NETHERLANDS - Actuarial firms have claimed the pensions regulator, De Nederlandsche Bank, is sticking too rigidly to its checklist when judging the mandatory recovery plans of pension funds with a funding shortfall.

Rajish Sagoenie, executive director of consultancy firm Aon, which provides services to over 80 pension funds, argued: "DNB is not sufficiently looking at the consistency of the assumed returns of all the asset classes and expected inflation, with respect to the current market views, and therefore not always taking the specific situation at a pension fund into account."

According to Sagoenie, the regulator has already rejected recovery plans which were based on the regulator's own economic assumptions.

So the Aon director has called upon his colleagues to pull together a joint initiative and facilitate a ‘positive but critical' discussion with DNB about its criteria for the submitted recovery plans.

"Because DNB has indicated that schemes have very limited room for tailor-made solutions, pension funds may have difficulties in recognising DNB's mandatory economic assumptions within their own recovery plan and view," suggested Sagonie.

"For example, DNB's assumption of a minimum wage inflation of 3% is not consistent with expectations for the next five years, within which pension funds have to recover to a funding ratio of 105%. The market forecast for inflation is lower than 3%," he added.

In the opinion of the Aon director, DNB must be very careful if it is considering changing the rules while "the game" or the process is still ongoing.

"Our customers need to know their position. Adapting recovery plans will also mean extra costs for pension funds," he stressed.

Sagoenie also noted that the DNB has, on occasion, also turned down a scheme's required continuity analysis, because pension funds had not documented the impact of all developments up to the end of 2008. The continuity analysis has to be presented to the DNB every year.

"What's more, pro-activity and a rapid response to developments were punished with additional costs for pension funds, which had to include the latest developments in the recovery plans," added Aon's executive director.

That said, in the opinion of Arnold Jager, consultant at Hewitt Associates, DNB is justly critical about the underpinning of recovery plans.

"Pension funds must not calculate themselves to be richer than they actually are, and they should not aim for the very limit of the DNB's parameters," he argued.

"On the other hand, however, I also can imagine that even an assumed wage inflation of 0% is justifiable at the moment."

According to Jager, DNB has yet to turn down the recovery plans of any of Hewitt's clients.

Commenting further on the situation, Martijn Vos, head of pensions advice at Ortec Finance, also said: "We advise our clients not to initiate a dispute with DNB on its parameters, about wage inflation in particular, in order to get some policy margin on, for example, indexation and contributions."

He said DNB has asked questions about the interpretation of the assumed returns from 20 of the 60 recovery plans which Ortec has been involved in drawing up.

"No recovery plan has been turned down so far, while there is still a serious discussion going on about the assumption of wage inflation in one plan," said Vos.

Approximately 350 of the 650 Dutch pension funds had to submit a recovery plan for a reserve and/or a funding shortfall before 1 April.

This deadline was not met by 15% of the schemes, but DNB has received all required documents in the meantime, according to a spokesman.

The regulator has announced it will respond to most recovery plans before 1 July though it will not issue ‘halfway' updates, its spokesman indicated, as this will only lead to a fragmented picture of the market.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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