NETHERLANDS - Approximately 20 pension funds will have to cut their benefits unless their proposed recovery measures generate sufficient improvement to their financial positions next year, the pensions regulator De Nederlandsche Bank has warned
The watchdog came to this conclusion after a first quick scan of the mandatory recovery plans that have been submitted by 350 pension funds.
The pension funds said to be in the danger zone are "small schemes with a limited number of participants", according to a DNB spokesman, though he declined to provide further details.
That said, social affairs' minister Piet Hein Donner had earlier announced that any decision on cuts in benefits would not have to be taken before next summer.
"Because nobody can predict how the markets will develop, it is still far too early days to say whether pension funds will need to make actual cuts," said Frans Prins, director of the Foundation for Company Pensions Funds, who put things into perspective.
Prins also said he does not know which pension funds are considering themselves as liable to benefit cuts.
Gert Kloosterboer, spokesman for the Association of Industry-wide Pensions Funds (VB), also responded to DNB's announcement by stating "as far as we know, all of our 82 members expect to have raised their cover ratio to the minimum required level of 105% in time".
Based on conditions at the end of last year, when the average cover ratio was 95%, approximately 300 schemes had a funding shortfall by the end of first quarter, DNB said in its report.
However, after a further decrease to 92% in mid-March, the average cover ratio has risen again thanks to an increase in long-term interest rates.
Consultancy firm Hewitt Associates has also suggested that the average cover ratio has in the meantime climbed above the 105% required minimum.
DNB also said that in approximately 90 cases, a pension fund's sponsoring company has promised to make an extra financial contribution, while a similar number of schemes have raised the premiums for their active participants.
A large number of schemes had already indicated they would cut indexation or - in case of a funding shortfall -refrain from paying any compensation for inflation.
In the opinion of the supervisory body, pension funds must, in the main, recover their funding ratios through future returns on investments.
"That is why our verdict on the feasibility of a recovery plan will mostly depend on the prudence of the forecasted portfolio returns, with the focus on the risk-return ratio," stressed DNB.
The supervisor said it aims to reaching a final decision on the recovery plans by 1 July.
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