NETHERLANDS - The new parameters for the financial assessment framework FTK, announced last week by De Nederlandsche Bank, could lead to up to a 6% increase in pension contributions, says pensions professor Guus Boender.
According to Boender, who is also a director at consultancy firm Ortec, a decrease of a half percent of the expected returns, will cause an increase of contributions of 12.5%.
He estimates that about 50% of the 700 Dutch pension funds base their policies on an interest rate of 5% and equity returns of 8% for the long term. Based on a rough estimate, this will mean a contributions rise of 6%, or €1.4bn, he said.
Last week, the pension regulator De Nederlandsche Bank, released new recommendations about the values for the FTK for pension funds in the current economic climate.
In DNB's opinion, the pension funds should not be allowed to work with a long-term market rate of over 4.5%, instead of the current maximum of 5%. The schemes should also reduce their expectations for long-term returns on equity from mature economies by a half percent to 7.5%.
"Nothing will change for pension funds which are already working with a maximum interest rate of 4.5%," Boender stressed. "This is already the case with several large company funds."
"My impression is that a number of very large pensions funds are looking for the regulator's limits, in order to avoid an industry-wide rise of the contributions," he added. Boender declined to name schemes involved.
The large civil service scheme ABP bases its policies on a long-term rate of 5% and equity returns of 8% from mature economies, a spokesman said. "We don't have concrete figures yet, but our first calculations make us worry. We can't exclude a contributions rise as of 2008," he commented.
"We think the new parameters are too cautious. That's why we are in favour of an independent body for advice on the FTK values," he added.
The €75bn healthcare scheme PGGM, which uses percentages similar to ABP's, is also worried about the effect of the new parameters on the pension contributions, a spokeswoman indicated. PGGM declined to mention any figures.