigues Pessoa
Helena Maria de Almeida Martins Adegas
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 31
CASH FLOWS STATEMENT
EUR
31-Dec-10
31-Dec-09
CASH FLOWS FROM OPERATING ACTIVITIES
Contributions
From the Sponsor
From the Participants/Beneficiaries
Transfers
28,180,862.46
2,265,675.71
0.00
44,928,455.80
2,306,995.88
0.00
-50,528,717.44
-2,182,639.50
-48,688,215.72
-2,448,111.35
-3,406,231.54
-2,900,701.43
0.00
-119,665.86
34,446.25
-444,315.13
0.00
-243,721.70
192,728.92
-403,071.52
954,053,184.08
33,653,837.37
185,509,489.90
30,987,628.12
-981,218,368.59
-190,803,182.34
-19,711,932.19
18,438,294.56
Pensions, Share Capital and Matured Single Premiums
Pensions paid
Matured capital
Transfers
Charges regarding Pensions Payment and Death Benefits
Remunerations
Remuneration Management
Remuneration from Deposit and Safe Custody Account
Other Income and Gains
Other Expenses
NET CASH FLOWS FROM OPERATING ACTIVITIES
Proceeds
Disposal/Repayment of Investments
Proceeds from Investments
Payments
Purchase of Investments
NET CASH FLOWS FROM INVESTING ACTIVITIES
Change in Cash and Cash Equivalents
Currency Translation Differences
Cash and Cash equivalents at beginning of period
Cash and Cash Equivalents at end of period
0.00
0.00
27,239,668.34
8,801,373.78
7,527,736.15
27,239,668.34
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 32
NOTES TO THE STATEMENT OF ASSETS AND LIABILITIES AND THE
INCOME AND EXPENDITURE STATEMENT
1.
CREATION AND BUSINESS
a) The Banco de Portugal Defined Benefit Pension Fund (the “Pension Fund”) was
created by the Banco de Portugal, in its capacity as Founder Associate, by public deed
executed on 15 September 1988 in the Lisbon 9th Notary Office. The Sociedade Gestora
executed this deed in its capacity as managing company, a quality acquired under its
previous execution of a fund management agreement with the Banco de Portugal.
The Pension Fund is composed of autonomous assets exclusively earmarked for the
fulfilment of the commitment of the Banco de Portugal to pay retirement, disability and
survivors’ pensions.
The benefit scheme financed through this Fund results from the regulations of the
collective labour agreement, from the Regulation of Retirement and Survivor’s Benefits
and the Regulation of Pension schemes of Fringe Benefits – Sponsor’s Pension Fund.
According to the regulations laid down in the collective labour agreement, the benefit
scheme foresees pensions paid by way of death, as well as the Sponsor’s charges with
SAMS – Social Health Assistance Service for Banking Sector Employees.
The benefit schemes covered by this Plan are the following:
- Scheme I
- Scheme II
- Scheme III
- Scheme IV
- Special Scheme A
- Special Scheme B
- General Scheme
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 33
b) Pursuant to the provisions laid down in Decree-Law No 1-A/2010 of 3 January, active
employees on this date, who are covered by a substitutive social security scheme,
provided for in the regulations of the collective labour agreement for the banking sector,
are included in the general Social Security Scheme.
As a consequence of this legislative change, from January onwards, these same
employees will be covered by the general Social Security Scheme when they reach the
statutory retirement age. As a result, the payment of the retirement pensions to
employees who reach the statutory retirement age is no longer the sole responsibility of
the Defined Benefit Pension Fund of the Banco de Portugal, being shared in the future
between this Fund and the Social Security.
This situation did not entail any change in the amount of past service liabilities calculated
at the end of the 2010 fiscal year.
2.
FINANCIAL STATEMENTS SUBMITTED
The attached accounts were prepared in accordance with the accounting records of the
Sociedade Gestora dos Fundos de Pensões do Banco de Portuga, S.A..
These accounts summarise the Pension Fund’s transactions and net assets. They do not take
into account liabilities relating to pensions or other benefits payable in the future. The Pension
Fund’s actuarial position, including these liabilities, is shown in the actuarial report. These
financial statements should be read along with the aforementioned report (See Note 15).
