Pension schemes in the Netherlands were relieved after the country's Minister for Work and Pensions, Henk Kamp, announced he is to deal with the historically low discount rates currently used by schemes to calculate their future liabilities, in a move designed to increase the fund's coverage ratios.
The plans – which are announced a week after local news reports said schemes' funding levels had dropped even further – will mean many pension schemes who's funding level currently stands below the required 105% will reach the level set by the Dutch Central Bank (DNB) and will therefore not have to cut pension payouts or hand in strict recovery plans to the bank.
The higher discount rates mean schemes will have to keep back less to cover their future liabilities. In June, the average funding ratio stood at 93%, that's 2 percentage points lower than the month before. This downward trend is likely to continue if no measures are taken.
The Minister's plans could help the country in its fight to get out of the slow but downward spiral it has been in since the start of the crisis in 2007.
A spokesperson from the Ministry says it can be expected that the discount rates will be artificially adjusted from as early as December 2012.
The second largest pension scheme in the Netherlands, Pensioenfonds Zorg en Welzijn (PFZW), has already reacted to the news by saying it will improve their coverage ratio with at least 10%. This means that if the measures come into place the fund's ratio would then increase from 97% to 107%, which is above the minimum level of 105% set by the central bank.
The move comes two days after DNB announced it would bring in similar measures for insurers which immediately led to some positive moves in share prices for the big insurance players on the Amsterdam Stock Exchange.
At the end of last year DNB already helped pension schemes by allowing them to calculate their funding ratio based on an average of the discount rate over the past three months instead of just using the discount rate of the current month. Though this increased funding levels slightly, the majority of funds were still left struggling and cuts to pensions seemed inevitable.
First published 05.07.2012
azeevalkink@wilmington.co.uk
