NETHERLANDS - PME, the €18.7bn industry-wide pension fund for the metal engineering industry, could be forced to reduce pension benefits next year if the extended five-year recovery period is not given further flexibility.

Hans van der Windt, director at PME, has warned it may have to cut pensions by up to 10% in 2010 if social affairs minister Piet Hein Donner requires pension funds with reduced solvency ratios to raise their buffer funds within the already-extended five-year recovery term.

The minister wants pension funds, which are not able to increase their cover ratio to 105% within the agreed five-year time period for recovery, to apply a discount from the start of the recovery period.

According to Van der Windt, who has declined to elaborate further for now, the problems many schemes faced at the year-end, when PME's cover ratio was 90%, have since worsened.

Similarly, the €28.7bn metal scheme PMT - which has over a million participants as the largest private sector pension fund - has made clear that it needs more recovery time, in order to avoid cutting benefits.

PME's warning comes as the three lobbying organisations - VB, OPF and UvB - are jointly urging a tailor-made approach be allowed on recovery plans.

Instead of cutting benefits and claims from the start of a recovery period, as proposed by Donner, they are pleading schemes be allowed to discount benefits after three years, even in cases where a timely recovery is unlikely.

"The danger of a rigid recovery period is that pension funds which need slightly more time must start discounting pensions at a unnecessary early stage," argued VB.

"Moreover, sticking to a fixed period is too rigid, as schemes which are well under way to recovery but fail to meet a deadline will have to cut claims and benefits anyway."

VB has pleaded cuts only be made if - after three years - it is becoming clear that a recovery process is not progressing sufficiently.

The lobby organisation stressed the Pensions Act indicates a discount should only be applied as a last resort.

The views of the representative bodies follow those of the Labour Foundation (Star) as it has advised the minister to allow a tailor-made approach, but leave the DNB with powers to demand recovery measures at an earlier stage, in cases where there is a combination of a ‘very serious' funding shortfall and insufficient recovery capacity.

A spokesman for the €69bn healthcare scheme Zorg en Welzijn, which had a funding ratio of 91% at the end of January, is not considering any cut in claims and benefits yet.

"For now, we are satisfied with the extension of the recovery period we have asked for," he commented.

ABP, the €173bn pension fund for civil servants and teachers, responded similarly. Its cover ratio was 89% at the end of January.

Elsewhere, the large unions' federation FNV have demanded pension funds be given longer than a five-year recovery period.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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