Dutch pension funds, instead of blaming the European Central Bank (ECB) for their woes or demanding more flexible rules, should accept their losses and focus on the new pensions system, according to the regulator.
Speaking at the recent EY congress, Bert Boertje, supervisory director for pension funds at regulator DNB, argued that the current “turmoil” was largely the result of low long-term interest rates and pension funds’ high risk profiles, rather than just the ECB’s decisions.
He noted that the funding levels of some schemes were still above the required level.
Boertje conceded that rights discounts in 2017 were likely but highlighted that the actual scale of cuts would be limited, as they can be evened out over a 10-year period.
“The year 2020, however, will be an annus horribilis if current conditions don’t change,” he said.
Boertje said he did not support any “easing of rules” for pension funds, or raising the discount rate for liabilities “artificially”.
“We must let the new financial assessment framework (nFTK) do its job, which will create space to smooth out the pain,” he said.
In his opinion, the pensions sector should adopt a new pensions system as quickly as possible.
He argued that the ability to differentiate risks per age cohort would be the main advantage of the envisaged system of individual pensions accrual combined with some degree of risk-sharing.
He warned, however, that, in such a system, deficits “would not vanish”, and that pension funds with a funding shortfall at the moment of transition would have to “take their losses”.
He further explained that, under the expected new rules, pensioners would be able to block off their risks, while younger participants could increase their risk exposure to make up for indexation in arrears.
Boertje also warned pension funds against “sweeping their problems under the carpet” by using, for example, the highest allowed assumptions for future returns in their new recovery plans.
He also urged pension funds to increase their communication efforts, “as participants still have too high expectations about their future purchasing power, as well as pensions promises”.