The five largest Dutch pension funds saw their funding improve by two to three percentage points during the first quarter, due in part to a slight rise in interest rates.

Most schemes, however, warned against “too much optimism” and indicated that new headwinds may still force them to cut pension rights. 

With a quarterly return of 2%, the €389bn civil service scheme ABP reported the best performance. Its funding rose 2.3 percentage points to 94%.

Corien Wortmann-Kool, ABP’s chair, emphasised that the scheme’s coverage ratio was still way below 110%, the level at which pension funds are allowed to start granting some indexation.

“Inflation compensation will barely be on the cards in the next five years,” she said.

According to Wortmann, the possibility of a rights discount will remain if the funding level drops again.

ABP also warned that a cancellation of the European Central Bank’s quantitative easing programme and low interest rate policy could negatively affect both equity and fixed income markets, in particular if the process were to go faster than expected.

The €187bn healthcare scheme PFZW made a 0.5% profit during the past three months, after a 0.7% loss on its interest and currency hedge. Its funding rose to 92.3%. PFZW attributed its investment result in part to emerging markets debt, which produced 5.4%.

Peter Borgdorff, the scheme’s director, also said that further recovery was necessary.

PMT, the €68bn pension fund for the metalworking and mechanical engineering sector, reported a quarterly result of 0.9%, citing “more than average” returns on high yield (2.7%) and equity (5.4%).

It said it had divested from emerging markets equity after strong performance, as its equity allocation would otherwise have exceeded its strategic bandwidth of 35%. The proceeds were invested in its liabilit-matching portfolio.

PMT closed the first quarter with a coverage ratio of 94.8%.

The investments of PME, the €45bn scheme for the metal and electro-technical engineering sector, returned 1.3%. The scheme saw its funding rise to 93.9%.

Eric Uijen, executive trustee, noted that coverage had to improve to 104.3% at 2019-end in order to prevent rights cuts.

With a funding of 107.8%, BpfBouw, the €54bn pension fund for the building industry, is still in the best financial position of the five largest schemes.

It returned 1.2%, largely thanks to profits on equity (6.3%) and property (2.7%), with Dutch residential and retail portfolios performing best.