NETHERLANDS - The €2.5bn pension fund PNO Media has seen its cover ratio drop by 25% so far this year, leading to a funding ratio of 95.1% at the end of October - far below the critical level of 105% at which the fund must tell regulators how it will recover funding levels.

Three-fifths of the cover loss has been caused by a decrease of assets' value, stated Leo Witkamp, chief executive of the scheme, today, while the remaining drop was caused by rising liabilities through the continued decrease of long-term interest rates.

"However, without our hedge against falling interest rates and equity markets, our funding ratio would even have been 10% lower," said Witkamp.

Although the pension fund still has to make a formal decision later this month, the chances of indexation are practically zero, he suggested.

Given its financial position, PNO Media must now submit two recovery plans to pensions regulator De Nederlandsche Bank (DNB).

One plan must be aimed at recovering the scheme's funding to a cover ratio of at least 104.3% within three years. A long-term recovery plan must make clear how the scheme intends to build up its financial buffers to a funding ratio of 120% within 15 years.

According to Witkamp, refraining from paying members compensation for inflation will help to improve the fund's cover ratio.

"Moreover, the present contribution already contains a surcharge for a yearly 1%-increase of the cover ratio. Rising the premiums will therefore only marginally contribute to a recovery," he argued.

PNO Media said it will make its recovery plans public once they have been improved by DNB.

The DNB recently granted pension funds three months grace, until 1 April, to submit recovery plans.

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