NETHERLANDS - The cover ratio of the average Dutch pension fund decreased by two percentage points to 109% in January, according to data produced by Hewitt Associates.

The consultancy firm attributed this development largely to decreasing long-term interest rates, as they have in turn increased pension fund liabilities.

Officials at Hewitt say interest rates have fallen across almost all durations.

At the same time, however, there are warnings of a further possible drop in funding ratios, as pensions regulator De Nederlandsche Bank (DNB) has stated pension funds should take any longevity rise into account when calculating their 2009 liabilities or making policy decisions.

“Based on mortality figures of Statistics Netherlands, this could mean that cover ratios need to be adjusted downwards by four percentage points,” suggested Hewitt.

While some concerns have been raised by the consultancy, one of its own consultants, Arnold Jager, noted the funding ratio could also be increased by an average five percentage points if DNB prescribes pension funds to use the interest rate of AAA-rated governments bonds as the standard for calculating liabilities, rather than the swap rate of the forward curve.

“At the moment, there is still a significant difference between both rates and, in our opinion, the swap rate of the forward curve should be higher than the AAA rate rather than than the other way around,”  argued Jager.

The average pension fund cover ratio figures are taken from the potential cover ratio of a fictitious pension fund, which Hewitt created based on figures of pensions regulator DNB and investment data provider the WM Company.

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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