Tuesday, June 30, 2015 - 09:42
Claim: Nearly 200 pension funds in financial trouble
Two-thirds of Dutch pension funds, including 4 of the 5 largest funds, are in so much financial trouble that they will have to submit a recovery plan to De Nederlandsche Bank. This involves 160 of the approximately 250 pension funds in the Netherlands. For many of these funds, this will be the second recovery plan they submit. This is according to the Volkskrant, based on insiders from the pension funds. The coverage ratio of the metal funds PME and PMT, the civil fund ABP and the care fund PFZW was below the minimum limit set by the DNB on January 1st. These funds have confirmed that they have to submit a new recovery plan before July 1st. Many pension funds were already in trouble after the financial crisis and had to submit their first recovery plan to the DNB in 2009. These recovery plans ran for 5 years and included measures the funds had to take to recover. Measures included premium increases, reducing the accrual rate, indexation and some funds even had to lower pension benefits. New rules for the pension funds' recovery plans took effect at the start of this year. New recovery plans now run for 10 years, instead of 5, giving funds more time to recover financially. This has both advantages and disadvantages. On the upside, reductions in pension benefits are less necessary and can be spread out over 10 years if needed. On the downside, indexation takes longer and is slower than in the old system. The deterioration of the pension funds' financial health can be attributed to the sharp drop in the interest rates. This has forced pension funds to build more capacity in order to be able to pay benefits to their participants in inflation-proof pensions. Low interest rates are also resulting in lower returns on investments made by the funds.