NETHERLANDS – Dutch pension funds should be prepared to make a continuity analysis for the next 15 years, according to Dirk Witteveen, director of pensions regulator De Nederlandsche Bank (DNB).

Speaking at a briefing about the delayed new financial assessment framework (nFTK) for the pensions industry, Witteveen described such an analysis as “inevitable”.

"If the DNB doesn't make it mandatory, the politicians and the public will ask for it," he added.

He said the analysis would include indexation policy, the effectiveness of policy implementation and integrated contribution setting.

Witteveen reiterated his support for the widely criticised one-year recovery period where a funding ratio drops under 105%. He said that cutting pension benefits would be his preferred choice. "Five years without indexation will have the same effect as a one-off cut of 10%," he pointed out.

According to Witteveen, the issue is not a problem for most schemes, and the majority do not want a long recovery period. "In practice, pension funds seldom have needed more than two years for recovery," he said.

The transitional arrangement for the nFTK, which will come into force as of 2007, will be extended to 2006. "At least five schemes will join the three – among them Philips Pensioenfonds – that are already applying the transitional rules," said chief pensions supervisor Jos Heuvelman.

"The whole pensions industry should be prepared for the nFTK in the first half of 2006," Heuvelman stressed. "It will ease the decision on the contributions for 2007.”

The chief supervisor also announced higher requirements regarding board members. "As pension funds become more and more complicated, we need a minimum level of skills," he explained.

According to Witteveen, the national pensions industry would have had dozens of billions of euros more by now if the FTK and the matching indexation matrix had been in place in the early 1990s.

"Although the schemes were in a comfortable position by then, the picture was too rosy,” he said. “The FTK would have made the real price of pensions visible. It would have forced the players to a cautious course on contributions, buffers and pension rights".