NETHERLANDS - The Z-score, the instrument for measuring the performance of the mandatory industry-wide pension funds in the Netherlands, still doesn’t function properly according to the umbrella organisation VB.

The 87-member VB says the existing problems will be enhanced by the new financial assessment framework, or FTK, that requires a dynamic management of the investment portfolio. This doesn’t match with the Z-score test, which judges performance based on a static benchmark portfolio.

“One of the aims of the FTK is a more active investment policy in order to match the schemes’ liabilities, which are valued at market rates. Intermediate adjustment might be necessary, as the coverage ratio of the pension funds will fluctuate strongly, because of its sensitivity to interest movements,” the VB said.

“A scheme could buy interest swaps in order to cushion interest risks if the rates are high. But if this activity is considered as investment policy, the scheme will generate a Z-score risk that will hamper decision-making,” it explained.

“Social affairs minister Aart Jan de Geus has already been consulted, but we are still studying internally looking for an acceptable alternative,” a VB spokeswoman said. Asked by IPE, she couldn’t give an indication about when the issue would be solved.

All but three of the Dutch compulsory industry-wide pension funds have passed their benchmark performance of –1.28 over the 2001-05 period. The test is based on the Z-score, which is established every year.

“Several schemes keep on suffering from bad results earlier,” the VB noted.

If the performance test is insufficient, the employers are allowed to leave their pension fund. But their decision will also be influenced by issues like costs, long-term returns, contributions, service levels and member satisfaction.

“The VB supports the performance test of mandatory schemes. The test shouldn’t however have a negative impact on the investment policy of a pension fund,” the organisation stressed.