Pension funds again in trouble as falling interest rates bite

Some of the biggest Dutch pension funds will not increase payouts in line with inflation next year because they have failed to meet targets on increasing their assets.

The massive ABP civil service fund and engineering funds PME and PMT have not managed to boost their coverage ratios sufficiently to make inflation payments. The health service and electrical engineering funds are verging on a similar position.

Retired civil servants have not had a rise in line with inflation for years and their pensions have effectively shrunk by 9%. The two engineering funds are in a similar position, news agency ANP reported.

The situation is unlikely to change in the short term because new pension rules require the funds to have bigger financial buffers.

Interest rates

ABP’s coverage ratio has fallen to 103% in the third quarter of this year, due to falling interest rates. Its assets have risen to €334bn from €300bn over the past nine months but this is not enough to offset the impact of interest rate reductions.

By law, pension funds are supposed to have a coverage ratio of 105%, meaning they have €105 to cover every €100 of pension obligations.

Most pension funds have not yet taken a decision about index linking their payouts next year.

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