Dutch pension funds in a race to recovery

20th February 2009, Comments 0 comments

Dutch pension funds facing shortages to be given extra time to recover, says Minister of Social Affairs Piet Hein Donner.

THE HAGUE—A number of leading Dutch companies are having to devote hundreds of millions of euros to making up the shortfall in their pension funds. A survey by NOS reveals that TNT has a pension shortfall of 600 million euros and will pump 140 million euros into its pension fund this year. KPN and Océ are facing similar problems, while other major companies including Shell, ING and Ahold are due to announce their figures soon.

Additionally, the pensions of millions of employees and retirees will not be indexed for inflation in the coming years. Minister of Social Affairs Piet Hein Donner announced that pension funds with serious problems will be given extra time to make up for shortfalls, provided they freeze payments at current rates.

The Council of Ministers is expected to vote in favour of Donner’s proposal to extend the recovery time of pension funds in dire circumstances from three to a maximum of five years. This includes approximately half of all Dutch pension funds. Since the list includes some of the largest funds, such as ABP and Zorg and Welzijn, it includes 85 percent of all total participants in the Netherlands.

As a result of the credit crisis, and devaluation of stocks, reserves of the funds have been depleted to a level under the 105 percent funding ratio required by the Nederlandsche Bank (DNB). According to current rules, the funds are required to replenish coverage levels within three years.

Currently the funds can meet 95 percent of their obligations. By 1 April the funds are expected to hand in restructuring plans to the DNB.

The funds have asked for more recovery time to make up for shortfalls in recent months. They’re wary of facing painful consequences, such as an increase in premiums and reduced benefit payments to retirees, which would have an impact on conumser buying power.

Extending the recovery time to five years could potentially assist in rescuing 85 percent of Dutch pension funds. If the DNB detects that any of the funds aren’t in order within this time, they will be given one year to raise premiums and lower payments. Either that, or they will have to demonstrate an improved forecast. Primarily funds with a majority of already retired participants are in danger of falling under a 90 percent coverage ratio.

The Nederlandsche Bank is going to determine which funds are in need of more recovery time. Minister Donner hopes that this will prevent some of the funds from resorting to an unnecessary halt.

Earlier in the year Donner cautioned against passing the burden on to future generations. The delay doesn’t come without risks since it's currently uncertain how the economy will develop. There's still hope that the funds will recover themselves within the next five years.

Radio Netherlands/de Volkskrant/Lila Lundquist/Expatica

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