NETHERLANDS – The better financial position of Dutch pension funds in 2004 may mean that the period of higher premiums might be coming to an end says director Dirk Witteveen of the pensions regulator De Nederlandsche Bank.
While already predicting equilibrium, Witteveen even expects a fall in premiums, he told the daily Het Financieele Dagblad.
Dutch pension funds had to ask higher contributions, during the poor equity markets. Contributions have reached an all-time high after the regulator made costs-covering premiums mandatory.
Combined with more frugal schemes, higher premiums have led to better coverage ratios of pension funds. According to the DNB’s annual report, the number of pension funds with a coverage of less than 100% has dropped from 190 early 2003 to eight at the end of last year.
If adjustment of the pensions to the rise of prices and salaries is taken into account as well, the average coverage ratio of the Dutch pension schemes is still less than 100%, according to the DNB. “Funds with a shortfall will need to finance their future indexation from higher premiums or higher returns on investments.”
The improved position of pension funds is partly due to considerable cuts, like the change from final salary schemes to average salary schemes, Witteveen explained.
The DNB however said the low interest rates are still casting a shadow over the Dutch pensions industry. A change from the fixed accounting rate of 4% to the market rates – as part of the new financial assessment framework, or FTK – won’t leave much of the progress in 2004, it added.
The average solvability of insurers is – with 236% - more than sufficient, according to the DNB.