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IPE special report May 2018

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FTK delay for pension funds “likely” – Rabobank

NETHERLANDS – The Dutch central bank is now “likely” to delay the new financial assessment framework for pension funds, according to Rabobank.

“Combined with intensive political lobbying by some major Dutch pension funds for a postponement, we can conclude that the possibility of a delay has become likely,” Rabobank stated in a research note on the financial assessment framework, known as the FTK.

The comments follow the March 24 announcement by De Nederlandsche Bank that the Financieel Toetsingskader would be delayed by a year for insurers.

Rabobank argues that the timetable for the FTK - notwithstanding the DNB’s official statements - is now seen as “ambitious by pension sector insiders”. The DNB had previously denied that the framework would be delayed at all.

Rabobank says a delay to the FTK would not “materially alter” the structural changes taking place in the industry.

Discussions about the FTK had increased awareness that mark-to-market valuation of liabilities was inevitable, it said. And it said there is now “increased awareness that the pension liabilities are the most natural benchmark for the assets instead of benchmarks based on market capitalisation”.

“In other words, pension funds have become much more aware that given the current balance sheet, they are taking a massive tactical bet on the direction of interest rates.”

But it added that any delay to the FTK would mitigate its impact by allowing funds to spread their matching activities over time. And it would also allow more time for ultra-long bonds to fill the gap.

And in addition, if equity prices and/or interest rates rise in 2006, then coverage ratios would rise - thus reducing the need to close the duration gap.

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