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Dutch decision to cut UFR costs Philips scheme €16m [amended]

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The €17.8bn Philips Pensioenfonds has claimed the new ultimate forward rate (UFR), lowered recently by the Dutch government to a more “realistic” level, has set the pension fund back by €16m annually.

In a clarification of its second-quarter report, the pension fund said it also had to raise its fixed contribution of 24% to 26.6% to remain on target for the annual accrual rate of 1.85%.

At the start of 2014, when the pension fund switched to collective defined contribution arrangements, the company and its workers agreed a fixed premium for a five-year period.

The scheme said the premium gap had to be filled from its dedicated contribution reserve, “under pressure” even before the government reduced the UFR.

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The pension fund already drew €8m from its dedicated premium reserves due to the scheme’s financial position.

In July, the Dutch regulator lowered the UFR – part of the discount rate for liabilities – from 4.2% to 3.3% with immediate effect. 

The measure lead to a funding drop of 2 percentage points to 112% of the scheme’s coverage, drawn from market rates.

As of the end of the second quarter, the Philips Pensioenfonds’s official policy funding – the average coverage of the previous 12 months, and now the criterion for indexation and rights cuts – stood at 114%.

Meanwhile, over the last quarter, the pension fund reported an overall 7% loss on investments and a 1.9% loss on its combined interest and inflation hedge.

The scheme said long-duration government bonds were hit hardest, losing 16%.

It added that it incurred a “limited loss” on its equity holdings and that it made a profit on its real estate portfolio.

In other news, Vervoer, the €19.6bn industry-wide pension fund for private road transport, posted a quarterly return of -14.6%, lowering its first-half return to -1.1%.

The pension fund cited rising interest rates combined with falling equity markets.

Over the course of the second quarter, the scheme’s actual funding fell to 108.3% and its policy funding to 110%.

Vervoer follows a “defensive” investment policy, with a 58.5% allocation to fixed income and a 30.3% allocation to equities. 

The transport scheme did not provide returns for individual asset classes. 

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