ABP and PFZW, the largest pension funds in the Netherlands, may have to cut pension rights for their almost 6m members next year despite solid returns on investments in the second quarter of 2019.

The bleak prospect was caused by the combination of new rules in the wake of the recent pensions agreement and the continuing decline of interest rates, according to the pension funds.

Since March, interest rates have dropped by 30bps to 0.88%, causing funding levels at Dutch pension funds to fall by several percentage points.

In addition, the Dutch government plans to introduce lower assumptions for future returns into the recovery plans of underfunded schemes. It has also changed the funding criteria for discounting pension rights.

Although the government temporarily lowered the minimum required “policy funding” – the average funding level over the past 12 months, and the main criteria for rights cuts – from 104.3% to 100%, the impact of lower return parameters was that the “critical” funding level would rise.

Pension funds with a shortfall relative to this critical coverage level must cut pension rights immediately. For ABP, the Netherlands’ largest pension fund, this level has increased from 88% to 95%. With a funding ratio of 95.3%, the civil service scheme is in the danger zone.

Commenting on the quarterly figures, Corien Wortmann-Kool, ABP’s chair, said that the chance of rights discounts in 2020 had “significantly increased”.

She added that she was worried about the “growing gap between the scheme’s pension target and what its participants would receive or expect to receive”.

Under the old rules for rights cuts, ABP’s policy funding level at the end of 2020 would have been the criterion for pension discounts. At June-end, this figure was 100.6%.

The €442bn ABP reported a quarterly profit of 2.5%, taking its year-to-date result to 10.9%.



PFZW may have to cut pension payments and accrued benefits from next year

With a coverage ratio of 95.9% and a policy funding level of 99.9%, the €225bn healthcare scheme PFZW is in a similar position to ABP.

“If funding keeps on falling, we already may have to cut pension rights in 2020,” said Peter Borgdorff, the pension fund’s director. The scheme’s critical funding level stands at 94%.

He said he feared that pension funds’ deteriorating financial position would make further work on pension system reform “into a puzzle that would be impossible to solve”.

The director questioned how future index-linked payments were to be financed, and where the financial compensation for older workers – affected by a transition from average to degressive pensions accrual – would be found.

The cabinet has decided that these costs – estimated at least €25bn – must be borne by pension funds.

PFZW said it had made a quarterly profit of 3.8% and gained 12.7% in the first six months of 2019.


PMT, the €80.5bn sector scheme for metal-working and mechanical engineering, noted that the risk of rights cuts still existed.


Metal industry schemes PME and PMT are also struggling to hit full funding

Benne van Popta, the scheme’s employer chairman, said that the pensions agreement was supposed to reduce the risk of rights cuts.

Under the initial rules – prescribing a minimum required policy funding of 104.3% – PMT was headed for pension cuts next year.

At the end of June its funding and policy coverage levels stood at 97.1% and 100.8%, respectively.

PMT posted a quarterly return of 4.8% and a first half result of 12.7%.


PME, the €52.4bn pension fund for metal and electro-technical engineering, cited similar gains.

It said its funding and policy coverage levels stood at 96.6% and 99.8%, respectively, which would make rights cuts mandatory for next year.

Eric Uijen, executive trustee, highlighted that pension funds were also facing a lower discount rate for liabilities as of 2021, which would negatively affect funding as well.


With a funding level of 112.5% and a policy coverage ratio of 116.5%, BpfBouw, the €63.5bn scheme for the building sector, continued to be in the best financial shape of the largest Dutch pension funds.

It reported a 4.1% return on investments in the second quarter, and gained 12.5% in the first six months.

It attributed the quarterly profit to a 1.6% return on its interest rate hedge and a 3.3% return from its fixed income holdings as interest rates fell.

The pension fund added that its property portfolio delivered 1.2%, in particular due to the performance of investments in Dutch offices and North American real estate. Equity generated 1.6%.

Trade unions respond

Tuur Elzinga, FNV

Tuur Elzinga, FNV

FNV, the largest trade union, called for benefit cuts to be postponed while a new pension system was still being fleshed out.

Reducing pension rights would be “a bad start for restoring trust in the pensions system”, Tuur Elzinga, the FNV’s chief pensions negotiator, said in an interview in De Telegraaf.

However, Gerrit van de Kamp, negotiator for the VCP union, warned that postponing cuts could lead to much bigger reductions later during the transition to a new pensions system.

Talking to Dutch pensions publication Pensioen Pro, he said that the government should use its options for compensating measures, arguing that “politics has created a problem that can’t be solved by unions and pension funds”.

Lex Hoogduin, professor of monetary economics at Groningen University, said that “any credibility of the pensions accord would disappear” if the cabinet adopted the FNV’s call, “as the agreement is the achilles heel of the fragile pensions system”.

A spokesman for Wouter Koolmees, the minister for social affairs, declined to comment.