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Two-thirds of Dutch pensions still at risk of cuts

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Two-thirds of Dutch workers and pensioners are still at risk of future rights cuts despite steadily improving coverage ratios, newly released figures from supervisor De Nederlandsche Bank (DNB) show.

The regulator said that during the last quarter the schemes’ “policy funding” ratio – the average coverage over the past 12 months, and the main criterion for rights discounts and indexation – had risen 2.6 percentage points to 104.5%.

The legally required minimum funding is approximately 104.2% for most pension funds.

However, the watchdog also noted that 63 pension funds – with 3.7m active participants and 2.1m pensioners – were still short of the required minimum. This amounted to 29% of all schemes, but 68% of active members and 65% of pensioners.

Underfunded schemes included the €396bn civil service scheme ABP and the €189bn healthcare pension fund PFZW, which reported a policy funding of 99.3% and 96.7%, respectively, at the end of the third quarter.

At the time, the €68bn metal scheme PMT and its €46bn sister metal pension fund PME said their coverage ratios stood at 98.9% and 98.4%, respectively.

Pension funds that have had a funding shortfall for five consecutive years can no longer postpone rights cuts. For most schemes with continued underfunding, discounts will be inevitable in 2020 or 2021.

Since a significant drop in coverage ratios last year – largely due to falling interest rates – funding of Dutch pension funds has gradually increased, due to a combination of rising interest rates and improving stock markets.

Earlier this week, pension consultants Mercer and Aon Hewitt said that pension funds’ policy funding had increased to 105% on average during the course of October.

In other news, DNB said it would also start publishing pension funds’ allocations to equities, property, hedge funds and commodities, as well as how much interest rate risk they have hedged.

It said it would also report the level of “contribution coverage” for each pension fund, which indicates whether the premiums are sufficient to cover new pensions accrual.

DNB already publishes a range of data relating to pension funds, including: assets; costs of administration; asset management costs; transaction charges; nominal, real and required coverage; and quarterly returns.

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