NETHERLANDS - The downgrading of the Netherlands' AAA- credit rating would have a significant impact on the country's pension funds, according to Jean Frijns, professor of investment management at Amsterdam's Free University (VU).

In the event of a downgrade, Dutch schemes would be forced to devalue their Dutch government bond holdings while their liabilities remained almost the same, he said.

Frijns' comments came after the Dutch minority government of the liberal party VVD and the Christian Democrats (CDA) lost the crucial support of the right-of-centre PVV over the weekend.

This occurred during final negotiations over more than €14bn in national spending cuts, as well as the possibility of increasing the official retirement age to 66 in 2015 rather than in 2020.

Frijns pointed out that liabilities were discounted against the risk-free swap curve, which is barely affected by the interest on government bonds.

A spokeswoman for the Pensions Federation said: "We will urge social affairs minister Henk Kamp to continue the review of the pensions system through additional proposals to parliament in May, as he has promised earlier. The implementation of the Pensions Agreement is too important to come to a halt."

Peter Borgdorff, director of the €115bn healthcare scheme PFZW, said he expected the Pensions Agreement to be implemented, "as it has already been approved by a majority of parliament".

Parliament has decided to raise the official retirement age to 66 in 2020 and to 67 in 2025, to change the tax regime for second-pillar pensions in 2014 and to raise the state pension AOW by 0.6% a year.

However, Kamp's ministry and the social partners are still investigating a new financial assessment framework, the options of merging existing and new pension rights into a new pensions contract, a possible change of the discount rate for liabilities and an equal distribution of costs and benefits for younger and older participants.

In Borgdorff's opinion, the biggest question is whether the Netherlands will be downgraded.

But he added that it was "still possible" that an outgoing cabinet could agree on cuts with opposition parties, pointing out that the recent US downgrade had barely affected institutional investors' behaviour.

The pensions regulator said it was unable provide figures on Dutch schemes' combined investments in domestic debt, as they are under no obligation to specify the government bonds in which they are invested.

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