Coverage ratios of Dutch funds increase in Q1
Written by Ilonka Oudenampsen
The coverage ratios of the five biggest Dutch pension funds have increased slightly during the first quarter due to the higher interest rate, the funds’ Q1 results show.
Nonetheless most of the funds are still in a recovery phase. Only the fund for construction personnel has enough assets to cover (future) pension liabilities. Public fund ABP, health fund PFZW and the metal funds PME and PMT warn that there is still a chance that they will need to cut pension payments.
The current coverage ratio of the Netherlands’ biggest fund ABP increased with 3.1 per cent to 99.8 per cent during the first quarter. The so-called policy coverage ratio, the average of the last twelve months, increased from 91.7 per cent at the end of last year to 94% at the end of March. This is still under the legally required level of around 104.2 per cent.
Due to the interest rate increase, ABP’s liabilities fell with €5bn to €390bn, while the positive investment results also played a part.
In a statement, ABP chair Corien Wortmann-Kool said: “Despite the small increase the current coverage ratio of 94 per cent is still far removed from the 110 per cent that is needed to increase pension payments.” The fund believes that pension increases are very unlikely in the next five years.
The pension fund for the health sector, PFZW, saw its current coverage ratio rise with 2 per cent to 97.2 per cent. The policy coverage ratio increased from 90.1 per cent to 92.3 per cent.
The liabilities decreased by €2bn to €193bn thanks to the interest rate increase. PFZW also expects indexation to be unlikely in the next few years. Moreover, the coverage ratio needs to recover even more to avoid pension cuts.
The coverage ratio of the pension fund of the Metalektro (PME) showed an increase of 2.7 per cent to 98.9 per cent at the end of March. The policy coverage ratio increased to 93.9 per cent.
Pension fund Metal & Technology (PMT) saw its coverage ratio increase to 99.6% and its policy coverage ratio by 2 per cent to 94.8 per cent.
Of the five biggest Dutch pension funds, the construction fund is the only fund that meets the minimum required coverage ratio. Its coverage ratio rose from 110.3 per cent to 113.5 per cent and the policy coverage ratio by 2.4 per cent to 107.8 per cent. The increase in interest rate resulted in a €850m decrease in the fund’s liabilities.