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IPE special report May 2018

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Pension fund for Dutch midwives first to announce rights cuts

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SPV, the €300m pension fund for midwives in the Netherlands, has acknowledged that it will cut pension rights in 2016 after its funding plummeted last year. 

SPV’s ‘actual’ coverage fell below 85% in December 2015, while its ‘policy’ funding – the 12-month topical coverage average, and the official criterion for indexation and rights discounts – dropped to 94.1%.

The occupational scheme is the first in the Netherlands to announce a rights discount based on its new 2016 recovery plan, to be submitted to supervisor De Nederlandsche Bank before April.

SPV said it would provide details on the extent of the cuts next month.

It added that it would also reduce the annual pensions accrual by a maximum of 10% to achieve its recovery target of more than 120% funding in 10 years’ time.

Because the pension fund has a defensive investment policy, with a fixed income allocation of 60%, its critical funding level for rights cuts is higher than for schemes with larger equity allocations.

SPV said last summer’s reduction of the ultimate forward rate (UFR) – part of the discount rate for liabilities – hit the pension fund especially hard, causing its actual coverage to drop from 100.4% to 91.6%.

The pension fund nevertheless aims to maintain the fixed, unconditional 2% indexation for its active participants.

SPV said it opted for the combination of rights cuts and reduced pensions accrual, to share the burden among active participants and pensioners in a balanced way.

Wichert Hoekert, a senior retirement-solutions consultant at Willis Towers Watson, said no more than “a handful” of pension funds would need to apply rights cuts this year in the wake of the UFR reduction.

According to the consultant, the schemes most affected will be those with predominantly younger populations and long-term durations.

A recent survey by the Ministry of Social Affairs estimates five smaller pension funds will need to start cutting pension rights in 2016.

Whether SPV is among those schemes, however, remains unclear. 

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