NETHERLANDS - Dutch pension funds may need to set aside more of their returns and hold larger financial buffers to protect against potential future setbacks, officials at the pension regulator,De Nederlandsche Bank, have suggested.
Speaking during a symposium on pensions, Joanne Kellerman, pensions director, said: "It has recently become clear that the instruments of contributions and indexation are not always sufficient to cushion large swings in pension funds' cover ratios."
The average cover ratio of pension funds - which had been roughly 150% by the middle of 2007 - has dropped to an average of 90% within the first few months of 2009.
Kellerman suggested a rethink may also be required around the parameters of the financial assessment framework (FTK).
The FTK's present benchmark assumes there will be a market drop of 25% once every 40 years, yet such a fall has now actually happened four times within this period, she pointed out.
On the back of recent market activity, the DNB's Kellerman also argued pension funds must pay more attention to the risks open to the financing of pensions, particularly in relation to equities and other securities.
In her opinion, pension funds could additional reserves by increasing the matching between investments and liabilities, or by placing more risks on their participants.
She acknowledged, however, that the last option is not attractive to older participants, as they need a stable and predictable pension.
In the meantime, pension funds should take responsibility for the current situation by, for example, informing participants of the possible consequences of the crisis on their pensions, so they can anticipate any change in prospects, she argued.
The DNB director also said increased transparency on risks should be the base of all agreements between social partners when it comes to discussing how they share the profits and costs of any future shocks.
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email firstname.lastname@example.org