NETHERLANDS - Falling interest rates as well as an negative returns on equities caused the cover ratio of Stichting Pensioenfonds Hoogovens to fall from 135.8% in 2007 to 105.5% a year later, even though the scheme had applied a sizeable interest rate hedge.

In its recovery plan to financial regulator DNB, the €4.4bn fund revealed its funding ratio had dropped further to 100% by the end of February, even though the fund had hedged a considerable part of its interest rate risks and limited its equity exposure to 18% of its portfolio.

The pension fund board has decided not to grant indexation to either pension benefits or pension rights and will not do so as long as the funding ratio does not reach the minimum statutory level of 105%.

Full indexation will only be awarded once the scheme's funding ratio rises to the requisite level of around 115%, which the board anticipates it will realise within 10 years.

The scheme said it will lift pension contributions to 22% and will keep contributions at the maximum level for the full recovery period of 15 years, as the scheme's board anticipates this will lift it out of its immediate the funding shortfall within three years.

In a presentation on its annual members meeting, the association of former Hoogovens employees (VOHM) said, in order to fulfil indexation ambitions, the fund needs to realise an extra return on its investments of €175m per year or outperform the market by 7% - a scenario the association considers to be "extremely ambitious".

The VOHM has predicted a recovery of the financial markets will deliver an estimated extra return of 5% in 2009. In addition to the measures taken by the pension fund board, this should bring the funding ratio up to 89% at the end of this year.

The fund suffered a negative return on investments of 6% last year, largely as a result of falling equity values.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email