The largest Dutch pension fund to have transitioned to the new pension system (Wtp) so far has a rulebook that includes "significantly higher hedging ratios than the market anticipated" due to lower-than-expected member risk tolerance, according to the International Monetary Fund (IMF).

In its 2026 Article IV Consultation, the IMF said the transition to the new pension system was advancing, though continued monitoring and proactive management of risks remain warranted.

At the end of the first quarter 2026, pension funds held €1.6trn, equivalent to 136 per cent of GDP, in assets.

The IMF said €0.6trn of these assets transitioned to the new pension system on 1 January 2026, with the remaining funds required to complete the transition by 1 January 2028.

Overall, the reform is expected to reduce structural demand for long-dated bonds and interest rate swaps, while potentially increasing demand for equities over the medium to long term.

However, pension funds rebalanced their portfolios towards debt in 2025, contrary to expectations of increased equity holdings during the transition.

It added that changes in pension funds' demand for hedges were difficult to forecast, particularly in the short term, as transitioning funds may sell hedges to other pension funds seeking to improve their funding ratios ahead of their own transition.

Nonetheless, the IMF said financial markets appear to have largely priced in the pension transition, with market indicators consistent with an expected €100bn-€150bn reduction in pension funds' structural demand for long-term interest rate hedges.

The IMF said regulatory flexibility to avoid forced asset sales during adverse market conditions, together with staggered implementation of the reform, had helped mitigate market and liquidity risks.

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