Dutch pension funds to get 12 extra months to review interest rate hedges

Dutch pension funds will be allowed to implement their investment and interest rate hedging policies up to 12 months after moving from a defined benefit (DB) to a defined contribution (DC) arrangement, according to a decree proposed by minister of social affairs Eddy van Hijum.

The decree, which is not yet effective as stakeholders have been given the opportunity to give feedback on it, allows pension funds to implement their new interest rate hedging and investment policy after they make the transition to DC.

Hitherto, pension funds were required to have their new policy in place before their planned transition date, although pension funds have in practice been allowed to make changes later. The decree, which is set to come into force before 1 January 2026, will legalise this practice.

Swaps

In practice, the decree mainly concerns changes in pension funds’ interest rate hedging policies. Pension funds, which have often increased their interest rate hedge in the run-up to their transition to a DC arrangement to protect their funding ratio, want to bring it back to a lower level afterwards.

Many funds will also sell long-term bonds and swaps, because in the new system, only the interest rate risk of older participants will be hedged.

Ideally, funds do not want to make such transactions immediately at the beginning of the year, when liquidity in the swap and bond markets is relatively low.

Another factor for large schemes is that they have to make transactions so large that they can influence the market. Dutch pension funds account for a majority of transactions on the euro swap market.

Examples of large funds that want to move to DC on 1 January 2026 include the technology industry scheme PME and healthcare fund PFZW.

A spokesperson for PME said the delay was good news “for the entire sector,” because otherwise time would have been very short to adjust the interest rate hedge.

“That would be to the disadvantage of pension funds.” said the PME spokesperson, however, declining to say whether it will itself make use of the option to adjust the interest rate hedge at a later date.

Hedge funds

Highlighting the sensitivity of the issue, PFZW refused to say whether it welcomed the decree. Pension funds indeed have reason not to reveal their cards, as there are clear signs speculators that are looking to front-run pension funds’ trades are already active in the market.

As a result, the swap curve has been flattening of late as hedge funds have started to sell long-duration swaps, said Martijn Euverman, partner at pension consultant Sprenkels.

This happened, for example, last month, just after the amendment on introducing the right to object to the conversion of DB accruals to DC was voted down.

“It was striking that the market moved in this way,” according to Euverman. “And I don’t think pension funds were responsible for this. I think it was hedge funds that were front-running the sale of long-term swaps by pension funds now that it has become more certain that the pension reform will go ahead as planned.”

This article was first published on Pensioen Pro, IPE’s Dutch sister publication