NETHERLANDS - The €125bn Pensioenfonds Zorg en Welzijn (PFZW) has seen its funding ratio jump from 92% in the second quarter to 99% in the third, due in part to the newly adopted ‘ultimate forward rate’.
Releasing its quarterly results earlier this week, the Dutch healthcare scheme said its funding ratio increased by 7% in the third quarter.
PFZW said the increase was due in part to European central banks’ measures to combat the euro crisis and stimulate the economy.
It also said the change prescribed by the Dutch central bank (DNB) for computing the rate used to calculate the market value of liabilities had had a positive impact on its funding.
In its last quarterly report, PFZW, like many other Dutch pension funds, warned participants of possible rights cuts next year.
This week, managing director Peter Borgdorff said: “There were two factors that could make a difference: a rise in interest rates and a change in the calculation of the actuarial interest rate.
“In the event, interest rates did rise and a different method has been adopted to determine the actuarial interest rate.”
However, Borgdorff conceded that the new calculation method - the ‘ultimate forward rate’ (UFR) - had not solved all of the pension fund’s problems.
“To stay on track with the short-term recovery plan, we need a funding ratio of 100.4% by the end of this year,” he said.
“We are now very close to that figure, but the situation will remain tense in the coming months.”
Earlier this month, the Dutch regulator adopted a new discount rate for pension funds that takes into account a 4.2% UFR, similar to the term structure for insurers.
At the time, Pim van Diepen, actuary and principal at Mercer, said the rate had effectively raised the average pension scheme’s funding ratio by 3 percentage points.
However, according to Neil Gilfedder, managing director and head of analytic applied research group at MSCI in the US, the UFR might also hide potential risks for pension funds.
He told IPE the new rate could lull schemes into putting off making tough choices. He also warned that it might also lead to a divergence of economic and regulatory risk.