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Thursday 19 April 2018

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Spring Conference

Coverage ratio of Dutch pension funds falls further

Written by Tineke de Vries
13/04/18

The average coverage ratio of the Dutch pension funds decreased further during March from 110 per cent to 108 per cent.

The policy coverage ratio,which is indicative of pension cuts or indexation, increased from 107 per cent to 108 per cent, according to Aon’s Pension Thermometer.

The interest rate decreased by around 12 basis points last month due to the unrest in the markets as a result of the protectionist measures taken by American President Trump.

The Ultimate Forward Rate (UFR), which pension funds use to calculate the value of their future liabilities, remained stable at 2.5 per cent. The value of the liabilities increased on average by around 2.5 per cent.

The assets of the pension funds increased on average by around 0.3 per cent. Because of the interest rate decrease, the fixed income portfolio increased by more than 2 per cent. This had a bigger impact on the returns than the fall in equities. Developed market equities recorded a loss of over 4 per cent. Emerging market equities performed almost equally bad. Real estate increased in value.

“While the pension funds are in a better position than a year ago, this shows how fragile the recovery is,” Aon Retirement and Investment chief executive officer Frank Driessen said. Recent figures show that the pension schemes in deficit are the larger funds. They in particular will notice the decline of 2 per cent in the average coverage ratio. Pension cuts cannot be ruled out.

Driessen also mentioned the major insecurities in the equity markets with growing concerns around trade wars and announced strikes. “The interest rate is still at a historically low level. Pension funds need to take these difficult economic circumstances into account. This is especially the case for the pension funds that are still underfunded.”



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