NETHERLANDS – After a consultation, it has emerged that Dutch pension funds don’t need to stack-up financial buffers to cover the risks of indexation and investment separately, under the new rules of the financial assessment framework, or FTK.
Each euro from premiums or assets can only be used for one purpose. This is the outcome of a consultation between social affairs minister Aart-Jan de Geus, the pensions regulator DNB and the Labour Foundation. The resulting indexation matrix will be applied from now on by the DNB in its supervisory role.
The consultation partners haven’t however reached an agreement on two others points of concern to the pension funds. There will be further discussions about the life expectancy, and the required minimum coverage ratio of 105% plus its one-year’s repair term hasn’t been part of the consultations.
The indexation matrix applies to a coverage ratio which has been set by the regulator at 130%. It is based on a “total consistency of raised expectations, financing and factually awarding of conditional claims, and insight in the course of things and the long-term perspectives”.
Central within the indexation matrix is the continuity analysis, which must show that schemes can fulfil both their index ambitions and their unconditional promises.
According to the matrix, schemes can set their own index ambition and its way of financing, as long as both are consistent with each other. If this isn’t the case, either ambition or financing should be adapted.
Funds with an explicit index ambition should restrain themselves in discounting premiums, it says. “From the viewpoint of consistency members and pensions shouldn’t be confronted with discounts on premiums and indexation within a short period.”
The matrix also provides minimum rules for communication with members and pensioners. Central is that promises prove to come up to expectations.
“We are happy with the decision. There is clarity now, and we can start writing our repair plan,” said spokesman Hans ten Brinke of civil service scheme ABP. “But we are still waiting for a solution of the minimum coverage ratio and the too short term for repairs.”
Peter Borgdorff, director of the Association of Industry-wide Pension Funds, or VB, is also very pleased with the outcome. “We have been given clarity on all the issues under discussion”, he said. “And I am sure we can solve eventual remaining problems further down the road”.
According to the VB, what is being expected now is now the implementation date of the new pensions bill, of which the FTK will be part. Although planned for January 1 2006, the timetable seems to be increasingly tight. “It’s important to us that the introduction of the FTK coincides with January 1, the start of the Dutch tax year,” stresses Borgdorff.