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Dutch schemes’ funding improves as life expectancy levels off

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Funding of most Dutch pension funds has improved by up to 1.5% following a new longevity prognosis by the Netherlands’ Actuarial Society (AG).

As a consequence, more schemes are less likely to cut pension rights in 2019 and 2020.

The AG predicted that the rate of increase of life expectancy in the Netherlands would level off relative to its earlier prognosis in 2016, in part as a result of more of the elderly population dying from flu in the past two years.

Drawn from the latest forecast, the life expectancy of a girl born in 2019 would be 92.5 years, rather than 93.3 years as per the previous prognosis.

A boy born next year is now expected to reach age 90, instead of 90.4 years.

The AG said that the impact of the new insights would differ for each pension fund, with schemes with a relatively large male population experiencing an improvement in their funding ratios of approximately 1.2%.

Funding of a pension fund with relatively more women would improve by roughly 1.6%.

However, the AG warned that funding also depended on interest rates.

Nevertheless, the newest longevity forecast was the first to ease the pressure on pension funds since the second world war.

‘Bring in new data as soon as possible’

According to Rajish Sagoenie, partner at actuarial consultancy Milliman, the new figures could push the coverage ratios of slightly underfunded schemes up to a level that would not require a benefit cut in the coming years.

Pension funds without a funding shortfall at the end of 2018 don’t have to apply any cuts before 2025, under the five-year recovery plans contained in the Netherlands’ financial assessment framework (FTK).

Sagoenie added that the AG figures also increased the indexation potential for pension funds with a funding of more than 110%.

“Although it isn’t about large amounts, after many years of bad news about pensions, the psychological effect on participants would be big,” he said.

Daan Kleinloog, partner at consultancy Sprenkels & Verschuren, emphasised the importance of introducing the new AG data as soon as possible.

“As the policy funding [ratio] – the most important criterion for cuts and indexation – is the average coverage of the past 12 months, adjusting the actual coverage ratio at September-end would boost the policy funding during the next four months,” he explained.

However, the newest actuarial forecast will not directly affect the future retirement age for the state pension, known as the AOW, as this is based on data from Statistics Netherlands (CBS). 

Based on the AG’s data, it is likely that the AOW age is to remain at 67 years and three months in 2024, but will rise to 68 in 2029.

Although most Dutch pension funds use the AG’s figures, the €414bn civil service scheme ABP, for example, applies data from CBS, which will publish its new forecast at the end of this year.

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