Large Dutch pension schemes edge closer to indexation
The funding ratios of the Netherlands’ largest five pension funds have reached their highest levels since 2008. Civil service scheme ABP recorded the largest rise to 117.4% in March as it benefited from its relatively low interest rate hedge, bringing indexation within reach for the fund.
ABP’s funding ratio has risen by 6.8 percentage points since the start of the year while the other four large sector schemes also saw their funding ratios rise by 1.5 to 4.1 percentage points. The funding ratio rise was entirely due to an increase in interest rates as all five pension funds suffered losses on their investment portfolios.
Metal schemes PMT and PME lost 9% and 8%, respectively, while healthcare fund PFZW registered a return of -7% as equity and bond markets fell due to the war in Ukraine and soaring inflation. ABP managed to limit its losses to -4% thanks to a 27% return on its commodities portfolio.
The rise of the actuarial interest rate for pension funds from 0.6% to 1.1% more than compensated for the investment losses.
According to calculations by PFZW, the higher interest rates translated into an increase of its funding ratio by 11 percentage points, of which half was neutralised by the fund’s interest rate hedge. The losses suffered on its investment portfolio cost the fund another 1.8 percentage points.
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