Pension cuts loom for millions as funds' financial buffers shrink

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The country’s biggest pension funds, including the giant civil service fund ABP and healthcare sector fund PFZW will very probably have to cut payouts next year because of reduced financial buffers.

The funds, which pay pensions to 7.5 million people, have as yet failed to boost their coverage ratios up to the legal levels, due in part to low interest rates.

For example, the coverage ratio at ABP, which is the third biggest pension fund in the world, fell back to 90% in the second quarter of this year, compared with 112% in the year earlier period.

Buffers

By law funds are supposed to have a coverage ratio of 105%, meaning they have €105 for every €100 they have to pay out in pensions.

‘There is a very real chance that measures announced earlier, including lowering pensions, will become a reality from April 2013,' a spokesman for the pension fund umbrella group Pensioenfederatie said in a statement.

ABP said earlier it will decide in January whether to cut all pensions by 0.5% but according to Nos television, the fund may now be forced to take ‘serious and extreme' measures.

Interest rates

PFZW, which provides pensions to some 2.5 million people, had a coverage ratio of 92% in the second quarter and is also considering a cut.

Two engineering funds, PME and PMT, have coverage ratios of 88% and 85% respectively. They both say pension cuts of up to 7% are ‘more or less definite'.

Social affairs minister Henk Kamp said in May he is considering changing the way interest rates are applied to pension fund assets, in an effort to strip out the effect of interest rate volatility.

Urgency

The funds are now calling on the government to take urgent action on this. ‘This situation needs crisis measures in the short term to prevent us from having to take decisions which will have a major impact on our policy holders and the economy,' ABP chief Henk Brouwer is quoted as saying by the NRC.

Kamp is also drawing up draft legislation to help funds switch from being based on ‘defined benefits' - where people know in advance how much pension they will get - to ‘defined contributions', which fixes premiums.

‘We are looking at what is necessary to make sure our pension system is sustainable in the long term,' a spokesman for Kamp said.

Unilever

The Nos monitors the coverage ratio of over 100 pension funds and says only eight are now above the legal 105%. Unilever's corporate fund leads the way with a coverage ratio of 121%.

The lowest ratio belongs to the meat packing sector with a ratio of 78%. Its fund has already announced a 7% cut in pensions next year.

According to the Dutch central bank, the Netherlands has Europe's biggest pension industry, with €913bn in assets at the end.

© DutchNews.nl

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