ABP warns of pension cuts as returns struggle to recover Q1 losses

The Dutch pension fund for government and education workers, ABP, has warned that 2021 could bring a reduction in pensions, despite an increase in its funding ratio to 88.2 per cent in September.

According to the scheme, the ABP coverage ratio should normally be 104.2 per cent by the end of the year, although Dutch Minister for Social Affairs and Employment, Wouter Koolmees, relaxed the limit to 90 per cent earlier this year, in light of the pandemic.

However, ABP noted that the current level would still place the scheme in the “danger zone”, making reduced pensions in the new year a “real possibility”.

This is despite further falls in the actuarial interest rate in Q3 causing the amount that ABP has to pay out now and in the future to decrease slightly, in turn having a positive impact on the funding ratio.

The scheme also noted that whilst it has achieved a positive return of €12.1bn in Q3 2020 and €31bn in Q2, this was offset by previous losses in the first quarter, with a total return for the year to date of -€2.3bn.

ABP stressed that what actually needs to be done will likely remain unclear until the beginning of 2021, predicting that the coming months will bring further clarity as to how the pandemic has impacted the global economy.

The ABP board will make a provisional decision about lowering pensions in January 2021, on the basis of the funding ratio as of 31 December 2020.

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