Jetta Klijnsma, state secretary at the Dutch Social Affairs Ministry, has confirmed that the government plans to decide early next year whether to extend the 10-year recovery term for the country’s beleaguered pension funds.

In a letter to parliament, she said the decision would depend on schemes’ financial position at year-end, which is the criterion for rights cuts, as set out in the new financial assessment framework (nFTK).

Klijnsma warned that, based on the regulator’s Q3 funding estimates, 30 pension funds would be forced to discount pension rights – by more than 0.7 percentage points on average – for more than 2.1m participants and pensioners next year.

Current recovery rules dictate that pension funds must cut pension rights by a equal percentage annually over the next 10 years, with a view to achieving the required funding level of 125%.

Klijnsma, however, said the regulator had concluded that, by extending the recovery period by one year, 24 pension funds would have to implement a 0.4% discount on average for 2m participants, including 190,000 pensioners next year.

Under a 12-year improvement term, the necessary discount could be reduced to 0.4% at no more than 17 schemes.

In her letter, Klijnsma took pains to emphasise the importance of the social partners, which, she suggested, could affect recovery conditions by adjusting pensions targets or by raising contributions.

If, by the end of December, a Dutch pension fund’s coverage ratio has fallen so low it is unlikely to recover within 10 years, it must begin cutting rights immediately.

The critical funding level can vary, depending on a scheme’s investment portfolio, but it generally stands at 90-95%.

According to Aon Hewitt, on average, pension funds’ coverage stood at 100% last week.

The nFTK calls for a minimum funding of 105% .

Pension funds with a coverage between the critical level and the required minimum, however, can start implementing cuts later, as long as they are able to improve within the set 10-year period.

The Dutch Bureau for Economic Policy Analysis (CPB), in a report that was also submitted to parliament, said longer recovery terms would be particularly beneficial for older workers at pension funds less than 100% funded.

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