PGGM chief critical of short-term coverage rules
NETHERLANDS – Health care fund PGGM wants to get rid of the stringent requirement that Dutch pension funds have to repair any deficit within a year, according to chairman Karel Noordzij.
The demand is part of the new regulations of the Financieel Toetsings Kader. It states that schemes with a coverage ratio of less than 105% need to repair the shortage within a year. The rules are set to be integrated in the new pensions legislation which still needs to be approved by parliament.
“The rule must secure the nominal rights of members and pensioners in case of immediate closure of the scheme. But for a branch scheme like ours there isn’t any risk of discontinuance,” said Noordzij.
According to him, the requirement of the regulator - the Dutch central bank - is thwarting PGGM’s investment policy.
The scheme has many young participants which puts the accent of pension payments in the far future. That’s why the fund is able to take relatively high risks on the stock exchange.
More than half of PGGM’s assets are in equity and about 30% in bonds. This is considerably more than the average Dutch pension fund which has invested about 35% in equity.
“The focus of the regulator is too much on short term risks. An absolute security in the short run will provide insufficient pensions in the further future”, explained Noordzij during a press meeting.
In his opinion a short period for repairs will cause an average doubling of premiums to 30%, and it will be too cyclical which will lead to high premiums during bad times.
Noordzij does however agree with the period of fifteen years for bringing the coverage up to at least 130%. The average coverage of Dutch schemes is 118% at the moment.