Our results in 2021
3.2 What we have done as a pension administrator
We have optimized pension administration in conjunction with the pension funds. Innovation and digitalization are playing an increasingly important role here.
3.2.1 Getting a “grip on data”
An important program in pension administration is Grip on Data. This program, which we introduced following a request from ABP, includes corrective actions in pensions administration. We had already started correcting data back in 2019 and our Grip on Data project was in full swing by 2020.
Any inaccuracies or discrepancies may have crept into the administration system because of the long-standing history of our existing pension system. An important cause is the accumulation of complex regulations which have been introduced over a number of years, with a multitude of errata, as well as countless technical changes and exceptional situations, especially as part of ABP’s pension scheme. Errors have also crept into the administration system because the recovery has been incomplete in the past and because external parties failed to process or supply the data correctly.
Now that we are about to switch to a new pension system and, in practical terms, also to a new way of administering it in a new policy and capital administration, this thorough check of all data becomes all the more important in practical terms. Any data being transferred to the new pension system must be clean, up to date, and complete.
Corrective actions
The number of recovery actions is larger than we had previously anticipated. We expanded the project further in 2021 and had to adjust our planning program. This proves that Grip on Data is not a straightforward task. The administration of pension entitlements, premium payments, and everything else related to this is an extensive and complex process. This does not alter the fact that participants must be able to rely on the fact that the pensions they have accrued have been registered and calculated correctly. This is why we have made additional investments in further automation; we use the most up-to-date methods for data analysis, and we have hired specialists and appointed members of APG staff from other departments to assist with this major project.
This initially concerns ABP, which is the largest of our eight pension funds. We have made agreements with ABP regarding the period within which we will complete the corrective actions required. We will discuss this with the other fund clients and discuss when and how we will examine their own pension administration.
Our ambitions are high and the current complexity of the regulations must not be allowed to diminish in the new pensions system. This is APG’s commitment to the new pension legislation. And for our Grip on Data program, we want to quickly get back to deploying our capacity to work on the Pension of the Future in close consultation with our pension clients.
Coincidental service time
It may be the case that a distribution has to be corrected, or that a supplementary payment or additional payout is required. APG actively tracks down right holders. In 2021 we also undertook a number of recovery actions in close coordination with ABP. The basic principle is that participants receive the pension to which they are entitled. We processed over 40,000 applications for the supplementary payment submitted by participants in the 'Coinciding service time' recovery campaign, in which participants who had accrued a pension at the same time as their partner and are entitled to a supplementary payment but have not applied for it.
We have initiated tax compensation campaigns on behalf of the pension funds for some of these participants where required.
3.2.2 Digital security and privacy
Digitalization forms a critical part of our strategy. There are a number of issues that require attention: we want to further develop the digital skills of our employees and use the most up-to-date technology in our processes and services. Furthermore, we will give high priority to the digital security of our organization and all of the (personal) data we manage. We arm ourselves against cybercrime, which is on the rise worldwide and therefore poses an increasing risk to the continuity of the operation.
As a company, we are focusing on ICT transformation, and we are becoming increasingly reliant on automated applications. A Chief Digital Officer (CDO) was appointed on January 1, 2022, to make our digital agenda more coherent. He will lead the Group Digital Office as part of his new role. This group will be the first point of contact for everything that concerns the field of digitalization. Please see the Risk Management section for further information about digital security.
3.2.3 Price per participant
Our starting point is simple: the more efficient our organization, the less money we spend, the more money is then left for each participant that can be invested in the pension. We, therefore, want to keep the costs for the participant as low as possible, without compromising on the quality of our service. We have worked hard to achieve this in recent years.
A further decrease in the price per participant will be required in the future. Our focus in 2021 was on making our organization more efficient. We have invested in increasing our participant focus in conjunction with our pension fund clients by starting with the strategic initiatives Grip on Data and Pension of the Future. Arrangements have been made with a number of clients regarding how this should be funded, as a result of which the average price per participant rose to €70.30 in 2021. It is expected that these initiatives will lead to substantial investments over the next few years, with the result that the price per participant will also increase further in the years to come.
The transition to the new pensions system does provide us with the opportunity to modernize our IT systems, reduce the complexity in our pension administration and make our processes more efficient and with greater automation. This should ensure that our costs for pension administration are considerably reduced over the long term; this will lead to a significant drop in the price per participant once the new pensions system has been introduced.
3.3 Preparing for the new pensions system
It may seem a long way off, but APG is already working hard on this major operation. All divisions of the business will have to deal with this entirely different scheme.
The biggest change will take place in pensions administration. Our asset management division will also be more closely intertwined with pensions administration and services. The exact amount of the pension will no longer be derived from the salary earned previously in the new system but will be taken from the premium paid and the return on the investments instead. The new pensions system is the most revolutionary change in our history. This 'revolution' will require a lot of capacity, a large budget, plenty of resources and lots of time. We have made the clear choice that this immense operation will take precedence. We cannot afford to lose any time adjusting the organization, internal processes, and ICT systems. That is why we are on top of things. Incidentally, the new pensions administration system must be ready well before 2027: we are expecting the first funds to switch to the new pension system in 2025.
