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Pensions-rights cuts still loom for Netherlands' largest schemes

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Funding at the five largest pension funds in the Netherlands has improved slightly over the third quarter, with returns ranging between 2.7% and 3.1%, largely offsetting the effect of falling interest rates.

Four of the schemes, however, are still at risk of having to make rights cuts next year, as their coverage ratios remain just above the critical level, according to third-quarter results.

ABP, PFZW, PMT and PME said they should avoid having to cut pension rights next year, based on their present financial positions, but they conceded they were girding themselves for a possible worsening.

BpfBOUW, the €55bn pension fund for the Dutch building industry, is in best financial shape of the largest schemes, boasting a funding of 105%.

It reported a third-quarter return of 2.8% and a year-to-date return of 14.4%.

As at the end of Q3, coverage at ABP stood at 90.7%, just above the critical level of 90%, which would trigger rights cuts next year.

The €381bn civil service scheme said it was wary of a number of risks, such as the upcoming presidential elections in the US, the possible termination of the European Central Bank’s quantitative easing programme in March and upcoming national elections in the Netherlands, Germany and France.

All asset classes – apart from commodities, which returned -3.7% – made positive contributions to its quarterly return of 2.7%, taking its year-to-date return to 9%.

Equity was ABP’s best-performing asset class, with emerging market equities returning 7.8%.

Government bonds, emerging market debt and credit returned 0.5%, 2.1% and 1.1%, respectively.

The €185bn healthcare scheme PFZW reported a quarterly return of 2.9%, raising its funding to 89.2% – 2.2 percentage points above the pension fund’s minimum level.

It said equity, private equity and property returned 4.3%, 1.9% and 0.3%, respectively.

Emerging market debt in local currency (1.2%), mortgages (3.7%), government bonds (0.1%) and inflation-linked bonds (0.9%) also contributed positively to the quarterly figures.

PFZW added that its cumulative return over 2016 was 12%.

The €45bn metal scheme PME saw its funding increase by 0.3 percentage points to 91% on the back of a third-quarter return of 3.1%.

It also returned 12% over the past three quarters.

PMT, the €68bn pension fund for the metalworking and mechanical engineering sector, posted a cumulative return of 13.5%, following a quarterly return of 2.7%.

Its funding increased to 92.1%.

The pension fund said it boosted its interest-risk hedge to 40%, as falling interest rates were likely to force the interest cover through the floor of its set strategic bandwidth of 37.5-42.5%.

A PMT spokeswoman added: “We also sought to reduce our risk profile further due to uncertainties in the market.”

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