The coverage ratios of Dutch pension funds ratios plunged by 4 percentage points to an average 104% over the month of July, due to falling interest rates and a reduction of the ultimate forward rate (UFR), according to figures from Aon Hewitt.
The regulator caught many in the industry by surprise when, in mid-July, it lowered the UFR – part of the discount rate for liabilities – from 4.2% to 3.3%.
At the time, it conceded that the change to the UFR would reduce schemes’ funding by 3.5 percentage points on average.
According to Aon Hewitt, Dutch pension funds returned 2.9% on average over the month of July, failing to offset a 3.6% increase in liabilities over the period.
Fixed income holdings returned 4.1% on average, while equities returned 1.3%.
The consultancy noted that, if interest rates were to remain at their current level, the UFR would drop to 1.8% within the next 10 years.
Frank Driessen, chief commercial officer for retirement and financial management at Aon Hewitt, said: “This could further hamper pension funds’ recovery and lead to premium increases, as well as economising on pension arrangements.”
According to Aon Hewitt, pension funds’ policy funding – the average funding for the previous 12 months, and, under the new financial assessment framework, the criterion for indexation and rights cuts – remained at 107% on average.