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40% of Dutch population facing pension benefit cuts, central bank says

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  • 40% of Dutch population facing pension benefit cuts, central bank says

NETHERLANDS - As much as 40% of the Dutch population is likely face retirement benefit cuts of 1-3%, according to Dutch central bank president Klaas Knot.

During a recent television news programme, Knot said the pensions regulator (DNB) would cap benefit cuts at 7% for the time being to prevent a further loss of confidence in the pensions sector.

Due to the deepening financial crisis last year, a sizeable number of pension schemes this year will be forced to announce benefit cuts, which will take effect in April 2013.

The DNB confirmed today that any cuts would be capped at 7%, "considering the impact of pensions on macroeconomic developments".

It said: "Postponing substantial cuts allows trustee boards more time for a careful decision-making process balancing the various interests, while the pensioners and participants involved will have more time to anticipate the expected cuts."

The DNB has also decided to amend the interest rate term structure as per the end of 2011, as "exceptional financial market conditions have made such a move necessary".

It added: "Considering the exceptional financial market conditions and the limited liquidity at the long end of the inter-bank swap market, it is highly uncertain whether pricing in the inter-bank swap market on 30 December 2011 can be considered correct."

The regulator has, therefore, decided to use a three-month average - taking the average of the yield curve of all business days from 1 October to 31 December - as the basis for the yield curve, as per the end of December.

As a result of these two measures, the DNB estimates that the number of schemes having to announce benefit cuts early this year will be reduced from 180 to 125, out of a total 450 pension funds.

The average weighted funding ratio as per 31 December after the measures comes to 98%.

The umbrella organisation of Dutch pension funds - the Pension Federation - welcomed the measures, but said the DNB's interest rate decision fell short of a "reasonable" discount rate.

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