Dutch discount rate set to change – Van Nunen
NETHERLANDS - Dutch pension funds are not as poor as they look and calculation methods for liabilities will change to draw a more accurate picture, according to Dutch fiduciary management consultant Anton van Nunen.
Since 2007, pension funds in the Netherlands have been altering the rate at which liabilities are discounted from a fixed 4% rate to a variable swap rate.
Speaking at a conference in Salzburg today, Van Nunen (pictured) explained that liabilities fell for most pension funds, following this change, because the swap rates were higher but stressed "it was a very short-term view as it turned out".
Delegates at a pensionskassen workshop organised by the quantitative asset management research group IQAM heard van Nunen suggest this change in the pension fund system led to a "disaster" which he claimed will "kill the system soon".
That said, he also told IPE that talks with the regulator are scheduled and said he is convinced that there will be a change despite the DNB stating earlier this year it wants to stick to the current discount rate. (See earlier IPE article: DNB sticks firm to yield curve for liabilities)
He explained the swap rate was currently 80 basis points below the old rate and while currently 60% of Dutch pension funds are labelled "underfunded" by the regulator this figure would drop to 20% if the old rate was applied.
Van Nunen also demanded the static minimum cover ratio be scrapped, currently set at 105%, and replaced with a dynamic one which takes into account how the pension fund intends to recover lost assets over the coming years.
"Liquidity in the [pension] funds is almost always safeguarded and it should be published, as this would put pensioners at ease," noted Van Nunen.
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