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Dutch may issue index-linked to aid schemes

NETHERLANDS - The Dutch Treasury is looking at the possibility of issuing index-linked bonds to help with the financing of pension funds, says finance minister Gerrit Zalm.

“In theory, index-linked bonds, e.g. linked to the Dutch CPI inflation, could be used for the public sector borrowing requirement”, Zalm replied to parliamentary questions from the largest coalition partner, the Christian Democrats, or CDA.

Elsewhere, Reuters news agency reported today that dealers expected the UK’s Debt Management Office to announce a 50-year index-linked bond by September. It said it would be the longest-dated security of its kind in the world.

The Dutch and UK moves come amid an increase in the issuance of long-dated bonds alongside high demand from pension funds and insurance companies.

The Netherlands’ Zalm stressed in a statement the complexity of the calculations needed. “We need to judge the expected interest burden and inflation risks for the Dutch state, the effect on the volatility of the interest and the EMU balance, and the expected demand,” he said.

In April Dutch central bank president Nout Wellink told a pensions conference that the government no longer opposed index-linkers. “Although the market is still limited, if demand picks up, they will automatically become an attractive financing instrument for general government to complementing the current financial markets”, he said.

Meanwhile, the employees of financial giant ING will start paying premiums for their pension as of 2006, as part of a new collective labour agreement, or CAO. “The new scheme will be based on the final salary, while the retirement age will be raised from 62 to 65”, the Stichting Pensioenfonds ING said in a statement.

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