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Optimistic return expectations putting pensioners at risk, ASR warns

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Participants in Dutch pension funds are at risk following too low contributions due to overly optimistic return expectations, pensions insurer ASR has warned.

ASR director Fleur Rieter and vice-director Arthur Arbouw said pension funds were failing to recognise the combined impact of low funding, indexation targets and smoothing premiums.

Participants are “very unlikely” to receive promised indexation under these conditions, Rieter argued, and could even face a rights discount. 

“Pensions funds must better inform their participants about the effect and the risk of low contributions,” she said.

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According to Rieter, last year, more than three-quarters of pension funds applied a smoothed premium, and a large proportion based their policy on the maximum allowed assumptions for returns.

“These highest assumptions, such as 7% for equity, are too ambitious,” Arbouw said.

He said the return parameters used for setting contributions should reflect real market expectations.

“In the case of the civil service scheme ABP, for example, it is clear there is pressure from employers to keep contributions low, and I can imagine that the same goes for other sectors,” he said. 

“However, it is the participants who must deal with the consequences.”

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