NETHERLANDS - Dutch lawmakers should allow more than one discount rate to calculate pension fund liabilities if only to wrong-foot counterparties in the market, according to Angelien Kemna, chief investment officer at the €270bn asset manager APG.

Speaking at the IP Nederland congress about the effects of the new Pensions Agreement on investment policy, Kemna said a single discount rate made changes in the country's €800bn of pension assets too predictable, allowing market players to take advantage at the expense of pension schemes.

She proposed making discount rates dependent on the average age of scheme participants, as well as the linked investment portfolio.

She also criticised the current swap-curve discount criterion, which forces pension funds to take "significant long-term measures".

"While the amount of pension assets hasn't changed since last April, pension funds' coverage ratio has dropped by almost 20 basis points."

Kemna said pension funds needed an average yield curve or a more straightened version of the current one for discounting liabilities.

She also said APG had taken a 'wait and see' approach while the markets remained turbulent, but she conceded that this posture had caused a "devilish dilemma".

"If we fully focus on a euro disaster, we will lose our recovery options," she said. "But if things go pear-shaped, everybody will blame us."

Kemna said tail risk was currently large, adding that APG also questioned the effects of the guarantee scheme in the latest emergency fund for the euro.

She attributed APG's cautious approach in part to "the turmoil among traders caused by the unusual movements of the financial markets".

"Moreover, we'd like to stress that we are in it for the long term," she said, emphasising that pension funds had fully recovered from the losses incurred during the credit crisis in 2008.

"As there is much misunderstanding and fear among participants, pension funds should actively communicate this recovery."

Kemna predicted additional regulatory costs for the pensions sector, from changes of the structure of the derivatives market to the looming transaction tax.

She further argued that the impact of future regulation from Brussels and the US was likely to be even greater than the Pensions Agreement itself.

APG's CIO also noted that the rising costs of hedging the US dollar had become a serious problem.

"Costs have already risen 100 basis points," she said, adding that the euro had failed to offer a satisfactory alternative.

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