NETHERLANDS - The outgoing Dutch cabinet is thinking to increase the equity yields pension funds are allowed to factor in for expected returns, according to social affairs minister Piet Hein Donner.

In a letter to Parliament, the minister also suggested that pension funds not facing a shortfall could continue to apply the present limits for assumptions on returns, or 'parameters'.

The minister responded to the recent agreement between the social partners of employers and employees on a flexible retirement age, by linking both the state pension AOW and additional pensions to life expectancy.

The agreed adjustment of the pension contract as of 2012, which also takes shocks on the financial markets into account, also requires an update of the financial assessment framework (FTK), Donner said.

Although the Pension Act prescribes a review of the parameters in 2011, the minister said he wanted to avoid having financially healthy pension funds review their pension contracts twice within a short period, following the introduction of new parameters next year.

He added: "Because the legislation requires new parameters in 2013, a delay [in introducing new parameters] for schemes without a shortfall until 1 January 2012 is acceptable."

However, pension funds with a deteriorated financial position, which need to draw up a new recovery plan in 2011, will have to apply the new parameters from that moment, the minister said.

Initially, Donner had indicated he wanted to decrease the upper limit on return assumptions for listed equity and indirect property by 0.8-6.8%, while also proposing parameters for fixed income investments at gross 4.5%, rather than without investment costs.

In response, the pension bodies VB and OPF claimed the new parameters could require a considerable rise in contributions.

Gert Kloosterboer, spokesman for VB, said: "Minister Donner doesn't sufficiently address our proposal to review the parameters in 2012 in the context of the FTK update.

"Donner's split approach makes matters more complicated."