Many Dutch schemes facing cuts if recovery stalls – Pensions Federation
NETHERLANDS - Many Dutch pension funds are facing right and benefit cuts next spring if they fail to improve their financial positions this year, the Pensions Federation has warned.
It responded to the second quarter figures of the five largest pension funds, which were presented this morning.
According to the industry organisation, the new supervisory framework - to be published by social affairs minister Henk Kamp in September - is unlikely to be enough to prevent a sector-wide rights discount.
"However," it added, "if painful short-term measures are necessary to keep our pensions system for the long term, then they should be taken."
Following the continuing slide of long-term interest rates, the €44bn metal scheme PMT saw its coverage ratio fall to 85% at June-end, despite a quarterly return of 2.3% and a 6.3% profit for the first half of the year.
If the scheme fails to achieve 100% funding by year-end, it will have to implement an already announced rights cut of 7%, it said.
During the second quarter, PMT's assets accrual of €3bn was more than offset by an increase in liabilities of almost €6bn.
The pension fund lost 1% and 3.7% on its equity and alternative investments, respectively, but generated positive results of 4.4% and 3.3% on its fixed income and property holdings.
The metal scheme pointed out that it was particularly vulnerable to low interest rates, as its relatively large proportion of younger participants led to longer-duration liabilities.
For that same reason, it has already had to make additional provisions of 13% of its liabilities due to increased life expectancy.
The metal scheme PME reported a funding drop of 2 percentage points, closing the second quarter with a coverage ratio of 88%.
Its quarterly return was 2.5%, taking its first half return to 6.8%.
The €261bn civil service scheme ABP saw its funding fall by 5 percentage points to 90%, after producing a second-quarter return of 0.1% and a first-half return of 6%.
ABP chairman Henk Brouwer admitted to being "very worried" about the coverage ratio.
"It should actually have risen considerably to prevent the announced 0.5% rights cut in next April, and possibly additional announcements for 2014," he said.
ABP's fixed income investments generated 1.8% during the second quarter, with government bonds and credits returning 0.1% and 3.9%, respectively.
Developed and emerging market equities lost 1.2% and 4.6%, respectively.
Private equity (7.7%) and hedge funds (6.5%) were the best returning asset classes, according to ABP, which lost 6.3% on its commodities portfolio.
The scheme's interest hedge on liabilities contributed 0.8% to its quarterly result.
However, ABP indicated that it lost 1.6% on its currency hedge.