Dutch government makes FTK concessions on indexation, investment policies

Dutch state secretary Jetta Klijnsma has secured a majority in Parliament for her proposals for a new financial assessment framework (FTK) by making concessions on indexation and investment policy.

During consultations in Parliament on Monday, she said she would ease restrictions on inflation compensation by allowing pension schemes with a coverage ratio of more than 126.6% to grant indexation in arrears over a five-year period, rather than the proposed 10 years.

However, many Dutch pension funds’ coverage ratios are at less than 110% – the level at which schemes can start granting inflation compensation under the new FTK.

Klijnsma made the concessions under pressure from three opposition parties – the CU, the SGP and the D66 – whose support is crucial to achieve a majority in the Senate.

The state secretary also compromised on her initial plan to block pension funds with a funding shortfall from adding risk to their investment portfolios.

Klijnsma said pension funds with a coverage of at least the required minimum funding of 110% would be allowed to adjust their strategic investment policies once.

She said a second adjustment would be permitted only if a pension fund opted for a dynamic hedge of the interest risk on its liabilities.

Klijnsma conceded that pension funds could circumvent the investment restrictions by chosing a relatively high strategic risk profile in 2015, when the new FTK is to come into force.

“However,” she said, “pension funds must consult their social partners, as well as their internal governance bodies, about their risk attitude.”

The two coalition parties of the PvdA and the VVD, as well as the CU, the SGP and the D66, also made clear that they wanted the prescribed discount rate for liabilities to mirror the future European discount rate for insurers.

Meanwhile, industry organisations for the elderly warned that the update of the FTK might be at odds with European rules.

In a letter to Klijnsma, the KNVG, the CSO and the NVOG called for a delay in the FTK’s reading in Parliament, until such a time as the bill had been been checked against EU legislation.

Parliament is to decide on the FTK proposals on Wednesday evening.