Dutch regulator orders 160 schemes to submit recovery plans
The Dutch regulator, De Nederlandsche Bank (DNB), has ordered 160 underfunded pension funds to file recovery plans before 1 July.
The DNB also warned that the number of underfunded schemes could rise, due to the fact interest rates dropped over the first part of this year.
The latest surge in underfunding has been caused by the combination of falling interest rates and the stricter funding requirements of the new financial assessment framework (nFTK).
Pension funds that reported a funding shortfall over the first quarter must now file recovery plans before 1 July, and use their financial position at the start of the year as the basis for those plans, the DNB said.
However, the regulator also made clear that, as a transitional measure within the nFTK, schemes would initially enjoy a 12-year grace period to raise their coverage ratios to the level of their required assets (VEV).
The standard period for recovery plans is 10 years.
Under the nFTK, required funding has increased by 5 percentage points to approximately 110%.
Meanwhile, the DNB announced that “hardly any” Dutch schemes would need to factor rights discounts into their recovery plans.
“The coverage of almost all schemes with a funding shortfall is still above the trigger level for actual cuts, which equates to a funding of between 80% and 90%,” it said.
The regulator said pension funds that did not want to postpone the effects of a shortfall for too long would still have the option of earlier rights cuts, but it stressed that this would only be allowed as last resort.
It added that the same would hold for pension funds that wished to apply an early discount in order to achieve more balance among the various generations within their participant populations.
However, if a scheme’s funding fails to reach the minimum required level of 105% for five consecutive years, it must cut pension rights, the DNB said.
It added that this discount may now be spread out over a period of 10 years.
Because “positive shocks” must also be evened out over a 10-year period, windfalls would also slow down pensions accrual, according to the regulator.
The DNB pointed to the fact the FTK also offered the option of stabilising pension contributions.
It also said that next year’s premiums were likely to rise as a consequence of falling interest rates.