Dutch pension coverage law under scrutiny
NETHERLANDS – Representatives of Dutch employers and employees have written to the Dutch government seeking a change in the law regarding pension fund coverage ratios.
Dutch law presently states that pension funds must have coverage ratios, the ratio of assets to liabilities, of 100%. Last October, the Dutch pension fund watchdog PVK wrote to those funds that had fallen below the 100% and demanded that they make up the shortfall this year.
The PVK also advised funds that the coverage ratio was going to be increased to 105%, but employers say they cannot meet the requirements through premium hikes alone.
Gerard Verheij, pensions policy expert of the Netherlands’ largest employer group, VNO-NCW, explained to IPE.com that a letter had been written to parliament ahead of their meeting on March 13 when the coverage ratio levels are to be discussed. The employer representatives are asking for the ratio to be “temporarily” dropped below 100%.
Under present legislation, schemes are also obliged to keep sufficient reserves to cover a 35% fall in their equity holdings. The PVK has instructed funds to increase this level so that they have a sufficiently large buffer to cover a 40% drop off the highest valuation their equity holdings have reached in the last two years.
Dutch companies could end up having to add 15 billion euros a year into their pension schemes in order to meet the guidelines set out by PVK, estimated Dexia Securities last year. The Dutch stock exchange, the AEX, would need to rise more than 35% to 475 in order to make up the shortfall.
The Dutch sector wide pension fund association - Vereniging van Bedrijfstakpensioenfondsen – recently said that its members have an average coverage ratio of 106.5%. The Dutch pensions industry has repeatedly criticised the PVK’s demands on coverage ratios, calling them “unnecessary” and “bad for the economy”.