NETHERLANDS - Dutch pension funds will need to tie up €50bn - 10% of their country’s GDP - to meet the requirements of the FTK, the new Dutch legislation for pension funds, according to research by asset managers SEI Investments Europe.
Under the FTK (Financieel Toetsingskader), sponsoring companies must put aside a €30 for every €100 of assets they need to finance €100 of liabilities, the research said.
This is money that could be spent on private business investment, said Bart Heenk, managing director of SEI’s Dutch operation.
He said: “The FTK has a cost which will emerge as a drag on Dutch productivity. The irony is that the solution to the ‘pension problem’, is to be found in part in future productivity growth. It is a classic case of the treatment exacerbating the illness.”
The research for SEI was carried out by Con Keating, director of the Finance Development Centre, a UK consultancy, and Netspar, a national network for research and education in the field of pensions, ageing and retirement in the Netherlands.
Keating said that FTK’s risk-based supervision prefers fixed income over equity investment because equities have higher market price volatility. This means that there will be more investment in the public sector than the private sector, since the government is the main provider in the fixed income market.
“Since the public sector is less productive than the private sector, the FTK will lead to a decline in productivity in the Netherlands, which will affect the Dutch economy,” he said.
The FTK requirement for pension funds to hold funds well above their liabilities, with a typical funding ratio of 130%, will exacerbate this effect, he added.
Heenk said the De Nederlandsche Bank (DNB), should carry out a proper cost-benefit analysis – comparing the new FTK with a regime with less supervision, rather than the existing system.
“There is no data to show that a single Dutch pension scheme has failed to date and with this in mind it is difficult to understand what objective the DNB was seeking to achieve when the FTK legislation was agreed.
“We believe that the FTK represents a massive over-reaction to a period of poor returns from equity rather than a solution to the reality of the Dutch pension situation.”
Heenk said SEI would be lobbying the DNB to change the new FTK, which comes into force on 1 January 2007.