The Dutch Pension Federation, and the largest pension funds, ABP, PFZW and PMT, cautiously welcomed the pensions regulator's recent decision to adopt a three-month interest-rate average to calculate the yield curve.

In mid-January, Dutch central bank president Klaas Knot announced that as much as 40% of the Dutch population was likely face retirement benefit cuts of 1-3%.

He also announced that the pensions regulator (DNB) would cap benefit cuts at 7% for the time being to "prevent a further loss of confidence" in the pensions sector.

Due to the deepening financial crisis, a sizeable number of pension schemes will be forced to announce benefit cuts, which will take effect in April 2013.

The DNB said: "Postponing substantial cuts allows trustee boards more time for a careful decision-making process balancing the various interests, while the pensioners and participants involved will have more time to anticipate the expected cuts."

The regulator has also decided to amend the interest-rate term structure as per the end of 2011, as "exceptional financial market conditions have made such a move necessary".
It said: "Considering the exceptional financial market conditions and the limited liquidity at the long end of the inter-bank swap market, it is highly uncertain whether pricing in the inter-bank swap market on 30 December 2011 can be considered correct."

The DNB decided to use a three-month average - taking the average of the yield curve of all business days from 1 October to 31 December - as the basis for the yield curve, as per the end of December.

As a result of these two measures, it estimates that the number of schemes having to announce benefit cuts early this year will be reduced from 180 to 125, out of a total 450 pension funds.

The average weighted funding ratio as per 31 December after the measures comes to 98%.

Though cautiously welcomed by the industry, the Pensions Federation argued that the three-month average - as opposed to calculations based on an end-of-year position - had a limited impact on coverage ratios, and was still "way off" a reasonable discount rate.

It said the regulator's adjustment had been too small to keep a large number of pension funds from having to announce benefit cuts from April 2013.

However, it said the fact pension funds would be allowed to limit cuts to 7% was positive, having a "cushioning effect on a very painful measure".

It also added that the pensions sector had already argued that interest rates had dropped to "unrealistically" low levels due to market distortion.

The €240bn civil service scheme ABP described the regulator's decision as "sensible", but added that it was unsure whether additional measures would be unavoidable. ABP will publish fourth-quarter figures on 19 January and announce possible additional measures on 1 February.

For the €100bn healthcare scheme PFZW, the regulator's discount rate adjustment came as good news.

With the softening of the rules, the pension fund should be able to avoid cutting benefits, according to its director, Peter Borgdorff.

"However," he warned, "if the economy doesn't improve significantly during 2012, measures might still be necessary next year."

In the past, both ABP and PFZW have called for a discount rate independent of daily interest rates.

At the end of November, the coverage ratio at ABP and PFZW was 94%.

Meanwhile, Annieke Biesheuvel, spokeswoman at the €39bn metal scheme PMT, which had a funding ratio of 87.3% at November-end, said: "The adjustment of the discount rate is the start of a possible solution."