Equity rally props up Dutch funding, finds DNB
NETHERLANDS - The coverage ratio of Dutch pension funds has increased by 3 percentage points to 97% on average during the last two months, mainly thanks to improving equity markets, said supervisor De Nederlandsche Bank (DNB).
In July and August, the MSCI World index rose 3%, while the AEX increased no less than 7.1%, according to the regulator.
During this period, the long term interest rates - the criterion for pension funds' liabilities - remained almost flat, DNB said, adding that the 30-years rate only fell marginally, from 2.27% to 2.24%.
The supervisor said that fixed income holdings also contributed to the increase of the coverage ratio, following a slight drop of the short term interest rates.
Despite the improved funding, the coverage of the pensions sector as a whole is still 8 percentage points short of the required minimum funding of 105%.
At the end of August, 231 pension funds - totalling 4.9m active participants and 2.5m pensioners - had a funding shortfall.
The Dutch government is next week expected to publish details of the financial assessment framework FTK, including a revised discount rate to address fund's low coverage ratios.
The country's social affairs ministry predicted that if the discount rate remained unchanged, scheme participants would face an average rights cut of 8% over the next two years.
Civil service scheme ABP estimated at the end of August that it could be forced to impose rights cuts of 14% in 2014 if the economic climate remained the same.