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Dutch pension funds' coverage ratios slide in January

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NETHERLANDS – The average coverage ratio of Dutch pension funds has fallen by 1 percentage point to 101% in January, according to Aon Hewitt.

The consultancy said it calculated the average funding following the introduction of the ultimate forward rate (UFR) and the three-month average of the forward curve (RTS).

Although the actual swap rate went up during last month, the three-month average decreased slightly, leading to an increase in liabilities of 0.3%, according to the pensions adviser.

Aon Hewitt noted that the rise in interest rates in January caused a 4% decrease for fixed income holdings.

Despite a 2% increase for equity markets, the value of pension funds' combined assets fell by 0.8%, the consultancy said.

It said it derived its figures from a strategic investment mix of 30% equity and 50% fixed income, a 50% hedge of the interest risk on liabilities and a liabilities duration of 16 years.

Meanwhile, pensions consultant Mercer has calculated a 0.7% funding drop to 102.1% in January for the average Dutch pension fund.

Edward Krijgsman, leader of the company's Dutch monitoring team, confirmed that liabilities increased following the application of the three-month average of the forward curve, as well as the UFR, despite rising long-term interest rates in January.

Mercer took the average funding of 102% at November-end – as established by supervisor De Nederlandsche Bank – as a reference point, Krijgsman said.

He added that Mercer's calculations for the coverage of an average pension fund were based on the allocation of assets and the average interest hedge at both its own clients – mainly company schemes – and large industry-wide schemes.

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