The indicative average funding ratio of Dutch pension funds rose 'sharply' in April to 132 per cent, according to Aon Netherlands.

Its Pension Thermometer also recorded a rise in the policy funding ratio, the average of the funding ratio over the past 12 months, to 126 per cent.

Aon noted that financial markets recovered in April due to the ceasefire between Iran and the US, as well as the extension of negotiations between the two countries. During the month, equities increased by 8.8 per cent, with emerging markets having risen by 12.7 per cent and developed markets by 8.1 per cent.

In the eurozone, interest rates edged higher due to rising inflation expectations, putting pressure on fixed income portfolios, but a decline in risk premiums resulted in a total return of 0.1 per cent. Corporate bonds benefited from lower risk premiums and delivered a return of 0.9 per cent. Overall, the total portfolio return was positive at 4.1 per cent.

In April, the risk-free interest rate for the first 30 years rose by an average of 6 basis points. For longer maturities, rates increased even more.

The Ultimate Forward Rate (UFR), used by pension funds to calculate the value of their future liabilities, stood at 2 per cent. As a result of the rate increase, the value of liabilities decreased by approximately 1.7 per cent.

Aon Netherlands director wealth, Frank Driessen, commented: “Geopolitical developments are clearly leading to greater volatility in financial markets, which affects the monthly development of pension fund funding ratios. For pension funds that still need to transition, this creates more uncertainty about the predictability of the funding ratio at the transition moment.”

Regarding the new defined contribution schemes, Aon said returns ranged, on average, between 6.4 per cent and 1.1 per cent across all age cohorts, having recovered from a decrease in March.

For older participants (around age 55 and above) opting for variable benefits, returns were slightly higher than for those choosing fixed benefits. Aon noted that these participants benefited more from the equity market recovery due to a higher allocation to the asset class.

In terms of the pension transition, Aon noted that insurers are working with the Ministry of Social Affairs on an emergency solution for employers who fail to adapt their pension schemes in time to comply with the Future of Pensions Act (Wtp).

A ‘default’ arrangement is being considered, whereby the insurer would independently convert the existing scheme if the employer takes no action. Under this plan, existing employees would remain under transitional law, while standard rules would apply to new employees and survivors’ pensions.

However, as this affects employment law and the roles of employers and participants, Aon has called for clear government consent, and frameworks are essential.

“The urgency is high. Without a Wtp-compliant scheme, there is a risk of tax claims, loss of pension accrual, and lack of survivors’ pension coverage after 1 January 2028,” Driessen said.

Currently, around 20,000 of the 70,000 pension contracts with insurers and Premiepensioeninstelling (PPIs) have been converted. Insurers are now directly contacting employers to prompt action and warn of potential fines of up to €500,000.

The aim is to prevent employees from being left without a pension scheme or survivors’ coverage. In parallel, the Dutch Association of Insurers is working with social partners and Adfiz on additional measures within the current legal framework.

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