NETHERLANDS - Relatively high first-quarter returns for the four largest Dutch pension funds failed to offset the effect of falling interest rates on coverage ratios.

Only the €261bn civil service scheme ABP saw its funding increase - by 1 percentage point to 95% - despite returning 5.9% on investments.

This slight improvement, however, was not enough to avoid a 0.5% pension rights and benefits cut expected on 1 April next year, according to ABP chairman Henk Brouwer.

The scheme said it could boost its overall returns by 0.7 percentage points, thanks to its 25% hedge of the interest risk on its liabilities.

Emerging and developed market equities generated 11.9% and 9%, respectively, with property and commodities returning 6.3% and 5.9%.

Among its worst performing asset classes were hedge funds and its Global Tactical Asset Allocation, which generated losses of 0.1% and 1.1%.

Meanwhile, the €116bn healthcare scheme PFZW reported a funding drop of 1 percentage point to 96%, despite returning 4.5% on investments.

Peter Borgdorff, PFZW's director, said: "Thanks to the improving economic outlook and a modest progress in the European debt crisis, returns were good and pension assets again rose to record levels. But the falling interest rates threw a spanner in the works again."

The healthcare scheme stressed that the temporary discount rate - the average forward curve of the previous three months, rather than the current rate - no longer affected its funding ratio, adding that its actual recovery was still short of its recovery plan.

PFZW said its 62% securities portfolio returned 7.1%, with equity, structured credits and property the best performing asset classes, returning 10.4%, 7.7% and 6.4%, respectively.

Within its 31% fixed income holdings, corporate bonds returned 4.6%, while government bonds, interest and inflation swaps produced 0.8%.

Both the €42.6bn metal scheme PMT and the €29.6bn metal scheme PME reported stable coverage ratios, at 88% and 90%, respectively.

PMT reported returns of 3.9%, attributing the result mainly to its 21% equity portfolio, which delivered 8.5%.

Fixed income, property and alternatives generated 2.4%, 1.8% and 3.1%, it said.

PMT indicated that a lack of sufficient improvement means it will have to cut pension rights and benefits by 7% early next year.

PME returned 4.2% on investments and saw its assets rise to €29.6bn, including €2.6bn of incoming assets via pension fund Stork, which joined the metal scheme on 1 January.

It also noted that, if interest rates remained at current levels, and turbulence on financial markets failed to improve, the expected discount of 6% would become more of a certainty.

PME said its holdings of equity, fixed income and property returned 9.9%, 2.4% and -0.3%, respectively.

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