3.3.1 A new scheme, a new system
There will be a new ICT system for our policy and capital administration division. All pensions will be administered here as soon as the new system is up and running. We must set this up in such a way that the participants are able to view their personal pension assets.
We drew up a plan in 2021 for what we want to achieve in the ICT field over the next few years. We've already started looking for partners who can provide this critical system and help us transfer the data belonging to the 4.8 million participants securely and without any errors, along with all of the information and arrangements that accompany it. This will be done with the utmost care. Firstly, all accrued rights must be transferred in full, we call this “entering.” All of the data must also be traceable at a later stage, and it is imperative that the entire procedure is secure from start to finish and that it complies with all privacy legislation and regulations. It must also be simple for the participants to understand.
3.3.2 External and internal communication
Our services will change dramatically. What these will look like exactly depends to a large extent on the actual pension funds. There is one important element in this is communication: we must be able to explain everything properly to participants, not only in general terms but also on an individual basis. Many people will be wondering how the pension amount has been calculated, why it fluctuates, and how their deposited premiums are invested.
We will continue to make it clear what we are doing throughout the transition period, both externally and internally. Among other initiatives, we have assembled teams within APG that organize interactive knowledge sessions for colleagues, so that they are aware of the latest developments. APG started the “academies” in 2021, which are a type of training course. These focus on various knowledge and task fields and prepare employees for the changes required by the new pension system. This involvement is paramount: the new structure will be even more focused on participants.
3.3.3 A flexible organization
A lot will be asked of our organization over the next few years. We will have to adapt on many fronts. It is therefore important that we remain flexible. The client teams we formed a few years ago will help with this. These are teams of employees with various capabilities who will work in tandem for a specific client. We extended this further in 2021. We will continue to do so in the years to come. We can see that we will be able to work faster and smarter. Retraining and further training will still be required.
Automation is also increasingly forming part of our service. Not only are we reducing costs with this, we are also reducing the prospect of any errors. The number of manual calculations, which we had already significantly reduced at bpfBOUW, has now also been reduced for other pension funds.
Ronald van Hengel, Digital & Innovation Manager, Asset Management
“APG works for one in every four or five Dutch people. They give us one day a week of their salary. There is so much confidence in them doing so, that we have to be careful with this. However, society is changing. I think it would be great if we can change the system in such a way that we can retain that level of collectivity. I have faith that we can. People will soon be gaining more insight into their own piggy bank. They then may also be able to make different choices and feel more involved.”
3.4 What we have achieved with our asset management
At the end of 2021, we were managing investments worth €636 billion for the four pension funds we provide asset management services to.
3.4.1 Assets under management
The return on investments was positive, reaching 10.4% in 2021 compared to 6.6% in 2020. That corresponds to €61 billion. The growth in assets managed in 2021 was mainly caused by high returns on the financial markets. Western economies grew faster than expected in 2021, partly because of fiscal stimulus packages in the US and in Europe. Large companies flourished as a result and saw their profits rise sharply. Private and listed stocks, real estate and commodities also posted high returns. Interest rates rose throughout the year, which resulted in losses for government bonds. Other fixed-income investments did contribute towards a positive return on investments.
It is important for our clients to have reliable exposure to the financial markets, especially when those markets offer the high returns witnessed in 2021. Benchmark returns represent the bulk of the investment returns we achieve for our clients assuming everything goes to plan. We then look at the excess return that we have achieved with our asset management in addition to this exposure.
Our performance levels as a long-term investor are best assessed over a longer period of time. The table below shows the annual returns and any additional (excess) returns of our investment strategies for 2021 and for the previous five years. External management costs and costs of performance-related premiums have been deducted from the figures below.
The total assets managed in the table do not match the assets being managed, which equal €636 billion. The table does not show all of the strategies and does not show any overlay. These have a negative balance value, which means that the amounts in the table add up to a higher total.
3.4.2 Excess return
We want to achieve even better results for our clients over the longer term because we are an active investor. In other words: returns above the benchmark. We will call this an excess return or “outperformance” should we manage to achieve it. We often use a market index that expresses the average return in the market. We use various strategies to outperform the market. Our investment decisions are based on human judgment, analytical models which are data-driven, and macroeconomic and company-specific analyses. This can lead to clear choices within certain investment categories, or it may be diversified across various investment categories. This combination of various approaches provides a solid starting point for achieving a higher-than-average return over the long term.
We have achieved an average excess return of 54 basis points (0.54%) over the previous five years, which is measured across all investments managed for our pension fund clients. Our additional return in 2021 was 105 basis points. This is above average. The positive result is partly due to diversification: a negative additional return in liquid investments was compensated for by non-liquid investments and a tactical allocation of assets. All three asset categories will outperform the market over a period of time.
| Sources of extra return (in basis points 1/100th of a percent) | Total 2021 | 5 years |
| Extra return on liquid investments | -38 | 5 |
| Extra return on illiquid investments | 131 | 39 |
| Tactical asset allocation | 12 | 10 |
| Total extra return | 105 | 54 |
Liquid investments
Liquid investments had a negative return in 2021 after costs and have had a marginally positive return over the last five years. Investments in credits achieved a significant outperformance, and the benchmark was also set in 2021 in emerging market debt. Active equity strategies returned an overall negative performance. Quantitative strategies, which had been lagging behind until last year, were on the road to recovery. Fundamental analysis-driven strategies, however, were falling behind. This was partly due to stock selection carrying less weight than the large, expensive tech stocks. Fundamental strategies move around their outperformance goal and are measured over a five-year period.