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 34
3.
ACCOUNTING PRINCIPLES, METHODS AND ASSUMPTIONS OF THE
ASSETS VALUATION
a)
General
The financial statements were prepared in accordance with accounting principles generally
accepted in Portugal and in accordance with the rules issued by the 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 securities) and on a going-concern basis,
pursuant to the fundamental accounting principles of consistency, prudence and accrual.
b)
Land and Buildings
Land and buildings are initially recognised at their acquisition cost plus acquisition
expenses. Subsequently, this value is reassessed by independent entities, in accordance
with the provisions of Standard No 9/2007 of 28 June of the Instituto de Seguros de
Portugal.
Unrealised capital gains and losses arising from the revaluation of real estate are recorded
in the Income and Expenditure Statement, in the financial year in which the revaluation is
made.
c)
Securities
Financial investments in the portfolio on 31 December 2009 are valued at their fair value
in accordance with Standard No 9/2007 of 28 June of the Instituto de Seguros de
Portugal. Pursuant to this standard, an economic methodology adapted to the type of
financial asset in question is applied to securities whose listing price significantly departs
from their fair market value.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 35
In the terms of the applicable legislation, the portfolio of listed securities with low
liquidity in regulated markets and chiefly traded over the counter is valued through the
prices provided by the main financial information suppliers.
The difference between the fair value of the securities and their respective acquisition cost
is booked under capital gains and losses, as the case may be, in the Income and
Expenditure Statement. The difference between the proceeds from the sale of securities
and their book value is also booked under the same headings.
d)
Contributions
Upon actual receipt, the contributions of the Banco de Portugal to the Pension Fund are
booked under contributions to the Income and Expenditure Statement (see Note 10).
e)
Income
Income from real estate rents and securities is booked in the period to which it refers,
save for dividends, which are only recognised upon actual receipt.
f)
Pensions benefits and costs
Pensions are paid to the beneficiaries by the Banco de Portugal, which is subsequently
fully reimbursed by the Pension Fund on a monthly basis (see Note 10).
g)
Fees
Fees are booked under the corresponding heading in the Income and Expenditure
Statement in the period to which they refer, regardless of their date of payment. Fees as
yet unpaid are booked against accrued costs and prepaid fees are booked under deferred
costs (see Note 8).
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 36
h)
Derivatives
Foreign exchange forward contracts executed to hedge the foreign exchange risk
associated with the securities portfolio are revalued at the foreign exchange rates
corresponding to their remaining maturity, as implied in the forward exchange rates
(average bid/ask price as at the revaluation date) released by internationally recognised
financial information systems.
The differences between the equivalent in euros to the applied forward revaluation rates
and to the agreed rates represent revaluation income or costs. These are booked under
increases or decreases in the assets portfolio, respectively, under the heading capital gains
and losses, against accruals and deferrals.
i)
Taxation
Pension funds are exempt from Corporate Income Tax and Property Tax, in accordance
with the Tax Benefit Act.
4.
LAND AND BUILDINGS
EUR
31-Dec-10
Date of last
valuation
Investment
value
Adjustments
31-Dec-09
Book value
Book value
Avenida da República
2008
8,055,047.13
10,117,592.87
18,172,640.00
18,172,640.00
Avenida da Liberdade
Edifício Libersil
2009
10,045,179.99
3,538,780.01
13,583,960.00
13,583,960.00
Avenida de Berna
Espaço Berna
2009
12,796,687.62
323,312.38
13,120,000.00
13,120,000.00
Edifício Y
2009
4,537,154.03
1,021,975.97
5,559,130.00
5,559,130.00
Edifício Castilho
2010
18,245,202.75
-1,367,102.75
16,878,100.00
18,238,614.00
53,679,271.52
13,634,558.48
67,313,830.00
68,674,344.00
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 37
The investment value includes the base price, legal charges and other expenses. The adjustments
correspond to unrealised capital losses in the 2010 financial year, to the amount of 1,360,514
euros, and to capital gains of 14,995,072 euros in preceding years.
