ABP to introduce 1% premium 'surcharge' to boost recovery
The €357bn Dutch civil service pension fund ABP has announced that it is likely to introduce a 1 percentage point “surcharge” on its contribution to speed up its recovery.
It said it based its decision on the scheme’s financial position at the end of December 2015, when its coverage ratio fell to 97.2%, a decrease of 1.4 percentage points relative to the previous month.
ABP attributed the funding decline to disappointing returns due to volatile financial markets, and falling long-term interest rates, the criterion for discounting liabilities.
In addition, new longevity estimates from Statistics Netherlands (CBS) reduced its funding level by another 0.4 percentage points, it said.
In November, ABP’s board decided to reduce the cost-covering contribution for 2016 from 19.6% to 17.8%.
At the time, however, it noted that a surcharge of up to 3 percentage points could be added, in the event of insufficient funding at year-end.
With the additional premium component, ABP expects funding to increase to the required coverage ratio of 127.9% by 2027.
The civil service scheme said the surcharge would apply, in principle, for a five-year period.
If the scheme’s accountability body approves the board’s decision to raise the new premium, the surcharge is to be introduced on 1 April.
ABP took pains to emphasise that a rights discount was not yet on the cards.
Under the rules of the new financial assessment framework (nFTK), Dutch pension funds must apply a rights discount if their funding falls short of the required minimum of 105% for five consecutive years.
Subsequent cuts can be spread across a 10-year period.