The Dutch Central Bank (DNB) has made a fresh call for pension funds to 'reposition' themselves in order to alleviate financial pressures

In its annual report, which was published 31 March, the Dutch Central Bank (DNB) said pension schemes have long been contending with inadequate buffers and are now witnessing the consequences through lagging indexation and possible reductions in pension entitlements.

DNB also warned that the sector should prepare for the new regulatory framework which will require larger buffers. "Rationalising, consolidating and repositioning are the key words here," states the report.

The new framework is set to be agreed upon shortly but DNB already warned that it would offer a lot less guarantees to members and would require pension schemes to take a lot more risk in their investment strategies.

Joanne Kellermann, executive director at DNB, said: "If this is what will happen, then we, as the financial watchdog, say, as a unconditional pre-limiting condition, that we want the risks to be crystal clear to all members."

According to the bank, the financial position of pension schemes has come under difficult pressure. Although the total amount of invested assets came to €745 Euros in 2010, pension schemes have just enough to comply with the nominal coverage ratio demands.

Dutch schemes require a minimum nominal ratio of 105%, in 2010 the average was 107%. The real coverage ratio comes down to 80%. In 1990 the nominal coverage ratio of schemes was still 223%.

This halving of buffers, the bank says, is mainly due to the ongoing fall of the financial market rate combined with investment strategies that were too risky. Other factors include the low premiums of the 90s, which did not cover costs, and an increase in life expectancy.

Pension funds on average allocated 10.4% to real estate, 8.2% to commodities, 36.1% was invested in equities and 45.3% was invested in fixed interest assets, of which 5.1% was kept in index linked bonds.

The bank also said "good headway" was made in improving and tightening supervision of pension schemes and other financial institutions.

azeevalkink@wilmington.co.uk

First published 07.04.2011