Valuations should be made on a three-year basis, or earlier when there are materially relevant
differences between the net book value of the building and its market value.
In 2010, the following unrealised capital gains and losses were identified:
EUR
Building
Unrealised gains (losses)
Edifício Castilho
-1,360,514.00
Total
5.
-1,360,514.00
SECURITIES
EUR
31-Dec-10
Acquisition cost
31-Dec-09
Adjustments
Market value
Market value
EQUITIES
0
Stocks
0
0
Units
Investment funds
162,707,056.01
15,157,065.92
177,864,121.93
185,797,771.46
916,387,797.28
13,209,017.78
929,596,815.06
946,659,580.04
Other supranational issuers
18,170,702.25
-647,062.44
17,523,639.81
Other issuers
23,954,565.00
-799,406.84
23,155,158.16
BONDS
Sovereign debt
-
1,121,220,120.54
0.00
24,732,411.02
26,919,614.42 1,148,139,734.96 1,157,189,762.52
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 38
The adjustments correspond to unrealised capital gains or losses calculated as the difference
between the market value and the historical acquisition cost. In 2010, net unrealised capital gains
and losses recognised in the Income and Expenditure Statement amounted to -24,375,458 euros
(see Note 12). The remaining 51,295,072 euros concern preceding years.
6.
CASH AND BANK DEPOSITS
This heading is broken down as follows:
EUR
31-Dec-10
Cash
Demand deposits
Term deposits
31-Dec-09
718.80
718.80
267,017.35
1,238,949.53
7,260,000.00
26,000,000.00
7,527,736.15
27,239,668.33
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 39
7.
DEBTORS AND CREDITORS
This heading is broken down as follows:
EUR
31/Dec/10
31/Dec/09
Current Assets
Brokers and financial intermediaries
Taxes (a)
0.00
449.60
449.60
118,893.96
141,672.83
0.00
0.00
693.27
4,752.27
120,036.83
146,874.70
2,761,076.81
9,398.46
38,774.67
83,925.02
Creditors – Buildings
143,277.71
146,452.98
Other
113,872.02
126,362.78
0.03
0.03
3,057,001.24
366,139.27
-2,936,964.22
-219,264.57
Tenants
Derivatives (b)
Other
Current Liabilities
Brokers and financial intermediaries
Taxes (a)
Derivatives (b)
Net value
a) Taxes - VAT
This heading essentially concerns the VAT paid in the renovation works of
Edifício Libersil, to be brought forward to future years.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 40
b) Derivatives
The policy on the use of derivatives was based exclusively on the use of foreign
exchange forward contracts to hedge the foreign exchange risk in Exchange-Traded
Funds denominated in four separate currencies: pound sterling, US dollar, Japanese
yen and Swiss franc. Since there were no underlying assets on 31 December 2010,
no foreign exchange forward contract position was open.
8.
ACCRUALS AND DEFERRALS
This heading is broken down as follows:
EUR
31-Dec-10
31-Dec-09
Interest receivable
From Securities
From term deposits
Rents received
10,623,688.42
9,441,302.89
19,074.63
9,800.42
0.09
Other accruals and deferrals
Accrued costs
Other
0.00
-9,900.00
328.96
328.96
10,643,092.10
9,441,532.36
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 41
9.
