ABP, ranked by Pension Funds Online as the second largest pension scheme in the world, today announced its assets have decreased by €7bn in the last quarter due to dropping yields on German sovereign bonds hitting its discount rates.

Ironically the results come amid a debate between pension schemes and the Dutch central bank (DNB) about better accommodating schemes with low funding levels.

Whereas ABP's coverage ratio, which marks the difference between a scheme's assets and liabilities, was 112% at the end of the second quarter it is now estimated to stand at 90%. This is 15% lower than the 105% set as a minimum by the DNB.

Vice chairman Joop van Lunteren said: "This decrease of the coverage ratio is bad news even though it is entirely due to the lowering of the [real] interest rates.

"Compared to the figures on 1 January our assets have decreased by €2bn (€237bn then against €235bn now), but the valuation of the liabilities in this same period has increased by €35bn due to the changes in the interest rates."

ABP, the Netherland's biggest pension scheme which looks after the savings of all public sector workers and teachers, says these results mean that increasing the pensions in line with inflation in 2012 is hereby made impossible.

"Perhaps we have to take even further measures," adds Van Lunteren, hinting at cutting benefits, a measure which is not going to be taken lightly.

In September it became clear that 207 of the 468 pension schemes in the Netherlands are suffering from trouble with their funding levels, among them are also other big Dutch schemes such as PMT, PME and PFZW.

If these funds are still under the required 105% at the end of this year measures will have to be taken, says the DNB. This can be done by increasing the contributions of members or by injections into the scheme from sponsors.

If none of the measures will make the required difference to the scheme's assets, funds will most likely have to cut their pension payouts per April 2013. This will be decided upon in January.

The 207 funds together have 6.8 million members of which 2.1 million currently receive a pension. ABP's latest troubles bring its 2.8 million members into this category too.

The industry is asking the bank to go easy on the schemes. Figures point out that the deficit problems are not due to mismanagement but volatile markets and changes to discount rates

DNB, however, says the situation requires stern measures and is only willing to have a debate about how the measures should be implemented. It is now rumoured to be in talks with the financial services authority AFM and the Ministry of Social Affairs.

Funds are hoping the minister will announce that the funds will have a year to up their funding levels. Granting this extra leeway was also used in the aftermath of the 2008 financial crisis.

Xander den Uyl, another ABP vice chairman, calls upon the government to review the current structures. He says: "We ask the politicians to take a good look at the systems that currently ensure we are so dependent on daily fluctuations in real interest rates."

First published 20.10.2011

azeevalkink@wilmington.co.uk