NETHERLANDS – The PVK, the Dutch pensions and insurance regulator, says its staff have been under strain amid “tensions” arising from its controversial coverage ratio requirements.

Pensioen-& Verzekeringskamer board chairman Dirk Witteveen admits in the PVK’s 2002 annual report that the body faced “tensions in its supervision”.

The PVK caused outrage in the Dutch pension industry with a requirement that pension funds have a coverage ratio of at least 105%. Some asset managers said the requirement could “destroy the system” and Dutch pension fund associations said it could be bad for the economy.

Witteveen said the PVK’s action was prompted by the worst year for Dutch stocks since the Second World War – with the PVK “forced to respond”. The PVK won backing from the International Monetary Fund last month, which called its action “appropriate”.

The affair has hit the regulator’s staff in their day-to-day jobs. “This placed considerable strain on the employees of the PVK last year, as they were confronted with complex issues and a large volume of work.

“They performed their work with great commitment, both in carrying out the supervision and with respect to designing new and better instruments for supervision.”

It says that although its requirements generated a lot of discussion “few pension funds appear to have opted to take individual measures with respect to risk-related provisions”.

It appeared to concede that the proposals could have an economic impact. “Measures to eliminate shortfalls in the coverage can have negative macroeconomic effects. The conduct of pension funds is then unintentionally pro-cyclical.”

It says that pension funds did not, in hindsight, reserve extra funds during the good years as a buffer. “Some of the investment returns were used to reduce premiums and to improve pension schemes.”

The PVK added that it is still on track to introduce the new Financial Assessment Framework on January 1 2006. This aims to present a new solvency test. The regulator also said it has developed a risk model called MARS, which it says will “identify the risks and the level of risk management in each institution”.

Under the solvency rule, funds had to draw up a recovery plan. The PVK says that as at the end of March 2003, it had received 170 recovery plans

“The plans submitted show that the vast majority of funds want to eliminate the shortfall in the coverage existing at the end of 2002 before 31 December 2003,” it says.

It stressed that its policy action was to “safeguard the rights of participants in pension schemes”.

The PVK is in the process of merging with the central bank, De Nederlandsche Bank. The two bodies signed a covenant on April 23 this year on closer cooperation.