Pension funds hard hit by crisis

The Netherlands’ four biggest pension funds said on Thursday that their buffers have been further eroded by falling stock prices and interest rates and they no longer meet government-required coverage ratios.

Funds are supposed to have coverage ratios of 105%, meaning they can meet more than their pension obligations.
But the civil service pension fund ABP, which is one of the biggest in the world, said its coverage ratio had fallen by over a quarter to 90% in the final three months of last year. In total, €22bn was wiped off the fund’s assets. ‘This crisis is the most serious ever to hit ABP,’ said chairman Elco Brinkman.
Pension freeze
Health service pension fund Zorg en Welzijn (formerly PGGM) and two major engineering sector pension funds also said they no longer met the official target.
All four funds are freezing pensions this year and light engineering fund PME said it is to hike contributions by 1%.
The sector-wide fund association VB on Thursday called on the central bank to give pension funds more time to get their investments in order. And a number of MPs pledged to raise the issue with social affairs minister Piet Hein Donner.
Now a pension freeze is not working, higher premiums or pension cuts were the only option and that was not acceptable, Socialist MP Paul Ulenbelt told the Volkskrant.
Premium hikes
Frans Prins head of the corporate pension fund association, which represents 350 individual company funds, said some smaller funds would have to reduce pension payouts. ‘I hope it will not happen, but that is the picture I am getting from members,’ he told the NRC.
But ING economist Charles Kalshoven warned in the Telegraaf that such drastic measures would be very unfortunate given the economic situation.
‘If funds reduce pensions or raise premiums, consumers will have to tighten their belts because they will have less to spend,’ the paper quoted him as saying. In addition, higher pension costs will hurt the Netherlands competitive position, he said.

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