NETHERLANDS - The new parameters for the financial assessment framework FTK, as proposed by social affairs’ minister Piet Hein Donner, could require a 50% rise in contributions, the pensions bodies VB and OPF have claimed.
The pensions associations have asked the minister to refrain from taking drastic measures now, and instead take the parameters for the allowed assumptions on returns, as well as for calculating liabilities, into account when discussing the integral review of the FTK.
Responding to the recommendations from the Don Committee, Donner has proposed to decrease the upper limit on return assumptions for listed equity and indirect property by 0.8% to 6.8%.
He also wants to set the parameters for fixed income investments at gross 4.5%, rather than without investment costs.
According to VB and OPF, the proposals will also deliver added aggravation for pension funds through the application of both arithmetical and analytical maxima, as well as through the mandatory use of a flexible forward curve for accounting liabilities.
The pension funds’ representative bodies said they prefer the analytical approach “as it offers a better insight into the expected long-term assets accrual”.
In their opinion, the forward curve is not suitable for predicting interest rates, and causes undesired volatility in the outcome of the continuity analysis.
The non-fixed forward curve could raise contributions by up to 50% should the one-year interest rate increase and stay at a new level, according to VB and OPF, which both advocate the use of an upper limit of return assumptions based on the long-term average return on equity.
“The developments between 1900 and 2008 show that taking the historic average into account is prudent,” they stated.
According to the pension bodies, lower limits will also lead to a longer recovery period for pension funds with a funding shortfall.
VB and OPF also claimed changed benchmarks will have an impact on the indexation label - which indicates the likelihood of future indexation - within a year after its introduction.
“This might create a lower label despite a rising cover ratio, which will decrease participants’ faith in pension funds”, they explained.
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