The Dutch pensions sector invests conservatively compared with the 22 largest pension markets worldwide, which could come at the expense of pensioners’ purchasing power, a survey by Willis Towers Watson (WTW) has suggested.

Dutch pension funds’ average bond allocation of 50% was significantly above average, according to the annual global pension assets study of WTW’s Thinking Ahead Institute.

In the seven largest pension markets, which included the UK, Japan, the US and Australia, and comprised 91% of the pensions assets of the 22 largest markets, the average was 27%, it said.

Only Japan, with an allocation of 56%, invested more conservatively, according to the organisation.

It also found that the equity allocation of Dutch pension funds – 33% on average – was relatively low, as the seven largest pension markets had invested 41% on average in this asset class.

It said the percentages for the US and Japan were 50% and 30%, respectively.

According to the survey, the Netherlands also lagged with regard to alternative investments, such as property, private equity, mortgages and infrastructure.

Whereas amongst the 22 largest pension markets alternative investments’ share of the investment portfolio had risen to 20% during the past twenty years, the share in Dutch pension investors’ portfolio did not exceed 17% last year.

Moreover, this reflected a decrease of one percentage point since 2007, said the Thinking Ahead Institute.

Dutch pension funds are, however, expected to expand their investments in residential mortgages for the next few years. The €4bn Dutch sector scheme for the merchant navy recently said it would start investing in private residential mortgages, and that this would come at the expense of its bond allocation.

Commenting on the survey results, Jacco Heemskerk, head of investments at Willis Towers Watson Netherlands, underlined that investing conservatively would provide “a more certain pension indeed, but also a lower one”.

“Investing is become increasingly complex and requires a better search for yield,” he added.

The researchers found that combined Dutch pension assets had increased 4.2% on average during the past 10 years to a record amount of $1.6trn (€1.3trn). 

This equates to 194% of GDP, an increase of approximately 25 percentage points relative to 2016 and 68 percentage points during the past 10 years.

This keeps the Netherlands far ahead of other large pension markets, with Australia (138% of GDP) and Switzerland (133%) coming closest followed by UK, where pension assets represent 121% of GDP.

The percentage for France and Italy was no more than 6.5% and 9.6%, respectively, with Spain scoring merely 3.3%.

According to WTW, the growth of Dutch pension assets was in line with worldwide growth on average and largely equated returns on equities and bonds.

WTW further noted that, despite the worldwide trend to defined contribution arrangements, defined benefit (DB) plans still reflected a very large (94%) majority of pension arrangements in the Netherlands.

It said that this proportion was only exceeded by Japan (96%) and Canada (95%). In Australia, no more than 13% of pension schemes were based on DB.

The report also made clear that globally, pension funds had increasingly invested abroad during the past 20 years as a result of diversification and index investment.

In this period, the proportion of assets invested in local currency dropped from 69% to 41%, with pension institutions in particular in the UK, Switzerland and Canada investing abroad.

Topics