Pension funds in the Netherlands have been massively increasing their interest rate hedges over the past two years as rates rose. Now that rates are set to go back down, they are only increasing rates further.

Truck of Heineken in Amsterdam

Heineken pension fund is one of many Dutch pension funds to have increased their interest rate hedge

Pension funds with low interest rate hedges have had the biggest windfall from rising rates over the past two years. These funds saw their liabilities fall as a result, and now tend to have comfortable funding ratios, even though their assets under management have not recovered to previous highs. But if interest rates were to fall again, they could soon find themselves back to square one.

November was a wake-up call in that regard: the 40bps drop in interest rates, the first since 2021, led to an average 8.7% funding ratio drop, according to Aegon Asset Management.


Pension funds want to hedge against such risks, especially with the transition to a defined cotnribution (DC) system coming up.

Heineken pension fund is no exception. Last month, the scheme increased its interest rate hedge from 41% to 59%. This was done to protect the funding ratio until the fund moves to the new DC system on 1 January 2026, said Olaf Flippo, a trustee at the fund.

“In principle, the interest rate hedge will remain at this level until the transition to DC,” Flippo keep. He added: “We may reduce the hedge again, but only if we see a really big drop in interest rates.”

Previously, Heineken used a dynamic interest rate hedge. Many pension funds use such a system, whereby the degree of interest rate hedging depends on the level of interest rates. The idea behind this is that the probability of an interest rate drop at, say, 3% is a lot higher than at 0%.


Heineken is certainly not the only fund to have abandoned its dynamic hedging policy. Another example is MITT, the pension fund for the fashion and textile industry, which fixed its interest hedge at 30% in 2022 to prevent its hedge from rising too fast as interest rates rose.

“Our dynamic hedging policy already led to a fairly substantial increase in the interest rate hedge for relatively small interest rate increases, which doesn’t work out well with rising interest rates,” said Jan Hasselman, a trustee at the fund. Last month, MITT reviewed its interest rate hedge and, like Heineken, decided to increase it, to 70%.

Hasselman explained: “Interest rates have risen sharply and so has our coverage ratio. At the end of November it stood at 123.5%. We thought it was a good idea to build in some extra protection now that interest rates are so high.”

The upcoming transition to DC was also included in this consideration. “Without it, the hedge probably would have gone up by a little less,” he said.

SPOA, the pension fund for pharmacists, also moved away from a dynamic hedging policy in 2022 because it did not want to increase its hedge too quickly. The fund has since increased its hedge ratio, though, to 52%.

This month, the board will discuss whether to raise the hedge further in the run-up to the pension transition, according to board member Ronald Heijn.


Some pension funds have not completely done away with their dynamic hedging policies, but have tinkered with them. An example is the pension fund of postal company PostNL, which has set a lower limit of 50% for its interest rate hedge.

The pension fund of steel plant Hoogovens and multi-sector scheme PNO Media see no reason to adjust their dynamic hedging policy. Both funds have increased their interest rate hedges from around 25% to just under 40% over the past two years, and do not intend to hike it further.

A spokesman for PNO Media said the fund’s board can deviate from its dynamic policy if necessary, though. “The transition to the new system also plays a role in that consideration,” he added.

Over the past two years, the average interest rate hedge of a pension fund has increased by about 20 percentage points, according to investment consultant Mercer. But not all pension funds have participated in this trend. Some, such as IBM and ING funds, have always had a high hedge ratio.

Pensioenfonds Architectenbureaus, the pension fund for architects, has not even increased its interest rate hedge at all in the past two years. In fact, at 45%, the hedge is now slightly lower than it was at the end of 2021.

According to trustee Robert Meulenbroek, the fund’s interest rate hedging policy is underpinned by an asset-liabillity modelling study. “The last such study did not show that we would have to adjust our interest rate hedging for the longer term,” he said.

However, the fund is currently examining whether it should nevertheless increase its hedge with a view on the upcoming pension transition.

According to Lukas Daalder, who advises pension funds on their investment policies on behalf of BlackRock, just about all pension funds now take the switch to DC into consideration when it comes to their hedging policies.

That pension funds are paying more attention to interest rate hedging is a good thing, according to Daalder. “It’s hard to deny that interest rate hedging has been a driving factor of funding ratio trends this century. We often act as if equity risk is the most important risk, but in practice we see that the influence of interest rate risk has been at least as great,” he concluded.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication