NETHERLANDS - The average cover ratio of Dutch pension funds decreased two percentage points to 108% during October, according to Hewitt Associates.
The consultancy firm attributed the decrease, which almost reversed the positive developments in September, mainly to sliding equity markets.
In addition, long-term interest rates have also decreased slightly, causing the liabilities of the average pension fund to rise by approximately 0.5%, Hewitt's figures suggested.
Despite the decrease, Dutch pension funds are still ahead of the progress mapped out in mandatory recovery plans, stressed Arnold Jager, senior consultant at Hewitt. "What's more, the average funding ratio is still above the required minimum of 105%, which will trigger discussions about indexation at many pension funds," he added.
The consultancy firm is monitoring the potential cover ratio of a fictitious pension fund, based on figures of pensions regulator De Nederlandsche Bank (DNB), and investment data provider the WM Company.
Hewitt also questioned the robustness of the forward curve prescribed by the DNB as pension funds' accounting tool for their liabilities.
"The actual interest rates do not follow the curve consistently and are higher most of the time. Therefore, we think that the curve of triple-A euro-zone government bonds is a better alternative," Jager pointed out.
"Application of the alternative accounting rate could raise the cover ratio by an additional 3% percentage points and would have led to a stable cover ratio in October," according to the Hewitt consultant.