NETHERLANDS - The lack of funding and recovery potential at many pension funds is so great that many schemes will be unable to avoid a structural decrease of existing pension benefits, according to Hans Hoogervorst, chairman at communication watchdog AFM.
If pension funds wait too long to take these measures, he added, future pensioners will suffer even more, and support for mandatory participation in the Dutch pension system will evaporate.
Speaking at a seminar held by asset manager APG, Hoogervorst said the recently introduced indexation label - meant to indicate the 'indexation quality' of a pension fund - should be scrapped and replaced by a letter explaining the overall quality of a pension plan.
"Given the changed conditions," Hoogervorst said, "the indexation label was dead on arrival, as we hadn't anticipated the option of a negative indexation."
He also argued that pension funds were still playing down the seriousness of their financial positions and blaming a "silly" low discount rate for their low funding ratios - even though pension funds themselves had thought up the criterion three years ago.
Hoogervorst - who will become chairman of the International Accounting Standards Board on 1 July 2011 - also warned that rising interest rates had the potential to cause new problems, such as a bonds crash, falling equity markets or even defaulting governments.
He said pension funds were still anticipating higher returns than economists at the Netherlands Bureau for Economic Policy Analysis or supervisor De Nederlandsche Bank deemed feasible.
Hoogervorst reiterated that the funding ratios of Dutch pension funds must be 130% on average to allow for well-indexed pensions.
At present, the funding of most Dutch pension funds is 100% on average, and most schemes are implementing a recovery plan to improve their funding to the minimum required coverage ratio of 105%.