The professional pension fund of Dutch harbour pilots, Loodsen, intends to use around 8% of its buffer to increase pensions. Another 7.5% of the fund’s capital will be allocated to a new solidarity buffer, at the scheme’s current funding ratio of 121%.
An overwhelming majority of harbour pilots voted in favour of the scheme’s transition plan last week, with 158 members of the Dutch association for harbour pilots voting yes. Only one pilot was against.
In total, the pension fund has 468 active members and €912m in assets under management. Loodsen, which plans to make the transition to the new pension system on 1 January 2025, is the first occupational pension fund to have published a transition plan.
Higher interest rate hedge
The pension fund aims to have a funding ratio of at least 117% at its transition date. In order to increase the likelihood of reaching this goal, the fund further increased its interest rate hedge from 60% to 80% last month. The upcoming transition was one of the reasons for the fund deciding to increase its interest rate hedge. By 2022, it had already upped its hedge from 37.5% to 60%.
“By taking this additional step now, the expected volatility of the funding ratio has become lower,” said the fund’s director Rajesh Grobbe.
Loodsen is still considering to completely hedge its interest rate risk to eliminate risk even further. In addition, the pension fund is exploring the possibility of using options to also protect its equity investments.
If the funding ratio were to fall below 110%, Loodsen will suspend its transition plan and review it. This is because a funding ratio of 110% is the absolute minimum needed to fill an adequate solidarity buffer containing at least 5% of assets while at the same time avoid cutting benefits.
The fund needs another 4.5% of assets to establish a reserve of 1% for minimum required capital, a provision for operational risks (2%) and to fund the compensation of the abolition of the ‘doorsneesystematiek’ system – under which pension contributions rise progressively with age to maintain accruals stable, compensating for the shorter investment horizon of older workers.
All members are expected to benefit from the system change, but young people profit the most.
“Their expected pension increases in particular because in our new pension arrangement a little more risk can be taken,” said Grobbe.