Two-thirds of Dutch pension funds will have to submit recovery plans with regulator De Nederlandsche Bank (DNB) due to funding shortfalls arising from the new financial assessment framework (nFTK).

However, out of the 160 underfunded schemes, only one is likely to apply a rights cut, according to local financial news daily Het Financieele Dagblad (FD).

Sacha van Hoogdalem, a partner at pensions adviser Ortec Finance, told the FD: “Under the new regime, the recovery options are that extensive that rights cuts will only be required if a pension fund is financially in very bad shape.”

However, Dennis van Ek, an actuary at Mercer who assisted several schemes with their recovery plans, said he did not expect rights discounts anywhere.

“Only if a scheme’s coverage ratio has decreased to less than 80% or 90% will cuts be required to recover within the legal period,” he told the FD.

Depending on a pension fund’s investment portfolio, the nFTK prescribes a funding of approximately 120%.

The new rules allow schemes to even out a shortfall over a 10-year period, which has been extended to 12 years in the current transition phase. 

And because of the new rules, combined with the effect of low interest rates, pension funds can factor relatively high extra returns into their recovery plans, the FD said.

“As a consequence of low interest rates,” it added, “schemes’ liabilities would hardly increase in these prognosis, while they are allowed to draw on future returns on equity of 7%.”

Van Ek and Van Hoogdalem said only a few pension funds had based their recovery plans on pension contributions. 

The FD added that an increasing number of schemes opted for lower premiums than necessary when drawn from interest rates by basing them on expected returns.

Both pension advisers said Dutch schemes had been under great pressure – having not only to submit recovery plans before 1 July but also to decide on investment profiles, among other things.