Dutch pension funding levels climbs to 109% in August

The average funding ratio of Dutch pension funds climbed to 109 per cent in August, up from 108 per cent in July.

Aon Netherlands’ latest update of its Pension Thermometer also found that the policy funding ratio, the average funding ratio over the past 12 months, remained at 103 per cent.

This funding ratio is above the adjusted temporary statutory minimum, however, as the funding ratio of 103 per cent is an average, there are also funds with a lower policy funding ratio. Despite this, Aon believes that with the gains in the first half of this year, most funds appear to be out of harm's way.

Over the month, interest rates remained stable in the first part of the August but they have increased slightly in recent days. On balance, the risk-free interest rate rose by an average of four basis points over the first 40 years in one month. As a result, liabilities fell by 0.7 per cent.

In August, the financial markets started strong thanks to good economic data. The US unemployment rate fell to 5.4 per cent, the lowest level since the start of the coronavirus pandemic. Still, investor concerns increased, on the one hand due to information about the rapid spread of the delta variant of the coronavirus in America and China, which is affecting economic growth expectations.

On the other hand, the sharp rise in the consumer price index also had an impact. It rose by more than 5 per cent in July compared to last year, increasing the likelihood of Fed policy action. Due to this uncertainty, long-term interest rates fall.

At the end of the month, developed market equities were up more than 2 per cent and emerging market equities recovered 3 per cent from a bad July. Listed real estate benefited from the further recovery of the economy with a return of 1.5 per cent. Due to the slightly higher interest rate, the fixed-income portfolio fell by approximately 1 per cent. Only high yield and emerging markets debt achieved small positive returns of almost 1 per cent. Overall, the total portfolio grew and delivered a positive return of approximately 0.7 per cent.

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