NETHERLANNDS - Dutch industry-wide pension funds have considerably improved their financial position in 2004, says the coordinating Vereniging van Bedrijfstakpensioenfondsen (VB).
The schemes have reported average returns of 10.5%. Their combined assets have expanded by €40bn to €358bn. The average coverage ratios – based on a 4% nominal interest rate – have risen from 111.5% to 118%.
VB director Peter Borgdorff said: “The good investment returns of the past two year are a compensation for the unsatisfactory performances of the previous three years”. Over the past ten years most funds made returns ranging from 6% to 9%.
The investment performance in 2004 was largely due to returns on equity and property. The mean return on investment of the whole sector was 7.6%. The weighting of equities showed a marginal increase of 2%. Average weightings are 45% for equities, 43% for bonds and 12% for property.
VB affiliated pension funds have raised their premiums by an average of 10% in 2005. The contributions are now well above costs-covering levels.
Average indexation adjustment on pension payouts was 0.25%, full indexation would have been 0.35%. Almost a third of the beneficiaries haven’t been awarded an index-linked adjustment, because of increases of wages or the financial position of their fund.
According to the VB, however, the valuation at capital market rates starting next year and imposed by the regulator as part of the new financial assesment framework FTK was still a problem. “Pension liability assessments will be more sensitive to interest rates, a development which pension schemes can’t counter and which will cause a significant impact on their coverage ratios”, it explains.
And Borgdorff remains cautious. “Based on the future FTK requirements of valuation at capital market rates, new and existing pension entitlements would have risen, and average coverage ratios would in fact have dropped last year”.
According to VB, the combined assets of its affiliated schemes are €40bn above the minimum coverage ratio required by the regulator. However they still need an extra €35bn to meet the set ratio of 130% in 2020. All funds have sufficient assets to cover their commitments. However six schemes – representing 0,6% of VB’s participants - haven’t yet met the minimum coverage of 105%.
The VB represents 86 member funds, which care for 75% (4.6 million) of Dutch employees participating in pension schemes.