VALUE OF THE FUND
Changes in the value of the Fund were as follows:
EUR
31-Dec-09
VALUE OF THE FUND AS AT 31 DECEMBER
31-Dec-10
1,262,326,042.83
Increases due to contributions
30,446,538.17
Decreases due to matured pensions and repayments
56,117,588.48
Financial profit (loss)
-5,967,563.49
Profit for the year
-31,638,613.80
VALUE OF THE FUND AS AT 31 DECEMBER
(A)
1,230,687,429.03
To recall:
Liabilities for Past Services
(B)
Excess compared to liabilities
1,270,946,154.00
1,239,417,671.00
(A-B)
-8,730,241.97
10. CONTRIBUTIONS RECEIVED AND BENEFITS PAID
FUND AT BEGINNING OF YEAR
Realised
1,262,326,043
Expected (*)
1,262,326,043
Contributions
Current contributions
Extraordinary contributions
30,446,538.17
20,998,732.17
9,447,806.00
21,683,643.00
21,683,643.00
0.00
8,762,895
-684,911
9,447,806
40.41%
-3.16%
-/-
0.69%
-0.05%
0.75%
Benefits and pension costs
Pensions
Capital repayment
Transfer of rights
Reimbursements
56,117,588.48
50,528,717.44
2,182,639.50
0.00
0.00
54,604,175.00
48,874,593.00
2,472,592.00
0.00
0.00
1,513,413
1,654,124
-289,953
0
0
2.77%
3.38%
-11.73%
-/-/-
0.12%
0.13%
-0.02%
0.00%
0.00%
Costs with pensions in payment phase 2,959,900.91
Death benefit
446,330.63
2,929,708.00
327,282.00
30,193
119,049
1.03%
36.37%
0.00%
0.01%
Deviation
(% real) (% Opening Assets)
(*) expected amounts at beginning of the year
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 42
Current contributions include, in addition to the component paid by the Sponsor (the Banco de
Portugal), contributions from the employees in the conditions laid down in their corresponding
pension plans.
The realised value of extraordinary contributions is due to the non-expected population
movements, despite these being allowed in the deed of constitution. The contributions of the
Banco de Portugal for the funding of the Pension Fund were made in order to neutralise the
decisions taken at the level of the human resources policy.
A high number of early retirements were taken by active employees in 2010. This was caused by
the alterations to the Social Security for the banking sector, in which the liabilities for pensions
payments are to be shared in the future between the Fund and the general Social Security
Scheme. These movements in the bank’s active population became significantly relevant from
October 2010 onwards, given the fact that the 2nd Tripartite Agreement on Social Security for
the Banking Sector between the Ministério do Trabalho e da Solidariedade Social (Ministry of
Labour and Social Solidarity), the Associação Portuguesa de Bancos (Portuguese Association of
Banks) and Sindicatos do sector financeiro (financial sector Unions) was signed.
The contribution made in 2010 shows a decrease over the amount achieved in 2009 (-63%) due
to the fact that there was no need for an extraordinary contribution to compensate for assetliability management results and/or changes to the assumptions.
The deviation for 2010 recorded in the heading Capital Redemption arises from the fact that
some retirements took place in the last days of the year and, accordingly, the liquidation of
capital redemption took place in 2011.
The deviation recorded in the total amount of death benefit paid in 2010 and the increase in this
same amount, in comparison to the previous year (+48%), are due to a rise in mortality.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 43
11. INCOME
This heading includes the following types of income:
EUR
31-Dec-10
Land and buildings
4,269,093.65
31-Dec-09
4,362,420.94
Securities
0
Participation certificates
4,735,473.00
1,368,517.90
23,250,093.32
24,146,701.29
Other public issuers
279,539.73
39,280.82
Other issuers
915,000.00
885,219.17
29,180,106.05
26,439,719.18
1,143.05
6,830.04
203,494.62
178,657.96
204,637.67
185,488.00
33,653,837.37
30,987,628.12
Real estate and securities investment funds
Bonds
Sovereign debt
Demand deposits
Term deposits
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 44
12. CAPITAL GAINS AND LOSSES
Capital gains and losses recognised in the year are broken down as follows:
EUR
31-Dec-10
31-Dec-09
UNREALISED CAPITAL GAINS AND LOSSES
Land and buildings
Capital gains
0.00
0.00
1,360,514.00
1,656,910.00
-1,360,514.00
-1,656,910.00
Capital gains
10,857,992.36
61,840,617.71
Capital losses
35,260,047.26
18,380,649.76
-24,402,054.90
43,459,967.95
Capital gains
113,190.84
3,205.77
Capital losses
86,593.51
5,285.59
26,597.33
-2,079.82
Capital gains
83,037,532.84
38,837,420.69
Capital losses
96,383,486.51
3,327,536.27
-13,345,953.67
35,509,884.42
Capital gains
0.00
32,170,529.53
Capital losses
0.00
31,809,651.62
0.00
360,877.91
Capital gains
3,789,969.55
758,263.11
Capital losses
3,799,895.43
1,142,336.05
-9,925.88
-384,072.94
TOTAL CAPITAL GAINS
97,798,685.59
133,610,036.81
TOTAL CAPITAL LOSSES
136,890,536.71
56,322,369.29
-39,091,851.12
77,28,667.52
Capital losses
Securities
Other
REALISED CAPITAL GAINS AND LOSSES
Securities
Derivatives
Other
NET VALUE
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 45
13. OTHER INCOME
This heading is broken down as follows:
Eur)
31-Dec-10
Other Income
14.
