The Dutch pension system’s regulatory framework should be based on open norms and the prudent-person principle instead of the new financial assessment framework’s (nFTK) “strict” rules, according to Dick Sluimers, chief executive at €424bn asset manager APG.
Speaking at the International Capital Market Association congress in Amsterdam, Sluimers warned that current nFTK rules forced many Dutch schemes to maintain interest hedge positions that will incur large losses if interest rates were raised.
Sluimers said a sudden 1-percentage-point rate increase, assuming an average 50% interest hedge, could trigger €140bn in margin calls for pension funds.
He noted one such instance between 20 April and 14 May, when the 30-year swap rate increased by 70 basis points.
“The nFTK sees maintaining an interest hedge as risk reduction, yet, given the currently low interest rates, it could also be considered sensible to reduce interest cover at this very moment,” he said.
Sluimers acknowledged that, for the regulator, a more open regulatory standard could be “more complicated” at the “micro level”, but he argued that it would also increase stability at the macro-economic level.
“Strict rules could cause institutions worldwide to take up similar positions, which could unintentionally lead to a new source of instability,” he said.
In others news, the €373bn civil service pension fund ABP is looking to give participants investment choices, including a ‘green’ option.
Corien Wortmann-Kool, ABP’s chair, who mentioned the initiative in an interview with Dutch daily Trouw, said the pension fund would first need to address a legal ban on ring-fencing.
It will also require the approval of the social partners, as well as more clarity on implementation risks, such as costs, care duty and the balance between individual and collective risk sharing.
A recent ABP survey suggests 42% of its participants are interested in sustainable investment.