The coverage ratio of most major pension funds has increased in the past quarter. Yet millions of Dutch people are still facing a discount on their pension next year. Pension funds continue to suffer from the persistently low interest rates.
Due to the corona crisis and the arrival of the new pension system, Minister Koolmees announced earlier this year that he would make an exception: the funding ratio must be 90 percent on December 31, instead of 100 percent. But even that 90 percent does not get some of the funds.
Pensioenfonds Zorg en Welzijn, with over 2.9 million participants, currently has a coverage ratio of 88.5 percent. “We are seriously considering a reduction in pensions in 2021”, says director Peter Borgdorff. “It will be exciting how investments and interest rates will develop in the fourth quarter. Because this last quarter of the year is unprecedentedly uncertain.”
The ABP civil service fund is also preparing for a pension discount. The coverage ratio was 88.2 percent at the end of September. “As it stands now, the chance of a pension reduction for next year is real. At the current level, for an average ABP pension of 700 euros net, that would be about 15 euros net per month”, says chairman Corien Wortmann-Kool.
Metal funds are over the bar
The funds in the metal and technology sector – with a total of around 2 million participants – currently meet the requirement of a coverage ratio of at least 90 percent. PMT’s coverage increased from 89.6 percent in the second quarter to 92.2 percent now.
At PME, the funding ratio increased from 90.4 to 93.7 percent. “Nevertheless, there remains a chance that it will drop below 90 percent before the end of the year and that we will have to reduce the pensions next year”, says chairman of the board Eric Uijen. “The economy remains uncertain and companies remain largely dependent on government support. It will be an exciting last quarter.”
The fourth quarter did not start well in terms of interest rates. In the first weeks of October, interest rates on the capital markets fell even further.
Exception to new system?
The question is whether the government will continue to grant exceptions to the funding ratio until the introduction of the new pension system in 2026. In 2019, Minister Koolmees also decided to temporarily lower the required funding ratio to 90 percent due to a sharp drop in interest rates in the summer of that year.
Employers’ organizations and trade unions want the minimum funding ratio to be set at 90 percent until the transition. In this way, according to the organizations, there is no need to cut “unnecessarily” pensions.
With the introduction of the new pension system, funds need to maintain fewer large buffers. That gives room, is the reasoning. It also becomes clearer what someone’s personal share in the pension money is; everyone gets their own game.
The wish not to cut “unnecessarily” was previously expressed by the minister himself. The coming weeks will show how the transitional arrangement will take shape and how high the funding ratio of pension funds should be in the coming years.