NETHERLANDS - Fourteen Dutch pension funds must start cutting pension rights and benefits from 1 January 2011, as their shortfalls have grown too large, social affairs minister Piet Hein Donner has decided.
A further delay is unjustified, as "workers are now paying contributions for a pension they won't receive themselves", Donner said.
In the wake of the financial crisis, 340 of the 600 Dutch schemes had to submit a recovery plan mapping out how to increase their funding to a minimum of 105% within five years.
Of the 18 pension funds that already factored in rights cuts, however, 14 have failed to recover sufficiently, Donner said in a letter to Parliament.
He concluded that these schemes are increasingly paying pensions without sufficient funds for structural benefits.
With the news, the minister reverses his earlier decision to allow a delay for rights cuts until 1 April 2012.
Donner acknowledged the decision to cut rights cannot be made mandatory, but he said he considered a discount would be "inevitable" in order to restore the view on a structural improvement of a scheme's financial position.
The minister said all other schemes in a recovering situation must take additional measures before 1 January 2012, three months earlier than initially agreed, adding that any necessary measures must be implemented before 1 April 2012.
The coverage ratio of Dutch pension funds, after an initial recovery in spring 2009, has fallen to 100% on average, largely due to a steep drop in long-term interest rates in the second quarter of 2010.
Pensions funds have also had to take new longevity figures into account, which has lowered coverage ratios by approximately 5 percentage points.
Donner said there was no reason to assume low interest rates - approximately 3.2% at present - would increase any time soon, and that the possibility of a quick economic recovery was still uncertain.
Pensions supervisor De Nederlandsche Bank (DNB) has declined to identify any of the affected pension funds.
However, a DNB spokesman emphasised that pension funds would be allowed to take additional measures for an improvement in line with their recovery plans.
He said: "We haven't set a minimum coverage ratio under which schemes have to implement a rights cut either, as this depends on a pension fund's individual situation."
The Association of Industry-wide Pension Funds (VB) said rights cuts should be a remedy of last resort and that pension funds in need must be allowed to take such a drastic measure themselves.
However, it said it opposed the DNB's recommendation to cut rights at a 1% shortfall, as this "doesn't mean a pension fund is destitute".
The VB added: "A rights cut of less than 1% hardly affects a scheme's coverage ratio, but creates unnecessary unrest among its participants."