Actuarial interest rate adjustment will create more stability - PMT boss
Written by Ilonka Oudenampsen
A correction of the actuarial interest rate is needed to create more stability in the Dutch pension system, according to Dutch pension fund PMT CEO Benne Van Popta.
Pension funds, unions, employers and politicians are preparing themselves for a reform of the pension system, but for Van Popta more stability should be a priority. “By making pension promises at a later stage, the interest rate sensitivity will decrease,” he told Dutch newspaper De Financiële Telegraaf.
Most Dutch pension funds have been suffering from low coverage ratios for years due to low interest rates, resulting in the constant threat of pension cuts. Van Popta would therefore like to correct the actuarial interest rate which funds have to use to calculate future liabilities.
He believes the current situation is unfair because the low interest rates are being caused by the European Central Bank’s policy.
“That’s why a correction is needed. If you keep this interest rate, then you are rewarding the younger generation and disadvantaging the older generation. If the ECB-effect is 50 basis points and you would add those temporarily, then our actuarial interest rate will become more than 2 per cent, the coverage ratio increases by 6 percentage points and we end up at a coverage ratio of about 105 per cent,” Van Popta said.
Politicians have also opted other adjustments to the actuarial interest rates, such as a permanent bottom of 2 per cent or 4 per cent, but Van Popta believes this would result in “unacceptable shifts between generations”.
“It is not my intention to depict the current situation more positively than it is, but we need to correct the ECB-effect.”