Mercer and Aon Hewitt have predicted that no more than 10 pension funds in the Netherlands will have to apply rights discounts this year, citing improving equity markets and rising interest rates over the fourth quarter of 2016, triggered mainly by the election of Donald Trump as US president.

The consultancies, weighing pension funds’ coverage ratios at year-end, said any cuts were likely to be limited to 1%, as they expect the funds to take advantage of the legal option of spreading out the required discount over a 10-year period.

Both consultancies estimated that pension funds’ coverage increased by 1 percentage point, to 102% on average, over December.

This matches Dutch schemes’ average funding at the start of last year and exceeds the critical coverage level at which immediate rights cuts are mandatory.

Aon Hewitt said it was probable that about 10 small and medium-sized schemes will be forced to make cuts this year, while Mercer estimates that no more than three pension funds are facing discounts.

The country’s largest pension funds – ABP, PFZW, PMT, BpfBOUW and PME – have already indicated that they will not have to apply rights cuts.

However, Frank Driessen, chief commercial officer at Aon Hewitt, took pains to emphasise that Dutch pension funds’ overall financial position was far from rosy.

“Many schemes are a long way off from indexation, while governance requirements, particularly for the smaller pension funds, are tough,” he said. 

Driessen said joining a general pension fund (APF) was not as straightforward as expected for many smaller schemes, “as APFs don’t accept underfunded schemes as new participants”.

Mercer’s Van Ek, meanwhile, said that all asset classes produced positive results last year, with emerging market equities returning 15% and developed market equities 12%.

“Without the average currency hedge of 50%, developed market equities would have generated almost 14%,” he added.

Commodities, returning 17%, was the best-performing asset class.

Government bonds, listed property and private equity returned 7%, 7.5% and 3%, respectively, while hedge funds returned 1%, Mercer said. 

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