NETHERLANDS - The Dutch Actuarial Society (AG) has spoken out against changing the discount rate for liabilities without a fundamental debate on the issue.
The AG was responding to a resolution, tabled by parliamentarian Paul Ulenbelt of the left-wing party SP, urging social affairs minister Henk Kamp to prevent proposed pension rights cuts, caused by a low discount rate.
At present, pension funds must discount their liabilities against the swap curve, which has led to the majority of schemes not achieving the minimum coverage ratio of 105%.
Rajish Sagoenie, chairman of the AG said: "It has been agreed that if pension promises are unconditional, the liabilities must be valued against a risk-free interest rate."
"Therefore the resolution asking for a higher discount rate, doesn't match the present discount framework, and the nature of most pension promises," he added.
By deviating from the risk-free discount rate without fundamental discussion, transparancy will disappear and pension funds' annual reports will become distorted, argued Sagoenie.
The actuaries organisation said it is advocating a standard curve for pension funds and insurers that is risk-free, is applicable to both for short and long-term and is immune to market distortions.
In addition, the interest curve must also allow for a hedge against the interest risk inherent in the markets, according to the AG.
In its opinion, market players who want to apply a different interest curve should do so by following supervisor De Nederlandsche Bank's rules of 'explain-or-comply'.