NETHERLANDS - Dutch pension funds' average coverage ratio has bounced back by 3% to 6% after reaching dramatic lows at the end of last month, according to consultants.

During the first two weeks of September, the 30-year swap rate increased from 2.57% to 3.01%, according to Dennis van Ek, principal at Mercer.

Over the same period, the MSCI World index increased by 5-6%, and the effects of this increase, combined with the swap-rate increase, has led to an overall boost in the average funding ratio of 6 percentage points, Van Ek said.

Taking into account the Actuarial Society's most recent longevity figures, he estimated that the average coverage ratio was 88% at the end of August.

Van Ek said his estimates, based on the most recent DNB figures, focused on the weighted average of pension funds' participants.

According to Arnold Jager, consultant at Hewitt Associates, the coverage ratio of the average pension fund has risen to approximately 96%, mainly due to a rise in the swap rates of 0.3-0.4% to approximately 3.2% for 20-year interest.

Jager said he based his conclusions on investment figures provided by the WM Company, as well as a 60% hedge of the interest risk of liabilities.

"Coverage of the interest risk is crucial," he said. "Pension funds with a low hedge are seeing their coverage ratio rise quickly when the interest rates increase."

Last week, several large pension funds raised the alarm after their coverage ratios plummeted in August due to sharply falling interest rates.

The €220bn civil service scheme ABP saw its funding drop to 88% - even without having factored in the latest longevity figures, while the coverage ratio of the €37.6bn metal scheme PMT fell by almost 9 percentage points to 85.2%.
 

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