The average Dutch pension fund coverage ratio fell to 95 per cent in September, down from 96 per cent in August, according to Aon.

The latest data from its Pension Thermometer revealed that the latest ‘windfall’ of around 2 per cent from the new longevity forecasts published by the Royal Dutch Actuarial Association (AG) has been offset by falling interest rates and pressure on share prices.

The policy coverage ratio, based on the average coverage rate of the past 12 months, remained at 95 per cent. This coverage rate is above the adjusted temporary legally required minimum of 90 per cent. However, the higher coverage levels before the coronavirus crisis will be replaced in this average by the current lower coverage levels. It remains to be seen whether all funds will be out of the danger zone by the end of the year, Aon said.

Interest rates fell in September after the August rebound, partly due to the US central bank’s announcement that it will keep interest rates low for the next three years. On balance, the risk-free interest rate for the first 30 years fell by an average of 10 basis points over the first 30 years. The Ultimate Forward Rate (UFR), which allows pension funds to calculate the value of their future liabilities, fell to 1.8 per cent.

After an impressive recovery in stock markets in recent months, September caused a turning point. The celebrated technology sector, which played a key role in this recovery, corrected from record highs with a sharp decline. Although the macroeconomic figures showed signs of recovery, they fell short of expectations.

In the financial markets, global equities fell by around 1.9 per cent, with shares in developed markets and emerging markets falling by 2.3 per cent and 0.4 per cent respectively.

Furthermore, Aon said sentiment became more negative as September progressed. It referenced the UK’s Internal Market Bill, which will override agreements made with the European Union on Brexit, and the increasing number of Covid-19 cases in Europe. As a result, new restrictive measures came into force, which are slowing the economic recovery, Aon stated.

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