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IPE special report May 2018

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Dutch caretaker Cabinet presents measures to help pension funds

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  • Dutch caretaker Cabinet presents measures to help pension funds

NETHERLANDS - The Netherlands' caretaker Cabinet has presented a comprehensive package of rules and measures intended to help pension funds "responsibly and more rapidly straighten out their financial positions."
 
The measures - which the Netherlands Bureau for Economic Policy Analysis (CPB) has reviewed to ensure they benefit no single generation over another - aim to prevent "unnecessary" contribution hikes in 2013.

Pension schemes may be eligible for a one-off exemption next year from the obligation to raise premium contributions in the case of a funding shortfall.

Schemes ineligible for the exemption may appeal to the regulator (DNB) for "a tailor-made approach" to contribution hikes.

In addition the measures will allow pension funds - provided they meet a number of conditions - to spread necessary benefit cuts over several years, and to limit cuts to a maximum of 7% annually.

Benefit cuts that have already been announced will be unaffected.

State secretary Paul de Krom, substituting for social affairs minister Henk Kamp while he helps to form a new coalition government, said: "As a result of the package, benefit cuts in 2013 may be limited to those that have been announced at the beginning of this year."
Benefit cuts as a percentage of total liabilities are expected to decrease from 4.9% to 0.8% as a result of the measures.

As part of the package, the discount rate for pension liabilities with a duration of between 20 and 60 years would be changed to include the so-called 'ultimate forward rate' - the discount rate under consideration for Solvency II - which is expected to lift coverage ratios by 4-5%.  

The new discount rate will apply from 30 September.

Insurers are already using the same methodology as of 30 June.

Pension funds wishing to spread cuts over time or to apply for tailored contribution solutions must meet three conditions.

First, they must agree to raise the pensionable age as used to calculate pension right accrual from 65 to 67 in 2013, one year earlier than originally agreed.  

In addition, further increases in life expectancy have to be discounted in existing rights, and, starting next year, schemes cannot index pension rights until their solvency rate reaches 110%.

The Pension Federation - the umbrella organisation of Dutch pension funds - has called the measures "balanced", but regrets that the rule demanding a contribution increase to cover funding shortfalls has not been abolished altogether.

The federation also believes that a "fundamental discussion regarding which interest rate curve is suitable as a credible indicator for the present financial situation of pension funds" is called for.

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