Dutch pension funding ratios on the rise amid strong H1 recovery

The average Dutch pension funding ratio rose from 109 per cent to 110 per cent in June, representing an increase of around 10 percentage points since the start of the year, according to Aon Netherlands.

The group’s Pension Thermometer data revealed that the policy funding ratio, based on the average funding ratio over the past 12 months, has risen to 101 per cent, which is above the adjusted temporary statutory minimum of 90 per cent.

Furthermore, whilst it clarified that this is an average, and as such there will also be funds with a lower policy funding ratio, it emphasised that with the gains seen in the H1, most funds appear “to be out of harm’s way”.

The data showed that interest rates have remained “virtually stable” in June, whilst investment portfolios delivered strong returns, following the stabilisation seen last month.

Interest rates had fallen slightly, with the risk-free interest rate over the first 40 years falling by an average of 3 basis points in one month.

The ultimate forward rate, meanwhile, with which pension funds calculate the value of their future liabilities, fell due to the phased transition to the new system.

These combined factors in turn led to an increase of around 0.9 per cent in the value of liabilities.

However, the financial markets also showed positive returns, with shares of developed, emerging markets and real estate increasing by more than 3 per cent.

Furthermore, whilst a limited positive return was achieved in the fixed-income portfolio, due to the level of interest rate remaining virtually unchanged, the total portfolio achieved a positive return of over 2 per cent.

Aon Retirement Solutions CEO, Frank Driessen, commented: “It is positive that the funds are in a better position again and the threat of cuts has eased somewhat. This brings the thinking about indexing a little closer.

“But this will also present a difficult task for funds in the transition to the new pension system. There must be balance and what is balance then?

“Do you put surpluses in a compensation deposit for the benefit of the active, or does it go into a solidarity reserve from which the benefit recipients may benefit more? The preparation for the new contract involves difficult choices and due care is important in such an extensive decision-making process.”

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