NETHERLANDS - Pension funds should not be allowed to discount their liabilities against expected returns, as the new Dutch Pension Agreement has suggested, according to a recent survey of pension professionals.

At a conference held by IPE sister publication IP Nederland (IPN) on the proposed changes, more than three-quarters of attendees supported risk expert Theo Kocken, who said the current market interest rate as criterion for liabilities should not be "tampered" with.

He also said pension funds should adjust their investment policies only to reflect the ageing of their own participants.

"Discounting against predicted returns and using a current, healthy-looking funding ratio for granting indexation straightaway to the large group of pensioners will be inter-generational fraud," he said.

Jean Frijns, professor for investment management at Amsterdam's Free University and a former chief investment officer at the €242bn civil service scheme ABP, agreed, saying: "Applying expected returns as discount criterion is odd."

In his opinion, such an approach would undermine the confidence between the generations of participants.

Frijns advocated a new pension contract that combined investments with different grades of risk. He said this would be the best option against underfunding, as well as falling markets.

Almost 70% of pension professionals agreed with Frijns that, for investment risks, pension fund boards must get the approval of the participants that would be exposed to those risks.

The solvency of a pension fund should be less important in this context, they said.

A small majority supported Frijns' proposal for using age cohorts to establish participants' risk appetite.

More than 80% of attendees voted in favour of a soft and market-dependent pension contract that could be replaced by a concrete pension promise, if a scheme's participants wanted to.

However, Peter Borgdorff, director of the €100bn healthcare scheme PFZW, said he did not believe in hard financial promises and that he expected that even life insurers would be unable to cover longevity in the long term.

A panel of investors at the IPN conference said they feared pension funds' boards would avoid investment risks if they were given more responsibilities in a new pension system.

During the conference, Olaf Sleijpen, head of pension fund supervision at regulator DNB, received much support for his thesis that a pension contract based on real funding, but subject to markets' performance, required financial buffers with their size depending on a scheme's risk appetite.

The DNB and the social affairs department are still elaborating a new financial assessment framework (FTK) that matches the new Pension Agreement.