NETHERLANDS - The financial buffers of dozens of Dutch pension funds have dropped below the minimum level set by regulator De Nederlandsche Bank, Mercer has claimed.
According to the pension consultancy, which monitors 94 of the approximately 700 schemes in the Netherlands, the shortfall has increased sharply during the past weeks, and is now affecting one in five pension funds.
The decreasing coverage ratios are because of the recent downturn in the market, with falling equity returns and decreasing long-term interest rates, Ben Hummel, actuary at Mercer, explained.
The consultancy calculated pension funds with a funding ratio of less than 120% has doubled to 22% between January and last week.
The required financial buffer varies for each individual pension fund, and depends on, for example, the scheme's size and liabilities, how it has organized its investment policy, and the degree to which it has hedged its risks. In general, the required funding ratio is between 105% and 130% of a scheme's liabilities.
If the required coverage ratio drops below the set level, pension funds have to submit a recovery plan to supervisor DNB.
"Recently, the funding ratio of several schemes is moving in the direction of the critical zone, and some average-sized and small pension funds are just over or just below the required buffer," David van As, head supervision at DNB, told IPE.
However, Van As said he could not provide an indication of how many schemes will need to draw up a recovery plan.
During a Fortis pension funds seminar earlier this month, Van As revealed the average funding ratio of pension funds fell from 140% to less than 130% in January.
During the event, Van As stressed schemes which fall short of the required buffer have to inform DNB immediately.
"Although the market developments are not beneficial to the pension funds, we have faith in the adequacy of the financial buffers, which have been created for the very purpose," Frans Prins, director of the Foundation of Company Funds (OPF) commented.
In Prins' opinion, it is still far too early to look at abolishing indexation or raising pension contributions.
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