Dutch pension funds are not in a celebratory mood despite facing one of the best investment years since the start of the financial crisis, Dutch financial daily Het Financieele Dagblad has suggested.

A survey among the 100 largest schemes has made clear that returns of 10% on average during the past 10 years have been more than undone by the ever declining interest rates against which they must discount their liabilities.

During the first three quarters of this year, the five largest pension funds for example reported returns ranging from 15.1% to 19.1%.

The €1bn sector scheme for hairdressers (Kappers) even achieved a 10% on average during the past five years, and posted the best result (2.3%) for 2018, the FD found.

However, the FD quoted Gerard van de Kuilen, the pension fund’s chair, as saying that he wasn’t happy, as funding had dropped to 93.8% at September-end, in addition to the scheme facing rights cuts as a consequence.

He added that either contributions had to be raised, or annual pensions accrual had to be reduced.

The chair said the scheme’s investment result had been largely thanks to its 50% interest hedge – through interest swaps and bonds – of its liabilities, which had delivered solid results due to declining interest rates.

“But this is something you don’t want,” he commented.

Van de Kuilen explained that, because of its young participant population, the liabilities of Kappers had a duration of no less than 34 years. “And a 1% drop of interest rates means a rise of liabilities of 17%.”

The FD quoted Simon Heerings, director of risk management at consultancy First Pensions, as saying that most Dutch schemes are in a similar position.

“They also generate insufficient returns relative to rising liabilities,” he said.

“And as the high returns are largely due to dropped interest rates, the rosy figures will in part disappear as soon as interest rates rise again.”

Rob Bauer, professor of finance at Maastricht University, shared Van de Kuilen’s view that there was not much reason to be proud of the figures.

“I keep on seeing pension fund trustees and media referring to record returns and pension assets, but they deliberately ignore the liabilities side of the balance sheet,” he said, according to the paper.

The €459bn civil service plan ABP, which posted returns of more than 15% for the first three quarters, is not celebrating either, said Diane Griffioen, the scheme’s head of investment, while referring to the scheme’s funding of 91% in September.

However, she emphasised that all asset classes had contributed to the result, with equity, bonds and private equity yielding 21.9%, 11.4% and 11.1%, respectively. Property had generated 16.2%.

While referring to a survey among 10 fiduciary managers by Dutch consultancy Sprenkels & Verschuren, the FD added that most pension investors expected much lower returns during the coming years.

It said that the managers had predicted that, for example, average returns for equity and credit would drop to 4,3% and 0%, respectively, for the next five years.

ABP’s Griffioen also tempered growth expectations, noting that part of this year’s returns were thanks to results springing back after losses incurred during the last quarter of 2018.