Dutch pension funds need ‘firm measures’ to
return to satisfactory funding levels
14 May 2009
Written by Sophie Baker
Firm measures are necessary to bring scheme funding levels
of Dutch pension funds up to the minimum required funding ratio of 105
per cent within five years, warns De Nederlandsche Bank (DNB) in its Annual
Report 2008.
DNB, which is responsible for safeguarding financial stability in the
Netherlands, said the funding level at the end of 2008, which stood at
95 per cent, can be brought up by the cancellation of indexation is one
of the necessary measures. The report said that after the funding ratio
is brought up, the pension sector will then have to work on redressing
the reserve shortfall, aiming to ensure all funds return to the 125-130
per cent level again within a maximum of ten years. However, DNB was keen
to reassure that the Dutch pension sector remains one of the most robust
in the world, and its assessment framework has prevented further exposure
to the crisis.
Dutch
pension funds, DNB added, are subject to tighter accountancy rules, which,
in addition to an ageing population and further regulation, are putting
increasing pressure on them. These circumstances, it said, means employees
are subject to more risk than before, and will be increasingly exposed
in the future. The body also warned that growing pressure to enhance efficiency
will end result in the ‘further professionalisation and clustering
of pension funds’. Overall, the landscape is likely to change over
the coming years.
In an effort to begin to address these issues, mid-2008 saw the Cabinet
request the Bakker commission to draw up an advisory report on expanding
labour participation. Three conclusions were reached with advised implementation
over the short, medium and long-term, with the latter proposing that the
state pension and retirement age be raised to encourage employment into
later years. The commission also proposed funding a greater part of pensions
from general tax revenues.
However, DNB expressed concern at the outsourcing trend prevalent in Dutch
pension funds. ‘Pension fund directors thus have put themselves
at an increasing distance from actual pension management, and have correspondingly
less control over the quality, continuity and integrity of their schemes.’
It added that the Pension Act, introduced on 1 January 2007, means DNB
has lost the power to examine a subcontractor without the interposition
of the pension fund, and can only o so if there is no other way to determine
that the fund is complying with all statutory and regulatory provisions
concerning its outsourcing activities. DNB warned that these developments
‘imply that its direct view of a fund’s risks has been impaired
and that necessary intervention on its part, if required, will be less
swift and less effective than before.’
The report also addressed the impending Solvency II requirements, due
for implementation in 2012. The report says: ‘The credit crisis
has made it abundantly clear that such an approach is important for the
adequate charting of insurers’ risk exposure.’
