Dutch pension funds have started to protect their equity portfolios against downside risk ahead of converting their defined benefit (DB) accruals to defined contribution (DC) capitals.
A handful of funds have already reduced the downside risk to their equity holdings either by selling stocks or by buying put options. Many more, and especially those that are scheduled to move to DC by 1 January 2026, are plotting their moves. Put options or collars are the favoured instruments of their fiduciary managers and advisers.
The reinforcing of pension funds’ defences comes at a time when the policy plans of US president Donald Trump threaten to do damage to markets and send pension funds’ funding ratios down.
Moreover, funding levels of the average Dutch pension fund may even fall below 100% if no measures are taken, according to an analysis by asset manager Cardano. This is the case in the so-called protectionism scenario, which involves an increase in geopolitical tensions between China and the US, and an accumulation of protectionist measures such as export restrictions and import duties.
Such protectionist measures, in the Cardano scenario, lead to a rise in inflation in Europe to 5%, a drop in the growth of the global economy to just 2% per year and a fall in the stock markets of 30%. This entails significant risks for pension funds, which have generally not (yet) reduced their equity risk towards the transition to DC.
Council of State
In other news, the Council of State, the highest advisory body to the Dutch government, slammed a proposal for mandatory ballots on the pension fund level on conversion to DC pensions as “insufficiently thought-out”.
The council’s main objection is that the amendment upturns the principal starting point of the pension transition, which is that pension funds will in principle convert DB accruals to DC.
The council also questioned whether complex issues like the pension changes are best addressed by a binary vote. “It is not clear why individual members are better served to weigh and safeguard collective interests than social partners,” it said.
Meanwhile, pension administrators proved sceptical about the feasibility of the 1 January 2028 deadline for the pension transition. In a poll by consultancy Eraneos, two thirds of respondents said they see a ‘high’ or ‘very high’ chance that the end date will not be met.
The main bottleneck, in their view, is IT readiness. Only 6% of respondents is foreseeing delays caused by legislative changes.
Items to note:
- The IPE Real Assets Infrastructure & Natural Capital Global Conference & Awards 2025 is taking place on
Tuesday 16 – Wednesday 17 September at the Mainport Hotel in Rotterdam
Tjibbe Hoekstra
IPE Netherlands Correspondent
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