NETHERLANDS Jetta Klijnsma, state secretary for the Dutch Ministry of Social Affairs, has resisted pressure from pension funds, unions and political parties to ease the discount rate for liabilities in order to avoid rights cuts.
Klijnsma, fielding questions from parliament, said the Netherlands would stick with the risk-free discount rate – currently the three-month average of the forward curve combined with the ultimate forward rate (UFR) – "to ensure all generations can count on their pensions".
She added: "In the event of a funding shortfall, a rights cut is unpleasant, indeed, but it is essential for the sustainability of the pensions system."
Klijnsma said adjusting the discount rate would be at odds with the spirit of pension claims' "certainty", put younger generations at a disadvantage and put pressure on the principle of solidarity.
"An increased discount rate, which is solely meant to prevent rights cuts for the current generation of pensioners, would carry the risk of far more drastic measures in the future," she said.
In a letter to parliament, Klijnsma aimed to put the returns of pension funds that had announced rights cuts into perspective.
Citing a survey by the regulator, Klijnsma claimed that more than half of these returns were attributable to value increases in fixed income investments, due to falling interest rates, and interest hedging through swaps.
She said the cuts of current pensions on 1 April amounted to €225m a year, adding that the discounts would also decrease Dutch schemes' combined liabilities by €8bn.
In her answers to MPs' questions, Klijnsma said the most recent figures of benchmarking institute CEM showed that the asset management costs of Dutch funds was 0.43% of assets under management on average – excluding transaction costs and performance fees for alternatives – compared with 0.59% for US schemes and 0.52% for pension funds worldwide.
Meanwhile, the cost for pension provision was €243 per participant on average, against a worldwide average of €103, according to the state secretary, who attributed the difference in part to requirements unique to Dutch pension legislation, such as regulations on communication and value transfer.
The CEM benchmarking was based on information from 40 Dutch schemes with combined assets of €585bn and 4m participants in total.
Klijnsma said the Dutch schemes returned 8.9% on average in 2011, emphasising that this compared favourably with the results of schemes worldwide.
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