Dutch pension funds still struggling; lower pensions possible next year
The financial position of the five largest pension funds hardly changed in the third quarter, meaning that four out of the five still have a funding shortfall. This final quarter of 2016 will reveal whether the funds will have to lower pensions next year, NU.nl reports.
Pension funds in the Netherlands have to meet a minimum funding requirement. For most funds this is around 104.2 percent. The funding requirement, or coverage ration, is the ratio between the pension fund's assets an responsibilities. The percentage shows the extent to which a fund is able to pay future pensions.
If the pension funds are still below the so-called critical limit of their coverage ratio - differs per fund, ranging between percentages from high 80's to low 90's - on December 31st, they will have to lower their pensions. This will affect both retired people and people still building up a pension at the fund, according to the newspaper.
The current coverage ratio for pension fund ABP, the largest pension fund in the Netherlands, increased very slightly in the third quarter - from 90.5 to 90.7 percent. The fund's policy coverage ratio, the average coverage ratio over the past twelve months, stood at 92.5 percent in the third quarter. That is lower than the 94.4 percent of the second quarter. The critical level for ABP is 90 percent.
"Our coverage ratio was stable in the three quarters of 2016: just over 90 percent", NU.nl quotes ABP president Corien Wortmann-Kool saying. "If we can hold on in the fourth quarter, we will not have to reduce pensions in 2017." The pension fund expects to announce whether or not pensions will be lower in the second half of next year by late January.
PFZW saw its current coverage ratio increase by 0.2 percent to 89.2 percent in the third quarter. But its policy coverage ratio dropped to 90.8 percent. "According to director Peter Bogdorff, the slight drop n policy coverage can be attributed to the low interest rate.
"The chance that PFZW will have to lower pensions in 2017 has a strong presence", according to the fund. If the current coverage ratio remains at its current level, pensions will have to be lowered. PFZW's critical level is about 87 percent.
According to PME, the fund's coverage ratio is stable, but low. The current coverage ratio increased slightly to 91 percent. The policy coverage ratio fell from 93.7 to 92.4 percent. Chairman Eric Uijen also attributes the drop to the low interest rates
"The coverage ratio remains close to the critical level of around 90 percent. This means that we remain concerned about a necessary reduction of pensions in 2017", he said. The fund describes it as a "probable reduction".
PMT saw its current coverage ratio increase by 0.1 percent to 92.1 percent in the third quarter. The policy coverage ratio dropped to 93.3 percent. "We achieve good investment returns, but by the ever further declining interest rates and the prescribed calculation method, the coverage does not increase sufficiently" chairman Jan Berghuis said. According to him, the chance of a pension cut next year is "still fifty-fifty".
Of the five large pension funds, bpfBOUW is the only one that meets the statutory minimum coverage ration. In the third quarter the policy coverage ratio was 105.5 percent, 1.1 percent lower than in the second quarter. The current coverage ratio was 105 percent. CEO Jan Ruis expects the financial position to be stable next year.