Non-liquid investments
An excess return of 131 basis points was achieved in non-liquid investments. The figures over a longer period, over five years for example, are more representative because there are always some measurement discrepancies associated with the difference in the period of time between portfolio and benchmark information in a number of non-liquid investments. The result for that measurement period is also positive, with a total of 39 basis points. An important contribution over both 2021 and the past five years was made by investments in private equity, where good results were achieved partly due to a number of favorable “exits”. The infrastructure portfolio, which is smaller in size than private equity, also outperformed strongly over both time periods. A small excess return was achieved over the past five years in real estate due to good results in 2021. Hedge funds results, which are subject to fewer measurement discrepancies than most other non-liquid asset categories, were massively improved in 2021 due to a large outperformance. Commodities maintained a solid five-year track record even after returning negative figures in 2021.
Tactical asset allocation
Tactical asset allocation has focused over the past year on considering asset categories that are sensitive to improving growth potential and an increasing preferred risk element of financial markets. The first plays a role because the world is recovering from the COVID-19 pandemic. The second is due to interest rates, which remain low and are forcing a number of investors to achieve part of their required return by taking risks. This provided excess returns in most months. This is because active positions, due to limited controllability, were often much smaller than in 2020 and market volatility was lower, which meant that the result achieved for this strategy was not as high as it was in 2021.
3.4.3 Asset management costs
We pay careful attention to the costs associated with our investment activities. We incur these costs within our own organization and so that we are able to manage our clients' investments. The active investment style of asset management results in higher costs. These costs must therefore yield the highest possible (excess) return. We can see that over the longer term the investment costs paid by our clients are on average lower than those of comparable pension funds when the investment and implementation style are taken into consideration. This is confirmed by external benchmarking of investment costs. The costs of the active investment style were particularly evident in our non-liquid strategies in 2021. Both absolute returns and excess returns were high. As a result of this, the absolute amount of costs for our clients was also high. It is important to consider this factor for pension funds. The results however after the deduction of all costs were very favorable for our clients.
3.4.4 Digitalization
Digitalization is playing an increasingly important role not only in our pensions administration, but also in our asset management division. The asset management market is all about using data smartly and to its maximum capacity, workflow automation and digital analytic platforms. We view digitization as a tool to create value for our clients and to maintain our competitive edge. That is why digitizing our asset management forms one of our strategic themes for the next five years.
We conducted the first four projects related to data analysis and visualization.
We implemented 'real-time trading analysis' to advise our traders within the portfolio management division on their trading strategies. The real estate team produced some solutions to make decisions more systematically and to make information more accessible and easier to recycle.
The fundamental equities team has designed a data-driven platform in conjunction with a supplier for selecting relevant information. The team also entered into a joint-creation agreement with a telecom information service provider. This puts us at the forefront of market insights in the asset management industry.
The Entis subsidiary improved its NLP-driven (Natural Language Processing) services. This enabled the delivery of the first alpha 3.0 signals for quant stocks, which was also provided via joint creation.
The hedge funds and alternative alpha teams improved the evaluation process of the various managers. They improved operational efficiency by automating multiple manual tasks.
In 2021, we laid the foundations for our future cloud and data infrastructure and launched models for the data shop and for data governance. We also started training more than 200 colleagues in digital skills and digital management, and the foundations were laid for a Digital Academy within APG. They collaborated with universities to search news items quickly and view financial statements for new insights. This research will play a role in further innovation over the next few years. We will inform our clients about this digitalization of our asset management via a special “AM digitalization” branding campaign.
3.4.5 New investment solutions
The Product Approval and Review Process (PARP) plays a pivotal role in product management. This product development process will expand the product range of APG funds and individual accounts, including those for separating APG funds and new investment products for existing pension fund clients, such as those associated with Dutch residential mortgages. The APG Developed Equities RI (Responsible Investing) index fund was launched in September 2021. RI index products for other asset categories, such as emerging markets, credit, and real estate, are all currently under development.
3.4.6 Investing in the Netherlands
We have also created more space in 2021 for investments in the Netherlands upon the request of the pension funds for which we work. We have expanded our investments in infrastructure (fiber-optic connections in small residential areas and remote areas, wind turbines, smart heat networks), real estate (hotels, student halls of residence, outlet centers) and Dutch businesses. We also promote partnerships between private investors and investment-based institutions (such as InvestNL and Groeifonds).
The assets we manage are too large to invest in the Netherlands alone. Around 4% of the assets we manage on behalf of our clients are invested in the Netherlands. Prices would rocket and the level of risk would be too concentrated if we were to allocate a much larger proportion of investments solely to our domestic market.
