NETHERLANDS – The three main Dutch pension fund bodies have rejected pension fund regulator PVK’s requirements on cover ratios, calling them “unnecessary” and “bad for the economy”.
The Dutch Association of Industrywide Pension Funds (VB), the Company Pension Funds Organisation (OPF) and the Occupational Pension Funds Organisation (UvB) have commissioned a study by ORTEC consultants. They said in a statement that the study reveals the impact on the new requirements issued by the PVK, or Pensioen & Verzekeringskamer in a letter to 1,000 pension funds in October 2002.
The letter had demanded that the third of Dutch funds whose coverage levels had fallen below 100% a year to rectify the situation, and has increased the coverage level to 105%. It also tightened up the buffer funds that Dutch schemes are required to hold - instructing funds to have a sufficiently large buffer to cover a 40% drop off the highest valuation their equity holdings have reached in the last two years, and to cover a 10% drop from the lowest valuation their equity holdings have reached in the last year.
The study says the PVK’s demands are unnecessary as cover ratios among Dutch pension funds are currently 105% on average. And the demands would result in an excessive degree of certitude, which is extremely costly and will eventually lead to pensions being lower than expected, as index-linking is likely to be abandoned.
According to the study, premium increases vary per fund, adding up to some 50% for the business sector as a whole, and around 100% for the public sector, which means that there is a real danger that pension fund regulations may transfer more risks to employees.
The study estimates that if measures are taken to meet the PVK’s demands then the Dutch economy could also be seriously affected. It claims that wage costs would rise by 5.4% and 7.8% in the private and public sectors respectively.
It says corporate profits would fall by some 16% and that inflation would go up by an extra 1.2%. In the period up to 2006 investment levels would fall by an extra 4.2% and 138,000 jobs would be lost, maintains the study.
The three organisations have invited the PVK to resume talks, their case being that pensions are at a good level and can be paid, both currently and in the future, and are calling on politicians to weigh up the level of certitude required against pension costs and social economic consequences.
The PVK did not immediately return calls seeking comment.