Dutch pension funds are seeing their funding ratios drop due to falling interest rates, threatening the recent pension agreement as it could mean a reduction of people’s retirement savings.

The newspaper Het Financieele Dagblad reported that the two largest pension funds in the Netherlands, ABP and Pensioenfonds Zorg en Welzijn (PFZW), are warning members that pensions may also have to be lowered in 2020 instead of 2021, while the chance of reduction is even greater for metal funds PMT and PME.

Trade union FNV is demanding that the reduction is suspended for the time being, and the VCP wants purchasing power repairs.

The pension agreement reached in June stated that funds would no longer have to cut pensions if their coverage ratio is more than 100 per cent, in order to avoid mass discounts, an agreement reached as most of the large discounts had ratios above that level.

This is no longer the case, as the four funds all have ratios below the level – APB’s funding stands at 95.3 per cent, PFZW is at 95.9 per cent, PMT is 97.1 per cent and PME has a coverage ratio of 96.6 per cent.

“It cannot be the case that the political commitment to not lower due to recent developments in the financial markets is off the table,” PMT president Benne van Popta told the newspaper. “Reductions do not fit in with the new pension agreement, our participants think.”

PFZW director Peter Borgdorff warned that an “impossible puzzle” is arising with the implementation of the pension agreement. The intended goal to achieve good pension returns is taking a hit because of the interest rates, but at the same time, there is no money to compensate people who see their situation worsen in the transition to a new system.

“This is expected to have consequences for confidence in the pension agreement and therefore confidence in the future of our pension," Borgdorff said.

In a statement, pension fund association PensioenFederatie said the mostly positive investment returns of pension funds have not been able to compensate for the negative effects of the interest rates.

“The low coverage ratios also influence the feasibility of the recovery plans. If a pension fund cannot prove in its recovery plan that it will have the required equity within 10 years, it must start to decrease. The advice of the Parameters Committee that the minister has adopted can reinforce this development. PensioenFederatie is currently assessing the effects of this.”

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