Many Dutch pension funds have again increased their interest rate hedges in the first half of 2025.
An important reason for the increases is their desire to seek additional protection against interest rate risk in the run-up to their transition to a defined contribution arrangement.
The average interest rate hedge of a pension fund at the end of the second quarter of this year was above 77%, according to data recently published by regulator DNB.
This means that interest rate hedges have continued to rise over the past year, after the average hedging ratio of pension funds exceeded 70% for the first time in 2024.
The most common reason for pension funds to increase their interest rate hedges has been the need for additional funding ratio protection in the run-up to the planned conversion of defined benefit (DB) accruals to a defined contribution (DC) option, as part of a switch to a new pension system.
Most pension funds are scheduled to do this in 2026 and 2027. Two of the three funds that increased their interest rate hedge by 20 percentage points or more this year have indeed done so shortly before they are scheduled to move to the new pension system.
In the second quarter of this year, the Dutch fund for librarians increased its interest rate hedge by 20 percentage points to 100%, just before it switched to a DC arrangement on 1 July this year.
The pension fund for private sector security personnel, which wants to switch to DC on 1 January 2026, also increased its interest rate hedge by 21 percentage points to 83%. The fund declined to comment on the reason for the increase in interest rate hedging because the fund does not want to share “market-sensitive information,” according to trustee Evalinde Eelens.
Pension fund PNO Media, which plans to move to DC on 1 January 2027, also significantly increased its interest rate hedge this year. In April 2025, it decided to up its hedging ratio from 50% to 70%. The reason for the move was a desire for more protection against interest rate decreases that could hurt its funding ratio in the run-up to the pension transition, PNO Media said in its 2024 annual report.
For pension fund ABN Amro, the upcoming transition to a new DC arrangement on 1 January 2027 also played a role in its decision to increase its hedge to over 100% of liabilities.
“But it is not the case that a single aspect determines the decision,” said Maarten Roest, a trustee at the pension fund.
“Within our strategic process, the board chooses between a number of different variants through ‘blind tasting’. The variants that have been submitted are assessed by the board on various aspects. The board looks at the total of expected outcomes and then determines the most suitable variant,” he added.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication
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