NETHERLANDS - The cover ratio of the Netherlands' 650 pension funds seems to be stabilising at approximately 100% on average, consultancy firm Hewitt Associates has claimed.
In some cases, the funding ratio has even reached between 104% and 105% after an absolute low of approximately 90% in early March, according to Arnold Jager, consultant at Hewitt.
"So far, the month of May has shown promising figures with a rise of 4% to 5%," he added.
Hewitt is monitoring the cover ratio of a fictitious pension fund, which has been created and based on figures of pensions regulator De Nederlandsche Bank and investment data provider the WM Company.
According to Jager, who attributed the improved cover ratio to the combined effect of rising equity markets and rising long-term interest rates, the average funding ratio is back at or slightly above the level of 95% seen at the end of 2008.
"Whereas the interest rates [on bonds] with a duration of 16 years or less have decreased since year-end, the compensation has been a rise in the interest rates for longer periods. Moreover, the forward curve for accounting pension funds' liabilities has flattened, which benefits cover ratios," explained the consultant.
"Meanwhile, the equity markets have been rising consistently since early March," added Jager.
The consultant noted pension funds' cover ratios remains volatile has he argued: "If equity markets decrease, funding ratios can easily drop 1% or 2%."
Consultancy firm Mercer has also estimated that the average cover ratio of Dutch schemes has risen from 95% at the end of last year to approximately 100%.
"After the lowest point of the cover ratios in early March, the equity markets have risen, whereas the long-term interest rates have increased by 30 basis points," confirmed Paul Duijsens, partner at Mercer Consultants.
According to Duijsens, Mercer based its conclusions on DNB's cover ratio figures at the end of the year, as well as looking the performance of global market indices and long-term interest swap rates.
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