The funding levels of the four largest Dutch pension funds dropped significantly in October due to falling equity markets and decreasing interest rates.

Figures published by the schemes last week showed that their funding ratios declined by roughly 3 percentage points to approximately 101%, meaning metal industry schemes PMT and PME are closer to imposing benefit cuts in 2020.

Last month, pension funds were hit by equity falls – the MSCI World index declined by 6.7% during the month – while interest rates, crucial for discounting liabilities also decreased, with the 30-year swap rate dropping almost 3 basis points to 1.5%.

Civil service scheme ABP saw the value of its assets drop by 2.8% to €407bn, while its liabilities rose by 0.1% to €399bn, limiting its chances to recover to the required minimum funding ratio of approximately 105% by the end of the year.

The declining coverage ratio makes it harder for pension funds to avoid benefit cuts, which must be applied when they have been underfunded for five consecutive years.

PME, PMT hit 100% funding

Members of metal industry schemes PME and PMT could face benefit cuts in 2020

To PMT and PME, their funding at the end of 2019 will be crucial to avoid cuts. At the end of October, their coverage ratios stood at 102.5% and 101.7%, respectively, compared to the required 104.3%.

Although any cuts can be spread out over a 10-year period, they are unconditional and cannot be reversed.

PMT said it was already looking at the procedure for reducing payments, adding that a dedicated page on its website would be set up as one of the ways of preparing its participants for such a scenario early next year.

PME said it had already been communicating to members the risk of cuts through all its information channels during the past year.

“We are trying to find a balance between warning and unnecessarily worrying our participants,” it said.


ABP and healthcare scheme PFZW have more leeway for improvement than the metal industry schemes, as their recovery plans started one year later. This means that any cuts would not have to be implemented before 2021.

However, if funding were to suddenly plummet below the “critical coverage” level, reductions would have to be applied sooner. For ABP this level is 89%.

Exceeding the minimum required funding level at the end of 2018 would be important to ABP, as any it would reset the recovery plan and take benefit reductions off the table for another five years.

ABP has yet to factor in the slowdown in life expectancy improvements, as announced by the Actuarial Society (AG) last September. When it does, this would slightly increase its funding ratio at the end of 2018.