Schemes granted five years recovery – but is it enough?

NETHERLANDS - Dutch minister of social affairs and labour Piet Hein Donner has confirmed he will allow pension funds with a funding shortfall - now approximately half of all Dutch funds -  to have up to five years to bring their solvency ratios up to 105%, rather than the three years the Dutch Pension Ac currently prescribes.

“The legal recovery period of three years will be temporarily extended to maximum five years. Pension funds, however, must be able to indicate what they intend to do if over the next few years it should become clear that they will not succeed in bringing their reserves up to the required level,” said the department of social affairs and labour in a statement on Friday.

“By adopting a longer recovery period, the Cabinet is hoping to prevent pension funds from having to hastily and unnecessarily lower pension benefits. At the same time, this will prevent matters from being left unattended for too long, especially in the case that financial and economic conditions should deteriorate,” it confirmed.

That said, pension schemes with a solvency ratio of 90% or less, the number of which is estimated at around sixty, may find this ‘grace period’ is enough to prevent them having to take painful measures.

The metal industry’s pension arrangement, in particular, may be in trouble.

Union leader Jan Berghuis has called the limited extension granted by minister Donner “a disaster” and argued: “This means that there will be no indexing for years to come and pension entitlements will also likely be cut.”

He has rejected the minister’s plans as “unacceptable” and called for a longer recovery period by arguing: “If our pension funds get more time to recover, more than the five years that Donner has offered, then we can save out pension schemes and we’ll also be able to index at least partway, as of 2010,” said Berghuis.

This article was originally published by IP Nederland.com, the Dutch language sister publication to IPE.com. Go to ipe.com/nederland for the latest news and developments on the Dutch pensions market, written in Dutch.