Dutch pension funds’ funding ratio stabilises in January

The indicative average current funding ratio of Dutch pension funds stabilised at 117 per cent in January 2023, despite fears of a recession, according to analysis by Aon.

While there was a fall in interest rates, leading to a rise in liabilities, equities and fixed income performed well, which resulted in an increase in portfolio value.

Meanwhile, Aon revealed that the indicative policy funding ratio, which is based on the average funding ratio of the past 12 months, rose from 120 per cent to 121 per cent in January.

Aon noted that, with this average, pension cuts are out of the question for most funds, and many pension funds are proceeding to allocate “substantial” indexations.

This allocation of indexations resulted in the current funding ratio falling below the policy funding ratio.

Equity returns rose in January, with developed market equities rising by more than 5 per cent and emerging market equities increasing by 6 per cent.

Meanwhile, falling interest rates had a positive effect on listed real estate, which rose more than 6 per cent, as well as the entire fixed-income portfolio, which rose by 5.5 per cent due to the good performance of interest-sensitive government bonds (5 per cent), corporate bonds (2.2 per cent) and high yield (3.6 per cent).

Commenting, Aon Wealth Solutions Netherlands CEO, Frank Driessen, said: “Interest rate volatility is the biggest risk. The interest rate can just fall again or rise even more and with it the funding ratio.”

The next few years in the Netherlands look likely to be dominated by the shift to the new pension system, with pension funds having until 2027 to meet the new requirements.

Driessen stated: “Social partners and pension funds have to work hard, if they are not already.

"There's a lot to do. Don't underestimate the amount of work. This is a huge change and resources are limited.”

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