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Dutch regulator refuses to relax rules for low interest rates

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Dutch pensions supervisor De Nederlandsche Bank (DNB) has said it is unconvinced that pension funds struggling in the current low-interest-rate environment require short-term regulatory relief. 

Financial news daily Het Financieele Dagblad (FD) quoted Olaf Sleijpen, the regulator’s supervisory director for pensions, as saying: “The current rules are working well and have been put in place for a reason. We acknowledge it is very difficult for pension funds to make investment choices, but there is no reason for panicky play.”

Last week, PME, the pension fund for the Dutch metal industry, rang alarm bells after highlighting the impact of falling interest rates on its weakening financial position.

But, according to Sleijpen, the short-term effects of low interest rates are limited.

Although 160 schemes are now technically underfunded, the rules of the new financial assessment framework (FTK) have made the need to apply rights cuts this year very unlikely, he said.

“The FTK is doing its job,” the FD quoted the supervisory head as saying. “It was meant to help pension funds to cushion shocks, and this is what is actually happening.”

Underfunded pension funds such as PME are prohibited from increasing their risk profiles in a bid to improve their returns.

Defending this restriction, Sleijpen argued that schemes in bad financial shape might otherwise be tempted to take on too much risk.

“We want to prevent them from gambling on resurrection,” he said.

However, Sleijpen added that the DNB did recognise that interest rates, were they to remain low for an extended period, would cause problems for pension funds, and that a fundamental review of the pensions system would be necessary to address this. 

“That’s why the current dialogue about the modernisation of the pensions system is a good thing,” he said.

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