The top five biggest pension schemes in the Netherlands published their first quarter results revealing a growth in total assets but a continued problem with coverage ratios due to low interest rates.
ABP, one of the world's largest pension schemes, saw its assets grow by €15bn to a total of €261bn. Its coverage ratio, however, only increased by 1% from 94% at the end of December to 95% at the end of March. This means that for every €100 that the pension scheme is due to pay out during people's future retirement, just €95 euro is currently available.
According to Dutch legislation the coverage ratio should remain at 105% or higher. If the schemes fail to reach the required coverage ratio in nine months time, retirement benefits will need to be cut in order to restore the schemes' balance sheets.
Chairman of the civil servants scheme Henk Brouwer said: "ABP obtained good investment results in the first quarters but unfortunately this didn't lead to an equally good coverage ratio. This is in mainly due to a lower interest rate on the capital market [which is set by the Dutch Central Bank (DNB)]." ABP saw its pension obligations rise with €13bn due to the low interest rate.
Other large schemes produced similar results. PfZW, the Netherlands second biggest pension scheme which looks after works in the healthcare sector, saw its assets grow by €5,5bn to a total of €116,2bn. Its coverage ratio however dropped by 1% to 96%.
The scheme says in its quarterly statement that the improved economic outlook and improved approach of the EU in tackling the debt crisis has led to high returns on investments (ROI). But, says Peter Borgdorff, director of the scheme, "the low interest rates wipes out those positive results completely".
Borgdorff continued: "We need to hold back more money than we have in reserves, good ROI in itself is therefore insufficient. It is a harsh fact that we have more money in the industry than ever before but due to the economical circumstances it is still not enough."
The historically low interest rates serve to increase pension obligations. Pressure from the unions and politicans to use a higher notional interest rate to calculate pension fund obligations was rejected by the Dutch cabinet in 2010. Minister Henk Kamp of Social Affairs refuted the argument that the rate has been kept artificially low by the DNB since the start of the crisis in 2007/2008.
PME, the pension fund serving the metal and electro technical engineering industry saw its coverage ration remain the same at 90%. Its assets increased by €3,8bn (which in part is due to the transfer of the Stork pension fund, worth €2,6bn, into the scheme).
PMT, the pension fund for metalworkers and mechanical engineers, also a top five pension fund in the Netherlands, saw its invested assets increase from €40,8bn to €42,6bn. Its coverage ration stood at 88%. The fund says that since 2008 the liabilities of the scheme almost doubled, from €24,6bn to €48,6bn. Assets only rose by roughly 50% from €34,5bn to €42,6bn causing the coverage ratio to go down rather quickly.
The pension fund for the construction industry, Bpf Bouw, showed a slow increase in its coverage ratio, which went from 100.4% to 100.7%.
If results are to remain the same, all four schemes will need to cut their benefits from April next year to restore their balance sheets in line with the agreements made with the DNB.
First Published 19.04.2012
azeevalkink@wilmington.co.uk
