(February 20, 2012) — Thousands of Dutch pensioners and contributing members will have their benefits cut next year, as at least 80 pension funds in the Netherlands have presented plans to reduce their deficits to the national regulator.
The funds that have fallen under the minimum 105% coverage ratio were revealed by the Dutch National Bank this week. Some 80 funds, including ABP, the largest Dutch fund catering for the country’s civil service, have already put planned benefit reductions in place. ABP was 94% funded at the end of December, compared with 140% in 2007, before the financial crisis.
“Hundreds of thousands of pensioners will receive lower pensions from April 2013 and perhaps millions of workers next year will have their accrued benefits reduced,” the Pensions Federation said this week.
The fund with the lowest coverage ratio on the list of 80 was crystal producer Royal Leerdam, which had a 77.8% ratio at the end of December. The fund has already planned to implement a benefit reduction of 5.7% in April, adding an additional a 9% reduction at the end of 2013, should the coverage ratio not improve.
Workers and pensioners at plastics company Alkor-Draka could see the largest reduction to their benefits. The company presented a planned benefit cut of between 7% – 11.9% by the beginning of April next year.
The statement from the Pensions Federation said: “The pension funds that are now having to announce cuts usually have already taken measures to other problems, such as premium increases and not adjusting pensions to wages or prices.”
The hammer-blow to many pension funds has come through their liabilities, rather than through a fall in asset values or poor investment returns. For example, ABP saw a positive investment return of 3.3% in 2011, but due to the way its liabilities are measured – which is set by the Dutch National Bank – its deficit grew by a greater amount.
The Pensions Federation said: “Besides the negative developments in financial markets and low interest rates, the much faster than expected increase in life expectancy is a major cause of those problems. Pension funds have substantially longer than previously expected to pay out in retirement, without having ever taken this into account in the premiums.”
The organisation added, however, that the state pension had actually increased slightly, helping to offset the level of income for pensioners in the Netherlands, adding that lower earners would be less hit than those on large salaries.
For an in-depth look at the Dutch pensions sector, see aiCIO’s next magazine later this month.