NETHERLANDS – Stress tests currently being conducted by the Dutch central bank are expected to show a “significant improvement” in Dutch pension funds’ coverage ratios, according to a new report.

“Earlier stress tests, using 2002 as the base year, had indicated vulnerabilities, with coverage ratios likely to fall below 100% in almost all tests,” the International Monetary Fund said.

“But new tests by De Nederlandsche Bank (DNB), currently underway, are expected to indicate significant improvement.”

The IMF said this was because of a stronger base, as well as some reduction in the duration gap.

The fund noted that one aspect of pension supervision is still under discussion – the appropriate recovery period when a pension fund's coverage ratio falls below 105%.

The IMF said that the time period specified should ensure that corrective actions by a pension fund are not unduly postponed. It should also, because of the threat of intervention, ensure discipline.

“In this context, it is important to note that pension funds are not subject to the same market discipline as banks in the sense that individuals have no choice on the pension fund to which they contribute.

“Absent this market discipline, and in light of the increasing complexity of financial markets and instruments, there is an even more compelling case for strong supervision.

“Taking these considerations together, the mission can therefore support the ex ante specification of a one-year recovery period, but would also emphasize that flexibility is absolutely indispensable.”

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