Home ListingMarch 21, 2016

European Pensions Plea for Political Help

Only high-level action can help the continent’s ailing pension system combat negative interest rates, asset owners say.

Reported by Featured Author

Europe’s floundering pensions have called for political intervention after the continent’s central bank pushed interest rates deeper into negative territory.

Underfunded retirement systems rely on immediate action from politicians and can’t be saved by a structural overhaul, according to the co-chairmen of one of the Netherlands’ leading funds.

“The economy is the problem, not the pension system,” Benne van Popta of Dutch metalworkers’ pension PMT told Dutch newspaper Algemeen Dagblad.

“The ECB’s interest rate is extremely low, and we fear that it will be for some while,” van Popta said. “We are in danger of coming to some sort of Japanese scenario with prolonged low economic growth and low interest rates.”

“The importance of a good pension is not enough of a political priority,” added PMT co-chairman Jan Berghuis. Dutch Finance Minister Jeroen Dijsselbloem should seek to raise the retirement age as one part of a solution, he said.

Dutch savers and unions have led protests against the existing system this year after the country’s pensioners began to see their payouts frozen or cut due to falling funding ratios. Dutch funds are considered insolvent if their funding falls below 105%, and can cut benefits if ratios remain significantly in the red. Despite a positive return on its portfolio last year, PMT saw its funding ratio fall to 89.6% at the end of February.

The European Central Bank (ECB) cut its deposit rate to -0.4% last week, putting further pressure on funds across the continent. Dutch asset owners in particular have suffered as their funding ratios dictate their ability to link benefits to inflation.

The returns required to close the resulting funding gaps are “not possible in practice” within acceptable risk parameters, according to the €17.4 billion ($20 billion) pension manager for Philips. In a statement released in the aftermath of the ECB’s announcement, the fund warned that its payouts were “under pressure,” although it had managed to maintain a funding ratio of 110% as of the end of February.