NETHERLANDS – The coverage ratio of Holland’s 75 largest pension funds rose to 139% in the first quarter from 128% at the end of 2005, according to the pensions regulator De Nederlandsche Bank (DNB).
It said the improvement was due mainly to the rise of long-term interest rates.
“The 15-years interest can drop to approximately 2%, before the minimal required own assets under the new financial assessment framework (FTK) are in the danger zone,” it said in its first-quarter report.
According to DNB, this development shows the sensitivity of the funding ratio to interest changes under the mark-to-market approach. “The effect of the interest changes on coverage ratio under the FTK, is opposite to that of the fixed accounting rate of 4% of the Actuarial Principles Pension Funds (APP) regime,” it stated.
All pension funds, except one small scheme, have raised their coverage ratio above 105%. DNB attributes this development to “the recovery plans and tailor-made approach during the past three years”. At the end of 2002, 190 schemes fell short of the required funding ratio of 105%.
“The recovery at almost all schemes has been better than indicated in the initial recovery plans,” the DNB added.
A zero measurement of 98% of the total pension assets has shown an FTK coverage of 124%, while APP funding was 131%, the DNB said. “This is because the interest term structure was less than 4% as a whole.”
“A coverage ratio of 124% means that the nominal pension liabilities are sufficiently covered by scheme’s investments, and that there is a buffer for risks,” the DNB added.
“However, it is insufficient for stable and inflation-proof pensions. Depending on the scheme’s ambition and the age build-up of its members, the required coverage ratio is between 130 and 160%.”
The APP is expected to be replaced by the FTK with the introduction of new pensions legislation at the beginning of 2007.