Coverage ratio of pension funds increases, but chances of reduction remain real

The coverage ratio of most major pension funds increased in the last quarter. Yet next year millions of Dutch people still have a discount on their pension. Pension funds continue to suffer from the persistently low interest rates.

Because of the coronacrisis and the arrival of the new pension system, Minister Great Tit announced earlier this year that the funding ratio should be 90 percent by 31 December, instead of 100 percent. But that 90% also does not make it to some of the funds.

Pension Fund Zorg en Welfare, with more than 2.9 million members, currently has a coverage ratio of 88.5 percent. โ€œWe are seriously considering a reduction in pensions in 2021,โ€ says Director Peter Borgdorff. โ€œIt is exciting how investments and interest rates develop in the fourth quarter. Because this last quarter of the year is unprecedented.โ€

Civil Service Fund ABP is also preparing for a pension discount. The coverage ratio was 88.2 percent at the end of September. โ€œAs it stands, the chance of pension reduction for next year is real. At present, for an average ABP pension of 700 euros net would be about 15 euros net per month,โ€ says President Corien Wortmann-Kool.

Metalfunds do over the bar

The funds in the metal and engineering sector – with a total of about 2 million participants – currently meet the requirement of a funding ratio of at least 90 percent. At PMT, coverage rose from 89.6 percent in the second quarter to 92.2 percent now.

In PME, the coverage ratio increased from 90.4 to 93.7 percent. โ€œHowever, there is still a chance that it will drop below 90% by the end of the year and that we will have to reduce pensions next year,โ€ says Chairman of the Executive Board Eric Uijen. โ€œThe economy remains uncertain and companies remain largely dependent on government support. It will be an exciting last quarter.โ€

The fourth quarter did not start well in terms of interest rates. In the first weeks of October, interest rates on the capital markets fell even further.

Exception to new system?

The question is whether the Cabinet will continue to grant exceptions to the coverage ratio until the introduction of the new pension system in 2026 or not. Also in 2019 Minister Koolmees decided to temporarily reduce the required funding ratio to 90 percent due to a sharp fall in interest rates in the summer of that year.

Employers organisations and trade unions want the minimum coverage until the transition to be set at 90%. In this way, according to the organisations, there is no need to cut pensions unnecessarily unnecessarily.

With the introduction of the new pension system, funds will have to hold less large buffers. That gives room, is the reasoning. It also becomes clearer what a persons personal share of the pension money is; everyone gets their own game.

The desire not to shorten โ€œunnecessarilyโ€ was also expressed by the minister himself. In the coming weeks it will be necessary to see how the transitional regime will take shape and how high the coverage of pension funds should be in the coming years.