31-Dec-09
34,446.25
192,728.92
34,446.25
192,728.92
OTHER EXPENSES
This heading is broken down as follows:
EUR
31-Dec-10
31-Dec-09
Financial
254,851.10
266,169.75
Buildings
292,725.95
338,371.57
6,267.71
21,166.58
10,136.23
15,483.65
563,980.99
641,191.55
Extraordinary expenses
Other expenses
a) Financial expenses
This heading covers expenses borne by the Pension Fund related to the financial
asset global custody service.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 46
b) Expenses in buildings
This heading covers normal building management and maintenance costs.
15. INFORMATION CONTAINED IN THE ACTUARIAL REPORT
As an integral part of the management report, the Sociedade Gestora dos Fundos de Pensões do
Banco de Portugal reports the actuarial results of the Defined Benefit Pension Fund as at 31
December 2011.
16. TAX LIABILITIES
The Banco de Portugal assumes tax liabilities under the agency agreement entered into with the
Sociedade Gestora (Managing Company) on 17 October 2006.
This Agreement states that the Banco de Portugal shall:
a) pay retirement and survivors’ pensions to their respective beneficiaries on behalf
and on the instructions of the Sociedade Gestora;
b) withhold any contributions and taxes due, for subsequent delivery to the
competent authorities;
c) settle the sums paid and the contributions owed to the Pension Fund related to
the Bank’s employees through offset, in the terms of sub-paragraph a).
The Banco de Portugal has complied and will continue to comply with the aforementioned
agreement as long as the same remains in force, and shall assume all inherent liabilities.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 47
17. METHODS AND ASSUMPTIONS OF LIABILITIES VALUATION
The assumptions used in the valuation of Liabilities for Past Services (LPS) were calculated
based on the available market information on the reporting date. The market data was removed
from financial instruments that replicate the structure of the future flows of the LPS.
a) Discount rate
The methodology for calculating the discount rate to apply in each actuarial valuation
consists, on a first approach, in determining the base rate, which corresponds to the yield
to maturity of the Pension Fund’s LPS, which is also calculated through the nominal
return rate of inflation-linked sovereign debt of the Euro Area.
Subsequently, a spread is added to this base rate. This spread reflects the differential
between the return rate on securities issued by highly rated Euro Area sovereign states and
private debt securities of high credit quality of the Euro area.
b) Wages and pensions growth rates
The assumption for the wage growth rate corresponds to the expected inflation rate for
the time-frame corresponding to the time structure of liabilities, apart from the 1st year,
plus a spread that reflects the real growth of long-term wages of the population covered
by the Pension Fund.
The assumption for the expected inflation rate is calculated on the basis of implicit
inflation rates removed from securities of inflation-linked sovereign debt of the Euro
Area.
The assumption for the pension growth rate is equal to the expected inflation rate for the
average remainder time of pension payments.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 48
18. RISK MANAGEMENT PROCEDURES, PRINCIPLES AND OBJECTIVES
Aimed at maximising the return on assets under management against the value of the assumed
liabilities, and in line with the principles adopted for the maintenance of an adequate liquidity
level, diversification and risk limitation on the assets value, the Sociedade Gestora applies a set
of procedures regarding risk management, of which:
•
Asset-Liability guidance of financial management;
•
Daily assets and liabilities valuation according to mark to market principles;
•
Revaluation of the Investment Policy, on a monthly basis, or whenever required,
by the Investment Committee;
•
Production of monthly reports and analysis of performance, risk control and
market perspectives;
•
Regular estimate of the funding ratio of the Pension Fund;
•
Use of an information system which eases the daily monitoring of the portfolio
positions and real time follow-up of their compliance;
•
Configuration of all instruments subject to investment in the information system.
