The chief investment officer at pensions administrator APG has claimed that Dutch pension funds are still on course to post strong investment returns
"I have no doubt that pension funds in the Netherlands will remain to see strong results with their investments over the next couple of years", said Angelien Kemna, CIO at pension administrator APG, when she made a recent appearance on a Dutch political television talk show.
A bold statement, especially given our present problems. But looking back at the last 20 years - as Kemna does - when Dutch schemes managed to get a return of 6 to 7 percent on average per year, it is probably more accurate than any of the horror stories we read everywhere else.
'I don't expect there to be a worldwide economic dip and I think the next (few) years will bring similar results," she said.
And why not? Pension schemes have the advantages that come with a long-term mindset. They have survived the tech bubble and the 2007/2008 crisis, so perhaps they can overcome the Euro's troubles as well.
But the threat of an economic armageddon is not their only concern. Dutch schemes have to deal with new regulation, low interest rates and an increasingly ageing population as well.
And with high regulatory demands – any fund that drops under a coverage ratio of 105 percent has to submit a recovery plan with the Dutch National Bank (DNB) – pension managers and trustees are having to restructure their pension plans to stay afloat.
Due to the continued volatility in financial markets, the coverage ratios of 207 out of the 468 pension schemes in the Netherlands are now too low, according to stats from DNB in October. The numbers cover smaller schemes as well as the bigger schemes such as ABP and PFZW.
The 207 pension schemes collectively have 6.8m members of which 2.1m currently receive a pension.
One of the more worrying schemes is the €25mn metal industry fund PME, which has a coverage ratio of 88% and is talking about both increasing contributions to 22% as well as introducing a benefits cut. This may look like a dramatic move to keep the fund's head above water, but it will not be the only one to announce drastic measures within the next year. These may well have an adverse effect on the economy with people lose spending power; creating a no-win situation.
In the Dutch daily newspaper Financieele Dagblad, PME chairman Franswillem Briet recently called upon pension professionals to find a solution to the coverage ratio problem. One point both Kemna and Briët highlight is the need for a different way of calculating future liabilities. With a high interest rate the ROI of the future investments are given a higher estimated value, allowing reserves to be lower. However, due to the financial crisis the interest rate has been very low.
So, no doubt Dutch schemes will recover, the question is, without any changes to the current regime – which is effective but will cost the economy – how long will it take them to get back to normal?
azeevalkink@wilmington.co.uk