We will invest more than one billion euros in green Dutch mortgages from Vista on behalf of our clients at year-end 2021. APG is also one of the founding members of LIST Amsterdam, a platform for providing loans to Dutch housing associations.
To support investments by Dutch companies following the COVID-19 pandemic, we made €100 million available on behalf of ABP for subordinated loans in 2021. Eligible companies are financially stable and have sufficient continuity and profit prospects. However, they are facing a weakened financial position due to the restrictive measures as a result of the pandemic. This Post-COVID Growth Financing Initiative is also supported by ABN AMRO, ING, and Rabobank.
3.4.7 Responsible investing
For every investment we look at how a company treats people, the environment, and whether it is being managed well. This policy is consistent with national and international laws and regulations and complies with the OECD guidelines for multinational businesses. We also expect the companies in which we invest to comply with the UN Global Compact rules on human and employment rights, the environment, and the fight against corruption.
A selective approach to sustainable bonds
2021 was another record year worldwide with regards to 'labeled' bonds being issued. Labeled bonds fund green, social or sustainable projects. We are witnessing rapid growth in the amount of sustainability-linked bonds being issued. Companies that issue these types of bonds promise to meet predetermined sustainability targets. They will have to pay a higher rate of interest to investors if they fail to deliver on this promise. We will remain selective in our approach while we support the growth and development of the labeled bond market. Effective, transparent reporting is crucial when it comes to maintaining the integrity and credibility of this booming market. We make potential issuers aware of our expectations, share past experiences and express our interest in labeled bond issues. We had €17.6 billion invested in labeled bonds on behalf of our pension funds at the end of 2021.
3.4.7.1 Leaders, prospects and laggards
We assess all potential investments in equities and corporate bonds based on return, risk, costs, and sustainability. We determine whether a company is a “leader” or a “laggard” on the basis of our analysis. We will only invest in a laggard if we expect to be able to encourage the company to make improvements. We call a company that starts an improvement process (engagement) with us as a “prospect”. Since 2020, our clients have only wanted to invest in leaders and prospects
3.4.7.2 Having influence
We also vote at thousands of shareholder meetings every year. In 2021, we even paid more attention than usual to rewards. Some companies, such as large supermarket chains, online stores, and parcel delivery companies, have benefited significantly from the COVID-19 pandemic and from the fact that cafes, restaurants, and shops were closed for extended periods of time. We believe that management teams should not receive exceptionally high bonuses under these circumstances and have voted against the compensation reports recommending these types of bonuses.
A more stringent policy for responsible investing
The board of our largest client, ABP, decided to make the criteria to qualify companies as frontrunners more stringent whilst it was assessing the inclusion policy. Both bpfBOUW and SPW have also introduced a renewed responsible investment policy for the period 2021-2025, which includes new and more stringent sustainability targets.
In asset management, we are striving to provide our clients with customized solutions to meet changes in investment policy and will test to see whether these changes are consistent with our responsible investment philosophy. We tightened up the inclusion criteria in 2021 for businesses in the energy sector for all customers. We are also working on more stringent criteria for companies in other sectors. We believe we are well positioned to continue to serve our clients and to help them fulfill their growing sustainability ambitions.
3.4.8 Investments and climate
Asset management conducts a thorough analysis of any potential risks for our clients' investment portfolios, which are caused by climate change. We assess companies in which we invest to ensure they are reducing their carbon emissions and have a strategy for making the transition to a climate-neutral economy.
We have compiled a database with information from various sources for the real estate portfolio, which allows us to assess the risks of extreme adverse weather and rising sea levels for tens of thousands of buildings. We identify and report on climate risks in accordance with the guidelines set by the Task Force on Climate-Related Financial Disclosures (TCFD).
Jeroen Smit, Business and Financial Journalist
“Climate change has always seemed a long way off for lots of people. But it is getting closer in lots of ways. We no longer have any choice. It is obvious that something has to be done now.”
3.4.8.1 The carbon footprint of investments
All of our asset management clients have set targets to reduce the carbon footprint of their equity investments. Our clients will announce stricter carbon emission reduction targets in 2022. APG has signed the Financial Sector Commitment to the Dutch Climate Agreement. As a result of this, we are required to report on the carbon footprint of important elements of the investment portfolios we manage. This overview is included in our Responsible Investment Report.
We joined the Net Zero Asset Managers (NZAM) initiative in 2021. In doing so, we are committed to achieving a carbon-neutral investment portfolio by 2050 or earlier and agree to work with our asset management clients to achieve this objective for all investments under our management.
ABP withdraws from “fossil” fuels
ABP announced in October 2021 that it would sell its investments in fossil fuel producers, namely oil, gas, and coal. ABP has set a new standard in its efforts to meet the objectives of the Paris Climate Agreement by making this decision. We will support ABP in implementing this strategy. We will, where possible, invest more in renewable energy and smart solutions for the energy transition in consultation with ABP. We do not expect the sale of fossil fuel investments to have any negative impact on long-term returns. The focus of our engagements for ABP will also shift to accelerating the energy transition in sectors that use fossil fuels intensively, such as car manufacturing, industry, and aviation.
