Long-term investment, robust returns and manageable risks must remain central to pension fund investment policy, The Dutch Federation of Pension Funds (Pensioenfederatie) has argued.

In an opinion article published today, the federation cautioned against comparing long-term pension investment with the short-term returns sought by day traders.

It said that three guiding principles should play a greater role in the debate around investment policy: the reasons behind pension investment, the fact that ‘unlimited risks’ are not an option, and diversification as the core of prudent pension management.

Pensioenfederatie wrote: “The temptation of 'what if we just dared to do a bit more?' is great. But pension funds do not have a free hand: they have obligations towards participants, are subject to supervision, and must always be able to pay out—even when the economy is struggling.”

It added: “Those who structurally take too much risk accept greater fluctuations in assets and, consequently, in the scope for indexation or even in the risk of benefit cuts.

"Responsible pension management therefore revolves around a pragmatic assessment: enough risk to generate a return in the long term, but not so much that a bad period undermines the pension outlook.”

The group called for an “honest conversation” about pension investing, with specific attention to be placed on “naming the dilemmas, identifying which risks correspond to which opportunities, and what that means for the long-term pension outcome”.

“If we continue to act in the public debate as if pension funds can 'simply take a little more risk' without consequences, participants and the system are being shortchanged,” the group wrote.

"The right question is not how pension funds squeeze the most return out of the market, but how they organise the most reliable pension outlook through sensible diversification and clear choices."

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