NETHERLANDS - Changing accountancy rules, to be implemented in 2005, will have a negative effect on the coverage ratio of industry-wide and corporate pension, according to new research.

Consulting firm ORTEC found that the effect of a change of one percent in interest rates is the same as a 40% shift in equities prices.

This would have a detrimental effect on coverage ratios for some of Dutch funds in the Netherlands. And there is another issue on the horizon – fair value.

Most industry funds are still unsure about the specific effects of the so-called fair value appreciation. It is reasonably easy to value investment portfolios at the end of a fiscal year; the crunch however is how to value financial commitments for the future. The possible devaluation of investment portfolios will also have repercussions.

How this would hit coverage ratios and indexation is still unclear. The real threat is not for pension giants, such as PGGM or ABP, but for the corporate/industry pension funds in future.

Alfred Kool, director of corporate communications at PGGM, said that pension funds are currently still aiming to restore their financial buffers, to cope with the negative effects of market performance.

He added that several industry funds have been too optimistic in their indexation in recent years - meaning that corporate reserves have been used so as to not increase premiums.

For pension funds such as PGGM, or ABP, the fair value issue and interest rate fluctuations, are not as pressing as the rules of the Pensions and Insurance Supervisory Authority, the PVK, are very strict and have been implemented in full.

PGGM’s first goal was to reach the targeted coverage ratios again. The latter program already has resulted in the fact that the premiums need to be raised to cost price levels of pensions in 2004. In 2005 PGGM will implement the so-called staffeling. Even that overall performance of PGGM reached a level of 105%, its financial commitments also increased.