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Dutch pension funds need leeway on low interest rates, says PME

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The Dutch government should give the country’s pension funds more leeway in dealing with low interest rates, according to Marcel Andringa, CIO at the €40bn metal scheme PME.

“Pension funds should either be permitted to use a higher discount rate for liabilities or be allowed to take more investment risk,” financial daily Het Financieele Dagblad (FD) quoted him as saying.

Andringa took pains to explain that pension funds were gradually running out of investment options.

“As yields of some German government bonds have even become negative, one could wonder whether it is still sensible from a long-term perspective to keep on investing assets against current low rates,” he said.

And because many Dutch pension funds became underfunded at the start of the financial crisis, their risk profile has been fixed.

“A snapshot of a situation seven years ago is still decisive for our investment policy,” Andringa said. “For schemes like us, making adjustments is very difficult.”

PME’s CIO warned that, if interest rates fell further, the pension fund might have to apply another rights cut.

Currently, PME’s coverage ratio is 103%.

In other news, the ECB’s monthly bond-purchasing programme is likely to have caused a funding drop at several of the largest pension funds in the Netherlands.

The €40bn metal scheme PME saw its coverage ratio fall by at least 1.5 percentage points during the first week of quantitative easing (QE), while the €48bn pension fund for the building industry, BpfBouw, suffered a 1 percentage point drop, according to IPE sister publication PensioenPro.

The impact on coverage ratios is caused by the fall in interest rates, the criterion for the discount rate for Dutch pension funds’ liabilities.

The 30-year swap rate has already dropped to less than 1%.

A spokesman for the €60bn metal scheme PMT said the scheme had noticed an impact from QE but said it could not yet establish the scale of the problem.

The large civil service scheme ABP declined to provide details on its current funding.

However, Jos van Dijk, ABP’s spokeswoman, acknowledged that the pension fund had “recognised” the calculations of pensions adviser Mercer, which suggested the average funding of Dutch schemes would decrease by 2 percentage points during the first week of QE.

Meanwhile, the large union FNV has warned against the impact of QE and called on the government to discuss measures to mitigate the consequences for pension funds.

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