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