1 in 3 Dutch funds have long term reserve shortage – Mercer
NETHERLANDS - Currently one out of every three Dutch pension funds has a long term reserve shortage, according to investment consultancy, Mercer.
Mercer gauges that negative returns, particularly dragged down by the equity markets, have caused cover ratios of many Dutch pension funds to drop below 125%.
In a separate development, Nout Wellkink, chairman of the Dutch pension regulator DNB, warned yesterday that in the short term the value of assets will suffer from “inflation shock”, as pension funds want to index as much as possible while returns on shareholdings fall.
According to official figures from the DNB, in the first quarter of this year, seven schemes had a cover ratio below 105%, while 196 pension funds of the total 700 Dutch pension funds had a ratio between 105% and 130%.
A ratio of less than 105% means the pension funds involved need to come up with a recovery plan to eliminate the shortfall within three years, while the financial assessment framework (FTK) prescribes a 15-year recovery plan if the ratio drops below around 125%.
Dennis van Ek, consultant at Mercer in the Netherlands told IPE in an interview yesterday: “At the end of 2007, the average nominal cover ratio of pension funds was 135-140%.”
He added: “The average nominal cover ratio of pension funds is currently (mid July) around 120%.” The Dutch Mercer office monitors 94 Dutch pension funds with total assets under management €105bn.
In April, the DNB reported the average nominal coverage ratio had fallen to between 125% and 130% at the start of 2008, while the real funding ratio - the relationship between market value of investments and the indexed liabilities - was 108% at the end of last year. (See earlier story IPE.com: ‘Dutch schemes drop below 105% funding’)
According to Van Ek, insecurity in the markets has forced pension funds to increase the amount of information they ask: “There are many worries, and the question for information on the financial position and the cover ratio have increased since last year.”
Pieter Omtzigt, member of parliament for CDA, the largest governing party in the Dutch second Chamber, yesterday asked the Dutch minister of finance, Wouter Bos, and Dutch social affairs minister Piet Hein Donner to map out how far cover ratios of pension funds have dropped as a result of the credit crunch.
IPE reported yesterday that the four largest Dutch pension funds, ABP, PFZW, PMT and PME are down almost €16bn in the first half of this year following losses on equity and real estate investments. (See earlier story IPE.com: ‘Dutch big four lose €16bn in first half’)
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