Dutch pension funds faring better but still not out of the woods

Pensioners on a bench

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Despite slightly higher interest rates and booming stock markets worldwide, private pension funds in the Netherlands continued to under-perform in the first half of 2017. Nevertheless, the coverage ratio continues to improve, the Telegraaf said on Monday.

The coverage ratio is a measure of how much money is available to cover current and future pension requirements. Thus a coverage ratio of 110% indicates there is €1.10 in cash available for every €1 in pension obligations.

To avoid downturns, pension funds are required to have a minimum 5% coverage buffer. But a 20% buffer is needed to qualify as a truly healthy pension fund and, the Telegraaf said, very few pension funds meet this standard.

The biggest pension funds are well below the minimum: the metals sector fund, Pensioenfonds Metaal & Techniek, had a cover factor of only 96% in the first half of 2017, but that was well up on the 92.8% level recorded at end-2016.

The civil service pension fund ABP was pegged at 96% on 30 June, while the health care sector fund, Zorg & Welzijn, was at 94%. However, the building sector pension fund was very healthy with a coverage ratio of 110%.

The worse-performing pension funds will have to cut pensions if they do not reach the minimum soon.

The Dutch pension system is based on three parts: the state pension AOW, payable in full to everyone who has lived in the country for more than 50 years and at reduced rates for others; collective company schemes, which are usually compulsory; and private pension schemes.