Dutch pension liabilities fall
9 July 2008

Written by Sophie Baker

The value of the Dutch pension funds’ technical provisions stood at approximately €493bn at year-end 2007, a drop in liabilities of €14bn, according to De Nederlandsche Bank.

Pension funds calculate these technical provisions in order to estimate what they are required to pay to future pensioners, and the size of this is dependent on factors such as capital market rates and the pass-through of wage growth or price increases in future pension benefits.

According to the bank, the capital market rates rise in 2007 had a downward effect, as higher rates mean that a pension fund can put aside less money to be able to fulfil its future commitments. This is, they said, favourable for the General Reserve, a pension fund’s financial buffer, as the higher the financial buffer the more opportunities a pension fund has to pass through wage or price increases in its pension benefits. In turn, this has an upward effect on its technical provisions which are funded from its General Reserve.

As the first factor surpassed the second factor, the value of the liabilities fell by €14bn in 2007, says De Nederlandsche Bank.