The financial position of Dutch pension funds has largely recovered from the market falls at the end of 2018, according to Mercer and Aon Hewitt.
The consultancy firms found that schemes’ coverage ratios rose by 2 percentage points on average in the first two months of 2019 to stand at 108%, largely due to rising equity markets and higher interest rates.
Both consultants attributed the improvement in particular to the expectation that the US and China would soon conclude a trade agreement and better than expected growth figures from the US economy.
After four consecutive months of falls in the 30-year swap rate – pension funds’ most important criterion for discounting liabilities – it rose by 7bps to 1.3% in February.
Mercer said this had caused liabilities to drop by approximately 1% on average.
Aon highlighted that the funding level of a number of pension schemes was still short of the required minimum of 104.3%, indicating that the risk of benefit cuts next year still existed.
This applied in particular to the large metal and engineering sector schemes PME and PMT, whose funding still stood at 100.9% and 102%, respectively, at January-end.
At the same time, the coverage ratio of civil service scheme ABP and healthcare pension fund PFZW was 103.1% and 101%, respectively.
These pension funds face cuts in 2021 if their funding is still short of the required minimum at 2020-end.
Mercer added that developed markets equity without currency hedging rose 3.8% in January, whereas the gain under a 50% currency cover would have been 3.6%.
Emerging market equity generated 1%, while commodities produced 1.8%, Mercer said.
Aon reported that fixed income portfolios returned 0.7% on average during January, and overall investment portfolios gained a similar amount.
Despite the mark gains, Mercer warned of the potential impact of geopolitical tensions between India and Pakistan and the lack of an agreement between the US and North Korea.
Research network Netspar widens scope
Netspar, the Dutch think tank specialising in pensions, ageing and retirement, is to widen its scope to cover non-financial subjects.
Presenting a new four-year research period, Casper van Ewijk and Marike Knoef, Netspar’s co-directors, said it would also look at pensions communication, behaviour of pension savers, technology, and sustainability of pension arrangements.
As a consequence of the broadened research agenda, Netspar is to increase its co-operation with other disciplines, including sociology, psychology, epidemiology, communication and legal sciences, said Knoef, who is also professor of micro-economics at Leiden University.
“Research into the life cycle, combined with care and housing needs and saving behaviour, is also useful for asset managers, care insurers and banks,” said Van Ewijk, a professor of economics at Amsterdam University.
He highlighted that income after retirement would remain the core of Netspar’s research activities.
“When we examine care needs, we focus on costs relative to income,” he said.
Netspar not only had links with almost all Dutch universities, Knoef said, but also maintained an international science network.
“We could quickly find out how, for example, paying of a lump sum at retirement or auto-enrolment works elsewhere, and what the experiences are,” she said.
Netspar’s partners include the large asset managers APG and PGGM, insurers Aegon and ASR, and regulators DNB and AFM.
The network is also supported by the ministry for social affairs, trade unions and employers.
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