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Dutch scheme ABP expects rights cuts of up to 14%

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NETHERLANDS - The €261bn civil service scheme ABP expects rights cuts of up to 14% in 2014 if the current long-term interest rates remain low and the discount rate for liabilities remains unchanged.

At the same time, the pension fund will need to raise its contribution by almost a quarter to shy of 30% in order to achieve the required minimum funding ratio of 105%, it confirmed.

The civil service scheme responded to a leaked internal memo, which was published by daily De Volkskrant.

Earlier, ABP had already announced a rights discount of 0.5% from 1 april next year.

The figures in the memo are part of a scenario based on the situation at the end of July, when ABP's funding was 91%, said ABP spokeswoman Jos van Dijk.

ABP has for a long time publicly opposed to the present discount rate - currently the three-months average of the forward curve.

"The current low interest rates are not sound," Van Dijk said. "They are the result of a market distortion following investors' flight to safe havens, caused by the financial crisis in the eurozone."

As ABP has been unable to grant indexation for several years, the cumulative arrears in inflation compensation is over 8.2%, she added.

In its memo, the civil service scheme stated that the contributions of 17 large Dutch pension funds need to be increased by an average of 28.5% in order to meet the required minimum funding target of 105% at the end of 2013.

At July-end, the coverage ratio of the €43.8bn metal scheme PMT and the €30.3bn metal scheme PME was 85.3% and 89%, respectively.

The €118.1bn healthcare scheme PFZW and the €34.5bn pension fund for the building industry BpfBOUW reported a funding of 93% and 98.2% on the same date.

According to pensions advisor Aon Hewitt, the coverage ratio of Dutch pension funds is 94% on average at the moment.

Social Affairs minister Henk Kamp has said that he will announce proposals for a new discount rate in September.

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