19. MANAGEMENT, EXPOSITION AND ORIGIN OF RISKS
The Pension Fund is exposed to market risks embodied in the volatility of the funding level
related not only to the variation in interest rate levels and the portfolio assets, to credit risks
arising from the relationship established with counterparties and issuers, and to liquidity risk.
So as to determine the assumed magnitude of the aforementioned risks and their limits, the
exposure will be determined, whenever possible, based on the market value and the composition
of the portfolio.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 49
Market Risks
•
“Interest rate” risk – likelihood of observing a funding ratio reduction caused by
the volatility of interest rates.
•
Average exposure to “interest rate” risk from an asset-liability approach – 21.0%
(share of the the Pension Fund’s liabilities not covered by interest contingent
assets).
•
Equity risk – this risk is related to the volatility of the equities held in the portfolio
and the consequent possible resulting reduction in the funding ratio.
•
Average exposure to assets subject to equity risk (% of the portfolio value) – 6.9%
•
“Inflation” risk – this risk is related to the volatility of the inflation rate and the
consequent possible resulting reduction in the funding level.
•
Average exposure to “inflation” risk from an asset-liability approach – 19.0%
(share of the Pension Fund’s liabilities not covered by inflation contingent assets).
•
Exchange rate risk – this risk arises from the changes in the foreign currency rates
against the Euro (found in the foreign currency listed investments) and the
consequent possible resulting reduction in the funding ratio.
•
Average exposure to assets subject to exchange rate risk (% of the portfolio value)
– 3.2%.
•
Real estate risk – risk of fluctuations in the real estate value and portfolio
investment funds and the consequent reduction in the funding level.
•
Average exposure to assets subject to real estate risk (% of the portfolio value) –
13.4%.
•
Concentration risk – this risk is related to the excessive accumulation of exposure
to a single asset or asset class.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 50
Market risk management is done by setting exposure limits for the different risks and
through the calculation and daily monitoring of the value at risk (maximum expectable
loss, for a 95% confidence level, in a given time period, of the asset value against the
Fund’s liabilities value.
The sensitivity analysis of the Fund’s funding ratio, made on the assumption of
simultaneous materialization of adverse scenarios for each asset class over liabilities,
results in a decrease of 8.3%, in an one-year-period. This analysis was grounded on the
stochastic model of assets and liabilities projections developed by the Sociedade Gestora.
Value at Risk
31.50%
Equity risk
Real estate risk
17.30%
Bond risk
4.80%
Total
Weight in the portfolio (31/12/2010)
6.90%
13.40%
79.70%
100.0%
Impact on the funding ratiol
-2.2%
-2.3%
-3.8%
-8.3%
The interest rate risk is also calculated based on the modified duration of the portfolio and
the leverage-adjusted modified duration gap, which consists on the difference between the
duration of liabilities and the duration of the bond portfolio, adjusted so as to reflect the
size differences between these two aggregates.
Credit Risk
•
Issuer and counterparty risk – risk of payment or financial settlements failures by
an issuer or a counterparty.
Credit risk management is ensured by assessing the issuers and counterparties’ credit
quality and by defining exposure limits, namely by country, issuer or issuance, based on
credit ratings provided by the main Rating Agencies and, in addition, by accessing
indicators, which are based on market information, and by monitoring other relevant
sources, namely news agencies and specialized press.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 51
Average exposure to issuers by rating:
Rating
AAA
AA
A
BBB+
% of the portfolio value
60%
30%
7%
3%
Assets with BBB rating were sold in May 2010. Thus, at the end of the fiscal year, the
bond portfolio was completely composed by assets with rating A- or higher.