In line with the 2020-2025 sustainable and responsible investment policy of ABP, bpfBOUW, and SPW, we had already sold all investments in companies that derive more than 30% of their revenues from coal mining or more than 20% from tar sands mining at the end of 2021.
3.4.8.2 Pressure to reduce emissions
We exert our influence as a leading investor to encourage companies to reduce their carbon emissions. We do so on an individual basis and in collaboration with other large investors united under Climate Action 100+.
SK Innovation, the largest refining and petrochemical company in South Korea, announced in 2021 that it aims to be carbon neutral by 2050. This commitment also explicitly applies to scope three emissions caused by the use of the company's products. Asset management is one of two investors to engage with SK Innovation on behalf of Climate Action 100+.
We supported an international investor initiative calling on world leaders to do more to fight climate change in the run-up to the 26th UN Climate Change Conference (COP26), Government policy is crucial for underlining the conditions in which private investment can stimulate the energy transition. Asset management has also encouraged the government of South Korea to plan a transition route to a climate-neutral economy in line with the Paris agreement, and to stop constructing new coal plants.
3.4.8.3 Investing in energy transition
We are building up a portfolio for our clients with companies and projects that contribute towards the energy transition in the Netherlands and beyond. We invested in NET2GRID as part of the ABP Dutch Energy Transition Fund, through ANET in 2021, which is a fast-growing Dutch business in the energy sector. A consortium led by us acquired a 50% stake in Stockholm Exergi Holding (SE) in July 2021, which is Sweden's largest supplier of district heating.
3.4.8.4 Protecting biodiversity
APG supports the Partnership for Biodiversity Accounting Professionals (PBAF), in which financial institutions develop a shared methodology for measuring and reporting on the impact of their investments in biodiversity. These institutions take targeted action to protect biodiversity through their investments.
We invested in a large production forest in Chile on behalf of ABP in 2021, and in Wenita Forest Products, which is a large manufacturer of forest products in New Zealand. These forests have been awarded a Forest Stewardship Council (FSC) quality certification. This means that they contribute towards conserving biodiversity and that its management considers the social and economic well-being of employees and local communities.
Marlou Koelman, Applicant at ABP
“On the one hand, I want information about how I can organize the future for myself in a better way. These are just life questions that do concern me. On the other hand, I want to know where my pension fund is investing my money. For them to tell me if it is socially responsible, sustainable, and green. I expect to be able to live off the proceeds later, but I would also like to do some good with that money.”
3.4.9 Sustainable Development Goals
We are actively on the lookout for investments on behalf of our clients that contribute to achieving the United Nations' Sustainable Development Goals. We were managing €112 billion at the end of 2021 compared to €91 billion in 2020 in sustainable development investments (SDIs).
Once again, our asset management scores were above average in the annual benchmark UN Principles for Responsible Investment with an A+ for both strategy and governance. This score has been taken from the 2020 reporting year because the timelines for issuing the report have been amended.
We set up the Sustainable Development Investment Platform (SDI AOP) in 2020 alongside AustralianSuper, British Columbia Investments Corporation and PGGM. This platform uses artificial intelligence to identify the extent to which investments contribute towards achieving sustainable development objectives. APG launched the iSTOXX APG World Responsible Investment Indices in September 2021 in conjunction with Qontigo and asset management company BlackRock. The product is based on five tiers of increasingly strict ESG criteria and is a response to the growing demand for customized sustainable index products.
3.4.10 Human rights and working conditions
We want the companies we invest in to respect the rights of their employees, local communities, and other shareholders.
In 2021, we stepped up our level of engagement with companies with operations in Myanmar, after a military coup overthrew the elected government in February. South Korean steel producer, POSCO C&C, and Japanese brewer, Kirin, committed to ending their business ties with military-controlled companies following strong pressure from APG AM and other investors. Due to obstruction from the Myanmar military, these steps have not yet materialized.
The Dutch pension industry added further substance to the Covenant for International Socially Responsible Investment (IMVB) throughout the year. The covenant records agreements on the prevention of abuses at companies in which pension funds invest.
Responsible Investment Report
In our Responsible Investment Report, we discuss the results of this inclusion policy in more detail, as well as the results of our engagement and voting behavior at shareholders’ meetings. Our pension funds exclude certain companies from investment, including producers of weapons prohibited under international treaties, companies involved in producing nuclear weapons, and tobacco producers. Our funds also exclude the government bonds of countries subject to a binding arms embargo by the UN Security Council or the European Union. The full exclusion list can be found on our website.
3.5 How we serve our participants
We set up our organization in such a way that we can provide the best possible service to funds, employers, and participants. We respond to their requirements and wishes with innovative solutions.
3.5.1 Client satisfaction
We can see that client satisfaction with our work has increased slightly once again. We can see this from the 'transactional' Net Promoter Score (NPS), which is the figure that indicates the extent to which the participant is satisfied with the contact and would recommend our services to others. This NPS figure is an internally measured NPS and is a composite average of various individual scores from the main client missions for the ABP and bpfBOUW funds. The NPS increased to +3 in 2021, compared to -1 in 2020, showing an improvement of four points. We are looking at specific client missions so that we can monitor this closely and are able to take targeted action. For example, this involves what we do when someone retires, the help we offer in the event of a divorce or a death, or how we welcome new participants.
