Pensions Under Stress

The financial position of the major pension funds in the Netherlands has deteriorated over the past 3 months. Millions of people need to be aware that their pensions might be (again) reduced next year.

The funds were affected by the developments in the financial markets.

The coverage of the five major pension funds went, without exception, down in the second quarter of this year. Three of them fell even below 100 percent. ABP the largest pension fund in the Netherlands with an invested capital of 286 billion saw the coverage go down to 97 percent. The other two pension funds are the metal funds PMT (96.3 percent) and PME (96.6 percent).

Buffer

The coverage ratio determines the current and future obligations of a fund. At 100 percent coverage this is just in balance. To avoid financial adjustments on the pensions the pension funds must have a minimum buffer, which is between the 4 and 5 percent. If at the end of the year this buffer is not reached, then a pension reduction over the next year comes into sight.

ABP, PFZW and Metal Funds

ABP is by no means assured that his mandatory coverage buffer will be reached this year and therefore mentions the possibility of a further reduction - after the first reduction of 0.5 percent in April of this year. Pension Health & Welfare (PFZW), the second pension fund of the Netherlands, saw its funding fall from 105 percent to 101 percent. Is this going to be so until the end of the year then also they foresee a reduction in the pensions of their participants, says director Peter Borgdorff.

The presidents of the metal funds PMT and PME also see a reduction in pensions looming. “For our members and pensioners is a second reduction a disastrous scenario. Earlier this year, they already faced a reduction of their pensions by 6.3 percent,” said PMT chairman Jan Berghuis.