NETHERLANDS - The combination of falling equity markets, decreasing commodity prices and a fall in long-term interest rates pushed the returns of the €20.5bn metal scheme PME below the critical funding limit of 105% during the first half of October.

Although final decisions still need to be made, officials are anticipating the need to increase contributions from 22% to 23% and expect only a limited indexation will be available next year, according to the third-quarter report of the industry-wide pension fund for the metal and electrical technicians' engineering sector.

A decision on the indexation has been delayed until later in the year and the scheme now has to submit a recovery plan to the regulator De Nederlandsche Bank (DNB) in which it must make clear how it will increase its buffer to the required 117.9% within three years.

According to its own continuity analysis, PME can reach the minimum required funding ratio within two to three years "under normal market conditions".

PME reported negative returns of - 4.1% during the first quarter, albeit this fares slightly better than PMT, the €32bn industry-wide scheme for people in metalworking and mechanical engineering, as it revealed the fund saw negative returns of -5.6% in Q3.

Similarly, TNT, the €4.1bn scheme for postal workers, also announced negative returns of -5.6% during the third quarter.

The real funding ratios of PMT and TNT at the end of September were 116% and 115% respectively, while the nominal cover ratio was 127% and just over 120% respectively.

Both schemes therefore have to submit recovery plans indicating the measured they will take to increase their buffers within 15 years.

Both PMT and TNT declined to reveal their schemes' cover ratio at this stage of the month - two weeks on from the end of Q3 - though PMT's funding ratio was still above 105%, a spokeswoman stressed.

Equity was the worst performing asset class during the third quarter for all schemes, as PMT, PME and TNT saw negative returns of -13.3%, -14.5% and -13.3% respectively, bringing the schemes' total equity loss so far for 2008 to -25.5%, -26.6% and -24.8% respectively.

Alternatives also showed strong negative returns, yielding -10%, -13.6% and -21.3% for PMT, PME and TNT respectively.

Officials at TNT said the scheme was not only hit by dropping commodity prices - with oil in particular - but also by a bad performance of hedge funds.

TNT was the only one of these three schemes revealing positive returns on fixed income investments of 1.2%, and attributed the performance mainly to the improvement on yields on long-term bonds.

In contrast, PMT and PME reported negative yields of -1.5% and -2.1% respectively.

Interestingly, PMT's property investments returned 3.3% during the third quarter, it said, while PME's and TNT's real estate yielded -0.6% and -0.1% respectively. According to TNT, its non-listed property in both Europe and Asia showed positive returns.

PMT - with over a million participants and 33,000 affiliated companies the largest market scheme in the Netherlands - said its present position could have consequences for its indexation and contributions policy.

TNT serves 94,500 participants, while PME manages the pensions of 680,000 participants at almost 1,300 companies.

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