NETHERLANDS - Dutch pension funds are struggling with dangerously low coverage ratios and some 14 funds must cut pension benefits for members earlier than expected at the behest of the out-going minister for social affairs. Yet Willem Vermeend, social affairs minister from 2000-02, believes this is "panic football".

"Of course the crisis has hit pension funds hard. But if you look at the asset side, most funds are over the worst. This means the discussion is purely about liabilities," said Vermeen, a member of the centre-left PvdA, in an interview with our Dutch sister publication IPN.

Funds have made up most of their losses and are only in a bad situation because the sector chose to use the swap curve as the basis for the calculation of liabilities in the reform of the pension law: "The sector must ask itself whether that was a sensible course," Vermeend believes.

"Previously we managed with a fixed discount rate, and that worked superbly. It allowed for a certain sense of calm," continued Vermeend.

"With the pension law reform of 1 January 2007 we moved to market valuation, but there is no true market for the liabilities side and it is debatable what the market for that should be. The choice was the market for risk free bonds, butbecause of the ECB's policy, among other factors, the yield is so low that liabilities appear extremely high on paper."

Vermeend went on to point out that pension funds also have a problem on the asset side in dealing with low interest rates. "You won't get out of the problem just by changing the rules," he added.

He also called for a solution to increasing life expectatancy, and a pension system "in which part of the investment risk is borne by members: if you run a higher risk would lead to the chance of a higher pension and you get a lower pension if you want a lower risk".

The solution is a reform of the whole pension system, according to Vermeend - a part of which would be a reform of the discount rate: "I would be an advocate for aiming for a progressive middle in order to remove the most extreme fluctionations in the discount rate."

Social partners must sit down as soon as possible with the new cabinet - currently subject to coalition negotiations - in order to achieve this, Vermeend said.

"In fact, there is no need to wait for coalition negotiations to be concluded. I believe there is a comfortable majority in the chamber in favour of these reforms. My suggestion would be to write sweeping pension reforms into the coalition agreement from the start and fix the entire problem in one fell swoop," concluded Vermeend.