The Dutch Parliament has decided that, under the new financial assessment framework (FTK), pension funds must report their coverage ratios in real terms.
Funding in real terms must also indicate the relationship between a scheme’s financial position and its specific pensions target, according to GroenLinks MP Jesse Klaver, who tabled the amendment.
The FTK proposals of state secretary Jetta Klijnsma have already stipulated that Dutch pension funds must report their funding based on the actual market rate, with the application of the ultimate forward rate (UFR), as well as their coverage, which is to be based on the 12-month average of the market rates.
During the debate on the new FTK bill, Klijnsma promised to conduct an analysis of the effect of the new rules on pension funds’ hedging policies against the interest risk on their liabilities.
She said such a study would be particularly useful in light of the government’s recent concessions in offering recovering pension funds a one-off option of adjusting their strategic investment policy.
The state secretary also confirmed that pension funds did not have to factor in additional risk for holdings of euro-denominated, AAA government bonds, including Dutch ones, in the new FTK.
Therefore, there is no risk that pension funds will “flee” into interest derivatives, she argued.
Klijnsma also confirmed that, as soon as a Europe-wide UFR had been established, she would launch a study on the rate’s application for setting the discount rate.