Dutch schemes’ recovery paths exceeded expectations in 2017
Dutch pension funds have exceeded the assumptions made in their recovery plans for 2017, according to supervisor De Nederlandsche Bank (DNB).
Funding of the sample of 157 schemes – weighted for assets under management – improved from 100% to 107% on average, which is 3.1 percentage points more than expected, the regulator said.
It attributed 1.8 percentage points to returns exceeding assumptions and the remainder to the positive impact of higher interest rates on liabilities.
In May 2017, DNB warned that pension schemes’ assumptions for returns were too high.
However, the watchdog noted that schemes’ recovery paths were lagging behind the improvement pension funds expected when they set their plans in 2015.
Based on this recovery path, coverage ratios should have been 113% on average at the end of 2017, it said.
In an evaluation of the 157 recovery plans for 2018, DNB found that expectations for returns were similar to last year’s assumptions.
It added that the current contribution level would again have a negative impact on schemes’ funding.
Despite the average funding improvement, DNB also noted that differences between the health of pension funds remained significant.
It said that 25 schemes – with 300,000 participants in total – were able to grant full indexation of benefits. However, the coverage ratios of 47 pension funds, with 10m participants combined, were still short of the required minimum of 104.2%.
The latter category included four of the Netherlands’ largest funds: civil service scheme ABP, healthcare pension fund PFZW and the metal industry schemes PMT and PME.
In its analysis, DNB said that pension funds with high funding ratios tended to follow a conservative investment policy, with a 43% stake in securities on average and a 72% hedge of the interest rate risk on their liabilities.
In contrast, under-funded schemes had a more aggressive investment approach, with 62% of their assets invested in securities and an interest rate hedge of 32% on average.