The pension fund for the Netherlands’ three Caribbean municipalities is facing considerable rights cuts due to adopting a different set of rules to other Dutch schemes.
Harald Linkels, chairman of PCN, told IPE that the €300m pension fund had incurred a €66.5m funding gap, citing “wrong assumptions” for its capitalisation when it was established in 2010.
Since then, PCN has been instructed to follow stricter Dutch rules, meaning its funding has dropped to 80% from 117% before the change, Linkels told IPE. It means the pension fund has to cut pension rights by 3.5% in April, and members face an additional cut of 12% next year.
According to Linkels, neither the Dutch Ministry of Social Affairs nor the Home Department – which oversees relations with the Dutch territories – wanted to take responsibility for the funding gap.
PCN has issued a summons against the state, claiming $70m (€66.2m) in damages. Supervisor DNB and both ministries did not respond to requests for comment.
Linkels argued that it was unfair that his scheme had to apply cuts straight away, whereas the financial assessment framework (nFTK) in the Netherlands allows schemes to spread any cuts over a 10-year period.
However, a different FTK for the pension funds covering the Dutch territories of Bonaire, Sint Eustatius, and Saba provides for a recovery period of just three years to reach to the minimum required funding ratio of 100%.
Linkels attributed the problem to the fact that the pension fund, at its inception, had to adopt a fixed discount rate of 4% as well as Dutch longevity prognoses for the period 2000-2005. At the time this meant the fund had a coverage ratio of 117%.
The start of the pension fund was supervised by Henk Kamp – a former minister for Social Affairs – who, at the time, was tasked with establishing the new overseas Dutch councils, following an adjustment of the state structure.
Linkels said that soon after the pension fund’s inception, Dutch supervisor DNB told the scheme to use the US dollar swap curve for discounting its liabilities instead of the swap curve for the euro, as the new councils had adopted the dollar.
He pointed out that, as the dollar swap curve had dropped from 3.5% to 2% in the meantime, and DNB had also prescribed the application of the most recent Dutch longevity tables, funding of PCN had plummeted.
The chairman emphasised that between 2011 and 2015, returns of the Caribbean scheme had exceeded those of the €382bn Dutch civil service scheme ABP, the Netherlands’ largest pension fund.
With national elections next week, PCN’s chairman said he didn’t expect a solution to stave off rights cuts next month.
“Negotiations are slow and are usually limited to verbal orientations of possible solutions, without any concrete commitments being made,” he said.