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Largest Dutch schemes blame 'extreme' ECB policy for funding drop

Four of the five largest pension funds in the Netherlands must again submit a recovery plan, as falling interest rates have seriously affected their funding ratios during the first three months of 2015.

The schemes, which reported quarterly returns of up to 11.8%, attributed their nevertheless deteriorating position chiefly to the European Central Bank (ECB)’s quantitative easing (QE) programme.

“As a consequence, indexation is off the cards for many participants for years to come,” the Pensions Federation said, echoing earlier warnings by ABP’s new chair, Corien Wortmann-Kool that indexation might not be possible until 2017

Despite its funding dropping 0.6 percentage points to 114.4%, the €53bn pension fund for the building industry BpfBOUW was in the best shape of the five largest schemes.

BpfBouw reported a quarterly result of 11.8%, but noted that during the same period its liabilities has risen 15.1%.

It noted that 7.1 percentage points of the return were thanks to its interest hedge. However, it lost 3.8 percentage points on its currency hedge, following the appreciation of the US dollar against the euro.

BpfBouw said its holdings in equity, fixed income and property returned 15.7%, 6.1% and 0.8%, respectively.

The €373bn ABP posted a return of 8.8%, but said that its funding had declined 2.1 percentage points to 102.6%, 1.6 percentage points short of its minimum required coverage.

The civil service scheme posted a return in almost all its asset classes, with the equity portfolio’s 15.5% return the highest. Fixed income, real estate and hedge funds yielded 6.2%, 14.8% and 15.1% respectively.

ABP’s stakes in infrastructure, private equity and commodities also performed well, with returns of 10.5%, 13.1% and 5.5% respectively.

In contrast with its combined positive result of 1.7% on its interest and inflation hedge, ABP also incurred a 3.8% loss on its currency hedge.

The €178bn healthcare scheme PFZW reported a quarterly return of 9.3%. However, it saw its coverage drop 4 percentage points to 104%.

Commenting on the developments, Peter Borgdorff, PFZW’s director, said that he was “very worried about the consequences of the enforced low rates for the longer term”.

PFZW made clear that only its commodities portfolio incurred a negative returns of 8.6% triggered by oil market volatility. It added that the negative performance of its currency cover caused a 0.3% loss, on balance, on its combined hedging policy.

A quarterly return of 11.2% could not prevent the funding of the €65bn metal scheme PMT dropping 1.4 percentage point to 102.6%.

Benne van Popta, the scheme’s chairman, said that following the ECB’s “extreme” policy, structural improvement could not to be expected for the next two years.

He indicated that his participants were worried about the prospects of not receiving any inflation compension and the possibility of new rights cuts.

Because of its relatively young population, PMT is very susceptible to decreasing interest rates.

The €43bn metal pension fund PME reported a quarterly yield of 9.3%, including 2.3 percentage points thanks to its 50% interest hedge.

Since 1 January, the scheme’s funding had fallen 1.8 percentage points to 102.3%.

Under the new financial assessment framework (nFTK), pension funds’ coverage – the criterion for indexation as well as rights cuts – is now based on the average funding of the previous 12 months.

As a result of ever-decreasing interest rates, the so-called policy funding level was set to further decline during the coming months.

Under policy funding calculations ABP and PFZW’s funding stood at 96.4% and 95%, respectively. BpfBouw, PMT and PME posted current coverage ratios of 111.2%, 97.8% and 96.5%.

Readers' comments (1)

  • I hesitate to disagree with someone like Mr. Van Popta, but if that's what he has said, I must. The ECB policy is not extreme. It is measured to the need to avoid deflation and resulting stagnation. At best, you could say it has resulted in extremely low rates, but that is an empty statement.

    What is extreme is the total refusal of the supervisor to recognise that the current rates are artificial and in no way a reflection of market forces. They are irrelevant over a long period, if only because the ECB buying programme is limited in time. Once again, the interests of beneficiaries are sacrificed on the altar of civil servant's peace of mind and inflexibility.

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