NETHERLANDS - The €6bn Dutch pension fund of steelworks Corus has decided not to pay indexation, and has instead set aside assets to cover an anticipated increase in life expectancy.

"The recovery of our financial position has not been sufficient, and has been further delayed by a €150m provision for a forecasted 18-month rise in life expectancy," the Stichting Pensioenfonds Hoogovens said in a statement.

Jacques van Exter, chairman of the pension fund, further added: "We prefer to be cautious, as experience during the economic crisis has shown this is a sensible approach."

According Van Exter, the scheme's recovery is still fragile, and official consider the pension pool to be vulnerable because of uncertainties still prevalent in the financial markets.

"If the trend of rising life expectancy continues, we might have to set aside even more assets," the chairman warned.

The Corus scheme has seen its cover ratio drop from 143% at the end of September 2007 to 100% by February last year.

Although the pension fund's nominal cover ratio had risen again to 115% by the end of October 2009, officials said the real funding ratio - based on inflation forecasts - has to be taken into account when it comes to indexation.

The scheme's policy is to grant indexation at a real cover ratio of 90% or above, yet the actual percentage was still 89% even before the provision set aside for increased life expectancy.

Looking specifically at its indexation policy, the Pensioenfonds Hoogovens uses the salary index to decide what its active participants should be paid, whereas the consumer index is the indexation benchmark for its deferred members and pensioners.

Its active and non-active participants are now facing a total indexation shortfall of 3% and 3.49% respectively, as the pension fund refrained from paying inflation compensation last year too.

The scheme's board has also decided to keep contributions at the maximum level, in line with its long-term recovery plan.

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