Liquidity risk
•
Risk of difficulties in the sale of certain assets, due to lack of buyers or the need to
sell them at a loss over their fair value.
Liquidity risk is monitored by the bid-ask spread and mitigated by the imposition of
minimum limits for issuing size, so as to make a bond eligible for investment.
20. CLOSING REMARK
The Financial Statement is subject to requirements corresponding to Standard 7/2010-R of 4
July of the Instituto de Seguros de Portugal. This Standard defines the elements which must be
published in the Financial Statement, so as to adapt the given information to the specific
characteristics of each entity. Thus, certain elements have not been included, given the activity
pursued by the Defined Benefit Pension Fund in 2010.
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 52
CERTIFICATION OF THE FINANCIAL STATEMENTS
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 53
Ernst & Young
ERNST & YOUNG
Audit & Associados – SROC, S.A.
Avenida da República, 90, 6th floor
1600-206 Lisbon
Portugal
Tel: +351 217 912 000
Fax: +351 217 957 586
www.ey.com
Legal Certification of Accounts
Introduction
1. We have audited the attached financial statements of Fundo de Pensões do Banco de
Portugal – Benefício Definido “(Fund)”, which comprise the Statement of Assets and
Liabilities as at 31 December 2010, which shows total assets of 1,230,687,428.99 Euros and
a value of the fund of the same amount, including negative net profits of 31,638,613.80
Euros, the Income and Expenditure Statement and the Cash Flows Statement for the year
then ended, as well as the corresponding Notes.
Responsibilities
2. The Board of Directors of the Sociedade Gestora dos Fundos de Pensões do Banco de
Portugal (“Sociedade Gestora”) is responsible for preparing financial statements that give a
true and fair view of the assets and liabilities of the Fund, the results of its operations and
cash flows, as well as for adopting appropriate accounting policies and criteria and
maintaining an appropriate internal control system.
3. We are responsible for expressing an independent and professional opinion on the basis of
our audit of the aforementioned financial statements.
Scope
4. We conducted our audit in accordance with the Standards and Technical Recommendations
issued by the Institute of Statutory Auditors, which require that we plan and execute with a
view to obtaining reasonable assurance whether the financial statements are free from
material misstatement. Accordingly, the aforementioned audit included:
__________________________________________________________________________
_
Limited liability company * Share capital 1,105,000 euros * Registered in the Statutory Auditors’ Association under no. 178 * Registered in the CMVM under no.
9011 * Taxpayer no. 505 988 283 * Registered in the Lisbon Commercial Registry under the same number * A member of Ernst & Young Global Limited
Relatório e Contas | 2010
Fundo de Pensões do Banco de Portugal – Benefício Definido 54
− examination, on a test basis, of documentation supporting the amounts and disclosures in
the financial statements and an evaluation of the estimates, based on the judgements and
criteria defined by the Board of Directors of Sociedade Gestora dos Fundos de Pensões
do Banco de Portugal, used in the preparation of the financial statements;
− an assessment as to whether the accounting policies and the disclosures adopted are
appropriate, as applicable;
− assessing that the accounts were prepared on a going-concern basis; and
− an overall assessment of the appropriateness of the financial statements.
5. Our audit also covered the verification that the financial information included in the
Management Report is consistent with the financial statements.
6. We believe that the audit carried out provides a reasonable basis for expressing our audit
opinion.
Opinion
7. In our opinion, the aforementioned financial statements present fairly, in all material
respects, of the financial position of the Fundo de Pensões do Banco de Portugal –
Benefício Definido as at 31 December 2010, the results of its operations and cash flows for
the financial year then ended, in accordance with accounting principles generally accepted in
Portugal for the Pension Funds industry. (Regulatory Standard No 9/2007-R of 28 June and
No 7/20010-R of 4 July).
Lisbon, 15 March 2011
Ernst & Young Audit & Associados – SROC, S.A.
Firm of Statutory Auditors (No 178)
Represented by:
[signature]
Ana Rosa Ribeiro Salcedas Montes Pinto (ROC No 1230)
Relatório e Contas | 2010