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The Netherlands’ biggest pension funds have expressed disappointment that they will remain tied to the ultra-low risk-free interest rate as part of a new pensions agreement.

Speaking on behalf of the country’s top five pension funds (ABP, PFZW, PME, PMT and BpfBouw), Peter Borgdorff, director of the €203bn healthcare scheme PFZW, said they had expected to avoid benefit cuts in the next few years as a consequence of the planned reforms.

Klaas Knot, president of supervisor De Nederlandsche Bank (DNB), argued in a recent letter that the risk-free interest rate should always be used to calculate nominal pension rights. 

Wouter Koolmees, the minister for social affairs, has supported this view.

Borgdorff responded: “Contrary to Knot and Koolmees, in our opinion pension arrangements offering less certainty may lead to a different discount rate.

“If the discount rate were to take future returns into account, the coverage ratio would improve to a level at which we aren’t headed for benefit discounts in 2020 or 2021.”

Peter Borgdorff, PFZW

Peter Borgdorff, PFZW

In a recent opinion piece in Dutch financial newspaper NRC Handelsblad – written with colleagues from the other four large funds – Borgdorff called on the employers and unions discussing the Dutch reform package to reach an agreement quickly to avoid cuts to pension payouts.

“It goes against any sense of justice, if we have to apply rights discounts when the economy is doing well,” the five pension fund directors wrote.

Borgdorff and his colleagues had expected some leeway from DNB to change the discount rate, in part based on an earlier admission from Knot that the ECB’s quantitative easing policy had led to the low interest rate.

Further reading: 

ECB’s policy could cause Dutch pension system ‘implosion’

PGGM’s Agnes Joseph and Niels Kortleve explain how the European Central Bank’s policies affected Dutch pension funds, and the options for fixing the problems it created, in this column from April 2017

“We assumed that, given this effect as well as the fact that we have to apply the lowest rate, DNB would show more flexibility,” Borgdorff said.

Although the funding ratio of the five schemes has been improving, PFZW, ABP, PME and PMT were all still short of the required 105% minimum funding level at the end of the second quarter of 2018.

Benne van Popta, trustee at the PMT, said the DNB’s position would not bring a new pensions contract any closer.

“Moreover, Knot’s statement is at odds with what DNB has said earlier and what is accepted elsewhere in Europe,” he told Dutch newspaper FD.

Elsewhere, Martin van Rooijen, MP for 50Plus, the party for the elderly, said he would put questions to finance minister Wopke Hoekstra regarding DNB’s position.

He also noted that DNB had changed its earlier opinion about the discount rate.

Despite recent signs of progress, the social partners are still discussing a new pensions contract – which will form the backbone of a new pensions system – in the Social and Economic Council (SER).

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