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IPE special report May 2018

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Dutch schemes face low-yield challenge – IMF

NETHERLANDS – The current low-yield environment poses challenges to Dutch pension funds and insurance firms, according to the International Monetary Fund.

“Insurance firms and pension funds, like banks, also benefited from higher security prices, though the current low-yield environment, especially if prolonged, poses challenges,” the IMF said in a report on the Netherlands.

The comments come as Dutch schemes like Philips are raising their fixed income exposure in a bid to cut their sensitivity to interest rates. Current historically low interest rates are seen as possibly the number one issue in the Dutch pension field at the moment.

The IMF report also said the impact of the new “levensloop” or “life-course” pensions arrangement on labour participation and hours worked was “unclear”.

It said: “Careful monitoring of its uptake and usage will be essential, both to ensure that it is not solely used as a route into early retirement, and that its broader objectives of increasing personal and career flexibility and creating opportunities for training in mid-career advance economic objectives—an outcome that cannot be taken for granted.

“More broadly, changes in life expectancy should be taken into account in determining the official retirement age.”

Dutch Prime Minister Jan Peter Balkenende said last month that levensloop marks a crucial change of direction.

“We cannot accept that people in their 30s and 40s continue to contribute to generous early retirement schemes for people in their 50s,” he said in a speech at the University of Tilburg.

The IMF also said that the Netherlands’ new supervisory arrangements for pensions “improve transparency”. And the flexibility in the timeframe for making up shortfalls in the coverage ratio was welcome.

But it said supervisors and policymakers will have to monitor the macroeconomic implications of pension reform and the risks taken by banks and insurance companies in a low-yield environment.

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