NETHERLANDS - Recent market turmoil has driven the coverage ratio of some pension funds to below 105%, pension regulator De Nederlandsche Bank has revealed.

At least a handful of schemes are reported to be in this position, and there may be more yet to follow, indicated Joanne Kellerman, DNB director, during the presentation of the regulator's annual figures.

A funding ratio of less than 105% means the pension funds involved need to come up with a recovery plan to eliminate the shortfall within three years.

According to Kellerman, approximately 10% of Dutch pension schemes are facing a coverage ratio of less than 125%. In these cases, the financial assessment framework (FTK) prescribes a 15-year recovery plan.

The average nominal coverage ratio had fallen to between 125% and 130% at the start of 2008, DNB reported, while the real funding ratio - the relationship between market value of investments and the indexed liabilities - was 108% at the end of last year.

DNB noted the "timely, correct and full administrative processing of data changes at collective pensions insurers is seriously under pressure, caused by recent legal changes, integration of systems, many different regulations and required tailor-made solutions."

As a consequence, the watchdog has announced it will increase focus on risks, such as mistakes and imperfections in the build up of pension rights, as well as financial consequences in technical provisions.

"Moreover, in case of substantial shortcomings, insurers risk reputational damage," it stressed.

Lowering the indexation is an increasingly important steering instrument for pension funds to help them balance assets and liabilities and to spread risk between workers and pensioners, according to DNB.

"However, so far, the schemes have managed to keep buying power for both groups intact," the regulator made clear.

DNB's preliminary figures showed pension funds in the Netherlands had assets totalling €725bn at the end of 2007, and fixed income investments was the largest asset class accounting for 42.8% of funds allocated. The remaining assets were divided up between equity (40.8%), property (10.6%) and ‘others' (5.8%).

Furthermore, the regulator noted the credit crunch on the US sub-prime mortgage market does not seem to have had a real direct impact on the Dutch pension sector last year as the exposure of Dutch pension funds to sub-prime-related paper is less than 2% of their combined assets, DNB estimated