We view the figures as an appreciation for the work we do on behalf of the fund programs and as an incentive. These confirm that APG is on the right track: we have started to focus even more intensely on the wishes and requirements of the client and continue to improve ourselves based on the feedback we received.
3.5.2 Our reputation
APG measures its brand awareness and reputation to gain greater insight into what society thinks and expects of us. We use the RepTrak methodology for this purpose. In 2021, the results showed that 21% of the Dutch population was familiar with APG. In 2020, we scored 20%, and reached our goal. Greater awareness helps APG make more of an impact.
Our reputation has declined slightly but remains strong, falling from 72.6 last year to 71.6 in 2021. This score shows the appreciation we receive from the Dutch people who know us. It is still slightly below the target of 73 that we had set ourselves. We have the best reputation among the people who know APG very well. APG scores highest on “working environment” (equality, remuneration, involvement) and “products and services.” The most important reputation factors for the shareholders are “honest when doing business”, “open and transparent” and “behaving ethically.” We are working on this and for 2022 our target will remain at 73.
3.5.3 Clear communication
We communicate with the outside world in as simple terms as possible. The reconstructed website and the online Newsroom, which we launched in 2020, have proven to be a success. On the Newsroom pages, we write about new developments and opportunities in comprehensible language.
3.5.3.1 BriefBoutiq
We founded the BriefBoutiq in 2021. This is a team with various specialists that monitors and improves standard letters and e-mails to send to participants. It involved around 1,800 variants that circulate within our organization. It will take the team two years to rewrite the correspondence, which should be as comprehensible and as compact as possible.
3.5.4 How we have innovated our services
APG is continuously innovating; we are continuing to renew our services. In 2021, we focused primarily on APG’s role as a trusted guide. Many Dutch people are concerned about their financial situation, now or in the future. The advent of the new pension system is expected to increase uncertainty. APG is committed to the financial fitness of our participants. We are doing this because we believe that this is one of our social tasks. Financial well-being is important for society and for the well-being of individuals today, tomorrow, and beyond. We collaborate to develop tools and platforms that provide this assistance. This goes further than just the participants who are affiliated with our pension funds.
Dutch people live in the present
Our funds already invest in various tools geared towards coaching and consultancy in the field of pensions. It is expected that the duty of care for the funds will weigh more heavily during the transition to the new pensions system. A lot of Dutch people are not so much concerned with their future income but live in the present and want to see their financial position today. They particularly want financial coaching during important life events (retirement, divorce, death). From this starting point, further interest can be added from future income and pensions.
It is mainly the lower and middle-level income earners who need 'intermediate advice', without looking directly for a particular service. For example, they want to prevent stress, avoid making the “wrong” choices and losing out on income.
More and more employers want to offer financial coaching to their employees. They see this as an important factor for sustainable employability.
3.5.4.1 Pension Coach goes live
In 2021, the Pension Coach (“de Pensioencoach” in Dutch) was launched, which allows the pension holder to generate a personal pension plan with the help of a digital pensions coach. In a number of steps, the Pension Coach will request personal information, such as the desired pensionable age, expected expenses and income. Once all the steps have been completed, the pension holder receives a handy tailor-made pension proposal. Subsequently, the pension can be applied for immediately.
3.5.4.2 Kandoor: One million questions
We also pass on particularly practical information to everyone who can benefit from it. Kandoor – the independent online platform through which anyone can ask questions about his or her finances, and therefore also about their pension and AOW state pension, continues to grow. More than one million questions were asked in 2021 compared to 554,000 in 2020. Most of the questions were answered by the chatbot. If the chatbot was unable to provide a response, answers to questions are provided by the volunteer financial guides. The users are very satisfied: the NPS score is 49 compared to 50 in 2020.
3.5.4.3 Dutch debt relief route
APG joined the Nederlandse Schuldhulproute (NSR) on behalf of ABP in 2021. This foundation, together with many partners, is dedicated to making the Netherlands debt-free. Each month, more than 1 in 5 Dutch households has difficulty making ends meet, according to information provided by the NSR. The “route” refers to appropriate assistance, from prevention to help. One of their initiatives is Geldfit.nl. On this site, people gain insight into their financial situation by taking a simple online test. They receive targeted help to get or keep their money matters in order. Geldfit.nl is also used by employers. The sites at PostNL and the Ministry of Defense for example both have a direct link with the Kandoor chatbot.
3.5.4.4 Audience Award for Geldvinder
The online platform Geldvinder, an APG initiative, was winning awards a year after it had been launched. Professionals from the financial sector rewarded our initiative with the PensioenWegwijzer Public Award during the eleventh edition of the Pensioen3daagse trade fair. By using this application, everyone can work on 'financial fitness' in an accessible way. The user can get started with personal financial goals for today, tomorrow, and beyond, partly on the basis of a financial fitness test.
