Large pension funds slowly approaching goal of 100% coverage ratio

The financial position of the Netherlands' large pension funds improved somewhat in the last months of 2019, and all four large funds are now closer to reaching 100 percent coverage ration, according to the funds' annual figures, NOS reports. 

The funds were actually supposed to reach a 100 percent coverage ratio - for every euro in pension payment, they must have one euro in cash - at the end of 2019. That would have meant a reduction in pensions paid to the funds' clients. But in mid-November Minister Wouter Koolmees of Social Affairs and Employment intervened, under pressure from the trade unions. For 2020, the funds are still allowed a coverage ratio of at least 90 percent.

At the end of the fourth quarter of 2019, pension fund ABP, which covers government employees, had a coverage ratio of 97.8 percent, compared to 91 percent in the third quarter. The pension fund for care and welfare's ratio increased from 92.2 percent in the third quarter to 99.2 percent in the fourth, engineering fund PMT increased from 94.6 percent to 98.8 percent, and metal fund PME from 93.4 percent to 98.7 percent. 

Despite the improved financial position of the pension funds, there is still a real risk that pensions may have to be reduced in the future. "Now we have had a good investment year," ABP chairman Corien Wortmann-Kool said in a press release. "But we expect interest rates to remain low in the coming years and we expect, like other major investors, lower returns of an average around 4 percent."

A pension agreement reached in June last year is currently being worked out in detail. That should give more clarity about what the Dutch pension funds will look like in the future.