Dutch premiums may need to rise by a third – study

NETHERLANDS - Current pension contribution levels may have to rise by an average of one-third by 2014, if pension funds are to recover their funding ratio to the required minimum of 105%, suggests research.

A study conducted by EIM, an institute for business policy research, and commissioned by MKB, the lobbying organisation for medium-sized and small businesses, and insurer Delta Lloyd Life, claimed limiting the indexation paid to members cannot sufficiently improve the cover ratio of many schemes.

Holding back from paying indexation - following a 2% rise of the salary index and consumers' index of 2% a year on average - will lead to a 10% rise of the cover ratio, yet this is a not sufficient enough gain for all Dutch pension funds to return to the minimum regulatory funding level, argued EIM.

A 1% rise in pension contributions will improve the average coverage ratio by an additional 2% over five years, it argued.

EIM said pension premiums almost doubled between 2001 and 2005, following a considerable drop of pension assets during the financial crisis suffered at the start of this decade.

The combined pension premiums of employers and workers last year was 11.2% of the gross salary on average, or €26.8bn in total, said EIM.

The study revealed sponsoring companies contributed approximately two-thirds on average, while MKB-member employers paid approximately 78% of pension premiums.

The funding ratio of Dutch pension funds has not only significantly decreased through the recent drop in asset values, but as a result of decreasing long-term interest rates.

At the end of 2007, 93% of Dutch workers held their pensions in schemes with a cover ratio of over 130%.

One year later, however, 87% of pensions were in a pension fund carrying a funding ratio of less than 105%.

Pensions regulator De Nederlandsche Bank had earlier reported that 340 schemes had submitted a five-year recovery plan.

Most Dutch schemes with a funding shortfall have refrained from paying indexation this year and have raised their premiums by an average of 8-10%, according to EIM.

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