3.5.4.5 Prikkl
APG has acquired a 40% share in the financial coaching and advice platform Prikkl. Its mission is consistent with APG’s: it increases financial insight and helps people get to grips with their finances. Prikkl, therefore, makes an essential contribution towards supporting the participants in pension funds. Prikkl has been helping companies to make their employees “financially flexible” since 2017, with a combination of software and personal consultation. APG has also started to use the platform for its own employees.
3.5.4.6 Vita certificate
Once the pension funds we work for agree, participants can submit a “proof of life” via an app on their smartphone. The new digital method of submitting this evidence (which has to comply with all kinds of rules and also has to be signed by a “competent authority”) saves a large group of participants a lot of hassle, travel and paperwork. They can simply submit this evidence from home as a form of identification using “remote facial recognition.” The app is an addition to “paperwork.” Both will continue to exist in parallel because we do not want to force people to use a smartphone.
3.5.4.7 Automated data exchange
Extensive testing has been undertaken with the automated exchange of data so that participants can be provided with a complete albeit simpler overview of their financial information. He/she can automatically upload data known to other bodies using the most up-to-date technology, should a participant wish to do so. As a result, the participant generates a total overview more quickly and easily and will become more focused, whereas personal coaching can be given regarding decisions that are important for future income.
3.5.4.8 Speech to text
APG has experimented an awful lot in the field of speech analysis over recent years. We have conducted experiments to investigate to what extent new technology, for example, emotion and stress recognition, speech to text and the creation of automated summaries can be used to help improve our services. We ask the pension funds we work for whether we can use these features. We can then assist the pension holder faster, they are more satisfied, and APG employees can be coached more effectively.
Gerard Vincken, Pensions Administration Consultant
“I think it is great to see that the organization is changing. In the past, we mainly just took things from the process and the systems. Now we are thinking about what is relevant for the pension holder. We work in a more client-minded way. The focus is on digitalization and self-service. However, the importance of personal contact should not be underestimated. Contact can be made via other channels, for example through the employer. This will become even more important in the next few years.”
3.5.5 Contact with employers
Employers affiliated with our pension funds are also key clients. Maintaining and creating contact is of major significance during the COVID-19 pandemic, for example by hosting online video conversations. Employers have their own specific needs, which we also take into consideration. In broad terms, this means that small employers are mainly assisted with practical services for their employees. Large employers are more concerned with issues such as sustainable employability and leave due to illness. We support this, for example, with an information library and webinars.
In 2021, we also focused on providing a more friendly greeting to new employers. We have made the registration process entirely digital for bpfBOUW, including a welcome package. This is also an improvement for APG; the entire process is considerably more efficient. This is because fast, digital registration is not a real introduction, meaning we have devised an additional service concept that has already been introduced in part. During the year, for some funds, we also started paying extra attention to ways of simplifying data submission and making payments easier.
We want to make additional improvements to the service provided to employers. This also includes strengthening ties with them. We worked on this in 2021; we started with those employers who are affiliated with ABP. The starting point is a service concept based on employer requirements.
We also continued to invest in improving basic services in 2021. This includes optimizing the website, organizing digital refresher sessions, and providing information-based videos and webinars. We have increased the range, improved findability and have made the information more accessible. We are helping employers in relation to additional services with strategic staff planning and we are discussing sustainable employability with them. We are already working alongside the SPW fund. We will introduce this at bpfBOUW in 2022.
3.6 How we have applied our knowledge and skills
APG has built up a wealth of pensions knowledge over the past century. We want to help society with this knowledge and experience.
Much of our attention is devoted to elaborating the new pension system and to sustaining our investment portfolio that we manage on behalf of our clients. People do get older; we start to work differently and retire later. Job roles are changing due to digitalization. The climate issue is demanding that we become more sustainable more quickly and smarter. We want to use our knowledge to contribute towards the social debate regarding the future pension system, which revolves around aspects such as collectivity and solidarity. We are consciously choosing not to sit on the sidelines with our inclusion policy but wish to use our influence as a major investor to improve businesses and sectors. We are happy to engage in dialogue and debate about this with all types of stakeholders. That is why we share our expertise with pension funds, social partners, and politicians.
We share our knowledge and communicate easily with the outside world via our website APG.NL, so that everyone can find their way and get some answers. We write in comprehensible language about new developments and potential. We also give space to voices from the outside, for example in our podcasts.
Peter Strikwerda: Head of Digitalization & Innovation at Asset Management
“We are looking for people who can work with data, who want to make an impact, want to work on their personal development and who are looking for a better work-life balance. People who can see that what is on our agenda makes a difference in social terms. And we offer them a nice working environment, safety, and room for development.”
We also help participants to get a grip on their pension by applying our knowledge. We provide them with insight into developments and their consequences for their personal situation. We have developed Clear Overview & Insight and the Personal Pension Pot in conjunction with the pension funds. The number of participants with insight into their income for later has increased marginally to 1,995,000 in 2021 compared to 1,965,000 in 2020 and the number of participants who have insight into pension assets has increased slightly to 1,040,000 compared to 1,015,000 in 2020.
