NETHERLANDS - Pension funds must pay maximum attention to risk management - and to extreme risks in particular - if they are to be fully prepared for potential shocks, according to Bernard Walschots, chief financial officer at Rabobank's €12bn pension fund.
Walschots, speaking at the Dutch parliament during a social affairs select committee hearing on pension funds' financial position, argued that risk management was the main reason his scheme had managed to keep its coverage ratio from dropping below 114.5% - 6.5 percentage points above the required minimum.
Just before the credit crisis took hold, the Rabobank scheme protected its funding ratio through equity-linked swaptions on 70% of its balance sheet and hedged remaining assets through equity puts and interest swaptions, Walschots said.
He added that the Dutch government could support the pension system significantly by issuing inflation-linked bonds.
Separately, Dick Willemse, chairman of the €7bn occupational pension fund for general practitioners (SPH), suggested that the social partners of employers and employees often hampered the optimal functioning of many other pension funds.
He attributed the 145% coverage ratio of his scheme to a "sensible and thrifty" policy and the support of its participants.
During the hearing, several pension funds with funding shortfalls criticised the inflexibility of the financial assessment framework (FTK), which stipulates that pension funds must discount their liabilities against the volatile and low swap curve.
Kees van Rees, chairman of the €100m pension fund of corporate advice bureau GITP, recommended applying a five-year average European credit curve to establish parity between liabilities and assets. However, Rabobank's Walschots said this would introduce confusion and uncertainty.
Several schemes with shortfalls also criticised the way the pensions regulator, De Nederlandsche Bank, had handled recent public statements regarding the need to apply early benefits cuts, pointing out that they had often learned of the DNB's opinions on the matter through the media.