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Larger Dutch schemes remain wary despite progress on funding ratios

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The large Dutch pension funds remain cautious and are refusing to exclude rights cuts at year-end, despite a significant improvement of their financial position over the third quarter.

On the back of rising long-term interest rates – causing a reduction of liabilities – as well as positive returns on investments, the schemes saw their coverage ratios increase by approximately 6 percentage points.

With a quarterly return of 2.1%, the €293bn civil service scheme ABP reported the best result, leading to a year-to-date return of 3.7%.

ABP’s funding rose by 6.2 percentage points to 103.3%.

However, Henk Brouwer, ABP’s chairman, noted that the scheme’s funding needs to increase by another 0.9 percentage points to reach the required minimum level of 104.2% by year-end.

“Although the danger of a rights discount has decreased, it has not disappeared altogether,” he said.

Meanwhile, the coverage ratio at €134bn healthcare scheme PFZW, due in part to a quarterly return of 1.2%, rose to 107% at September-end.

Peter Borgdorff, PFZW’s director, said: “With this level of funding, it seems our recovery target is feasible.”

However, he stressed that the financial position at the end of this year would be the criterion for any future measures.

“The financial markets still fluctuate significantly, causing a recovery in fits and starts,” he said.

“This underlines the importance of new pension arrangements that allow for better smoothing out of large fluctuations.”

Even the pension fund for the building sector, bpfBouw, remained cautious, despite its funding rising to 109.7% and its announcement that a rights discount was off the cards for next year.

“Interest rates and financial markets are not stable enough yet to be confident of a permanent recovery,” it said.

BpfBouw reported a quarterly return of 1.1%, with equities returning 3.8% and real estate 0.1%.

It said it lost 0.1% on its fixed income portfolio and 0.6% on alternatives.

In addition, it generated a negative result of 0.9% on its interest hedge, following rising rates.

Although the €32bn metal scheme PME saw its funding improve by 5.3 percentage points to 101.9%, it is still 1 percentage point short of its mapped out recovery to the minimum required coverage of 104.3% by year-end.

As a result, the possibility of a second rights cut is still real, the pension fund conceded.

PME already had to apply a 5.1% discount in 2012.

It said it returned 0.8% on investments over the last quarter, with positive returns on equity (4.6%), property (0.2%) and alternatives (2.6%), and a loss of 0.3% on its fixed income investments.

Despite a funding increase of 5.2 percentage points to 101.5%, the €48bn metal scheme PMT is still 1.3% percentage points short of its recovery path.

Guus Wouters, PMT’s director, said the scheme was already anticipating a second rights cut, following a discount of 6.3% last year.

He said the pension fund was trying to improve its coverage ratio through cost cutting, adding that it had already driven down asset management costs to 0.49%.

The metal scheme reported a quarterly return of 0.5%, taking its year-to-date return to -0.4%.

The Pensions Federation also warned against “unfounded optimism” and underlined that any discounts would depend on pension funds’ financial position at 31 December.

Referring to the political situation in the US, Gerard Riemen, the federation’s director, said: “The financial markets are not stable.”

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