We want to be a frontrunner in the field of sustainable investment on behalf of our clients. We have mapped out the risks and opportunities of the climate transition for thirty sectors in which we are investing, and which are based on different scenarios. The Climate Portfolio Screen (CPS) combines an external perspective with the in-house expertise of our asset management portfolio managers. For our real estate portfolio, we have compiled a database with information from various sources that allows us to assess the risks related to extreme weather conditions and rising sea levels for tens of thousands of buildings. This is how we identify climate risks and issue the Responsible Investment Report.
Digital applications soon come into view in the Groeifabriek on the Brightlands Smart Services Campus in Heerlen. The innovation here combines all kinds of technology together such as artificial intelligence, big data, cloud computing and machine learning. This innovation provides a number of opportunities. We will help our funds implement their strategy with technology developed in-house.
The knowledge and skills of our employees are a prized asset. This chapter shows how we work together and how we report on the efforts to adapt motivation, flexibility, and resilience at this moment in time, in which a lot is undergoing change. We are focusing on solid and qualified employees who specialize in digitalization so that we are ready for the new pensions system. And this is not easy in a flooded employment market.
3.7 Our financial position
APG’s primary objective is to achieve the highest possible pension value for our participants, and therefore not the highest possible operating result.
This does not alter the fact that we achieved a financial return of €78 million in 2021 compared to €42 million in 2020, which shows a significant increase. This result is equivalent to a return on equity of 19.5% compared to 10.7% in 2020, while our target for revising our capital and dividend policy was 6.14%. The effective tax rate was 23.4% in 2021 compared to 10.0% in 2020.
Our capital position is strong, as is our liquidity position. The operating cash flow for 2021 was positive. The turnover is achieved via long-term contracts with clients. The turnover of asset management is partly dependent on the development of any assets being managed as part of this specific feature. The services have continued as normal in spite of the COVID-19 pandemic, just like during the previous year.
Lower operating costs
Our financial result in 2021 can be attributed primarily to the lower costs we incurred, especially in terms of personnel. We have worked almost entirely from home for large parts of the year because of the COVID-19 pandemic. This is why we have incurred much lower travel and accommodation costs.
We unfortunately also had to face the fact that we simply could not implement all of our change initiatives at the same time in 2021, for example, because we were often reliant on the same colleagues in specific domains. Our objective was to implement further changes in 2021, such as further rolling out the digitalization program within our asset management program. It was not possible to fill all of the vacancies in the field of digitalization due to a shortage in the employment market. This means that our personnel costs are lower than expected.
Increase in average returns
We can see a growth in the number of participants in pensions administration with regard to regular turnover, which leads to higher payouts for our pension administration services. Turnover in our asset management division increased due to a growth in the total amount of capital invested, to which part of our remuneration is linked.
Additional financing arrangements with clients in strategic initiatives
The costs in the year under review for strategic initiatives are considerable. The details of these initiatives are being coordinated with our pension fund clients; additional agreements are being entered into with them about how this is to be funded. The Grip on Data, Pension of the Future and projects geared towards participant orientation have resulted in an increase in the turnover of pensions administration. Asset management turnover actually increased due to activities related to digitalization.
We will have to continue to invest heavily over the next few years to implement recovery actions in pension administration and to prepare APG for the new pension system. We are in close consultation with our shareholders and pension fund customers about how these future investments are funded.
The market is volatile
The competitive position in the pension administration and asset management market varies, and so do the profit margins. The profit margin on our asset management activities has proven to be more than adequate, while the profit margin on our pension administration is very low and even in the red on specific activities. A decrease in the price, or average price, per participant will be required in the future with regards to pension administration. We will offer a better service in the long term and our costs will be reduced after the new pension system has been introduced due to the investments in strategic initiatives mentioned above.
Ingrid Thijssen, President, VNO-NCW
“The growth forecasts for the Dutch economy are too low to be able to continue to pay for public services such as education, healthcare, and the police force. I know I am not making myself popular by saying this, but I will keep on saying it. Because otherwise we, as a society, will soon have to deal with the consequences of a shrinking economy. The trick is realizing economic, green, and social growth.”
Capital and dividend policy
Significant principles in our capital and dividend policy are financial stability, room for potential strategic investments, no overcapitalization and a required return that is appropriate for a socially oriented organization. We revised our return target over the course of the year. A return target based on return on equity will no longer mirror the tax-transfer pricing principles in the future that currently apply to our relationship with ABP. The financial target for 2021 has been adjusted to a return based on costs related to the services provided to ABP because of the revision of our capital and dividend policies. The target of a 6.14% return on equity remains unchanged for other clients.
APG paid a dividend for the 2020 financial year of €74 million to its shareholders in 2021. The proposed dividend payment for 2021 has been calculated based on the analysis of available capital when compared to our required capital as part of the capital and dividend policies. Our profit appropriation for 2021 is included in the Annual Financial Statements.
Expectations
The financial principles remain virtually the same for 2022. We will start selecting a new policy and capital administration system in 2022. Operational costs are expected to increase in 2022, on the premise that the net result for 2022 will be lower than in 2021, due to the fact that we are working more regularly from the office once again and thanks to our additional efforts to fill vacancies.