NETHERLANDS - Dutch companies see almost two-fifths of their market capitalisation consumed by pension obligations, far more than in Germany or the UK, calculations by PwC have shown.

Surveying the leading 25 companies on the Amsterdam Stock Exchange (AEX 25), the consultancy found that 38% of Dutch companies' market capitalisation was tied up with predicted pension payments, compared with just 31% in Germany, 27% in the UK and as little as 7% in Italy.

Adrian Jones, corporate pension advisor at PwC in Amsterdam, said the findings may come as a surprise to many companies, which until recently paid little attention to associated pension funds.

"Dutch companies have typically seen the pension fund as more independent than their counterparts in the UK." he said.

"The result of that is they have seen it as the pension funds business to manage the investments and they just pay the premiums."

He added that schemes' need for cash payments - as well as the growing impact on balance sheets - had seen this attitude change over the past few years, but said that tackling the legacy of defined benefit risk in a company 100 years old was problematic.

Jones recommended schemes switch to liability-driven investments instead, or consider transferring some of the risk to insurance companies, as was already the case with buyouts and similar arrangements.

"It already is a trend that smaller funds will look to an insurance solution," he said. "I wouldn't necessarily call it a buyout, because it's more an insurance solution - it's not like in the UK with a buyout. It's a different kind of product."

He said that once funding levels increased, such agreements with insurers would increase, as many insurers were looking to take on pension liabilities "for the right price".

PwC's report said the upcoming pension agreement between employers and social partners - expected to result in hybrid schemes taking the place of the Netherlands' traditional paternal approach to pensions - would be likely to strike a balance between the need to provide and controlling growing costs.

The report added: "How each company implements this new agreement with employee representatives and pension funds will have a significant influence over the future pension risk for Dutch companies."

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