NETHERLANDS - The €2.5bn pension fund PNO Media saw its cover ratio drop close to the critical level of 105% during the third quarter, while TNO's position also moved close to the danger zone.

After a funding ratio of 116.4% at the end of June - already below the required minimum of 119% set by regulator DNB - the scheme reported further decreasing markets were responsible for lowering its cover ratio to 105.4% by the end of September 2008.

The situation is likely to have since worsened, however a spokesman of PNO Media declined to provide information on the most recent figures.

The industry-wide pension fund's investment portfolio saw a negative return of -5.8%, taking 2008's total negative returns to -10.8%, officials made clear.

With negative yields of -20.1% and -8.6%, commodities and equity were the main contributors to the negative third quarter figures.

Property was PNO Media's best returning asset class, yielding 1.4%, it said. Its investments in fixed income, private equity and infrastructure returned 0.5%, 0.8% and 0.4% respectively.

But thanks to falling swap interest rates, which decreased from 4.9% to 4.5% in the third quarter, the scheme's liabilities have risen by 5.9%, officials added.

PNO Media has responded to the present challenges by halting all shares-lending, and decreased its risk against partners defaulting on derivatives contracts by demanding collateral in all cases.

In addition, it has put a floor under its liabilities and fixed income investments by purchasing additional interest swaps, the scheme said.

Meanwhile, the pension fund of technical research institute TNO reported Q3 results of 0.52%, contributing to a negative return of -5.3% over 2008 so far.

TNO's funding ratio - slightly over 118% at quarter-end - dropped to 110% on 27 October, said Mark Burbach, head of asset management at TNO.

"The cover ratio is very much dependent on the value of the liabilities, which is varying continuously because of changing long-term interest rates. We have noticed daily swings of 50 basis points recently," Burbach explained.

The scheme's funding ratio is now also below the scheme's required financial buffers of  115.6%, set by DNB and based on the fund's specific investments risks.

If the cover ratio hasn't improved at the end of 2008, the pension fund's own rules prescribe an increase of contributions by 2% to 17%.

In addition, TNO will only grant an indexation of merely 0.56% instead of a full compensation for inflation of 3.3%.

According to its head of asset management, the TNO scheme saw its assets drop by €0.2bn to €1.8bn during 2008.