PFZW bases recovery plan on 6.9% yield
NETHERLANDS - Pensioenfonds Zorg & Welzijn (PfZW), the Dutch industry-wide pension fund, is pinning its hopes on achieving a yield of 6.9% alongside with a long-term interest rate of 3.6%, as the basis for its recovery plan presented to the financial regulator.
A spokesman for the fund said the recovery plan assumes an inflation rate of 2% on average for the next 15 years and, as a starting point "took the levels, as prescribed by the current Pension Act, for the parameters [of the recovery plan]".
PfWZ is using the leeway now given in recent regulatory change to extend the recovery period from three to five years but officials said the fund will not change its investment strategy, nor its pension scheme, and has no intention to cut pensions benefits for the time being.
Instead, the fund anticipates it will not compensate pensions for inflation over the next three years, though as soon as the cover ratio rises above the minimum level of 105% the board intends to adjust pension benefits to receive a minimum of 50% of the inflation rate.
At the same time, the fund will refrain from increasing its contributions, currently amounting to 22.5% of salaries.
"These contributions already include a recovery charge of 2,5%, earlier introduced in 2003, which will of course help to regain our financial strength", said the spokesman.
It appears from the recovery plan that the premiums were more than cost-effective last year, as they had a positive effect worth 1% on the cover ratio.
The fund currently receives €4bn in premiums while it pays out €2.3bn in total to pensioners.
PfWZ believes this plan will allow the fund reach the minimum cover ratio of 105% within five years and its required buffer of 123% in 15 years from now.
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