“A Difficult Year for ABP”

(June 3, 2013) — The chairman of ABP, the €296 billion Dutch pension giant, has bemoaned the impact the country’s regulator has had on the fund in its latest annual report.

Henk Brouwer said the recovery plan put in place by the Dutch National Bank (DNB) had necessitated cuts to member benefits in order to reach its required level of funding by next year.

Despite an investment return of 13.7% in 2012, liabilities increased by 10.7%, due to persistently low interest rates and increased longevity assumptions. This meant the overall funding ratio only improved from 94% to 97%.

The fund must reach 104.2% by the end of this year.

“The most pressing question is now whether ABP must make a new reduction in 2014,” said Brouwer. “It is possible that over the course of the year the funding ratio will move to the required level of 104.2%, which would mean that there would not need to be a reduction. However, there is a considerable chance that a reduction of the pensions will indeed be necessary. It is impossible to predict the extent of this reduction as it depends on the returns achieved at the end of the year and the level of the interest rate.”

At the end of May, ABP had reached a 100% coverage ratio. The fund said that due to the short time frame available however, one of its few remaining options to hit the end-of-2013 target would be to cut members’ benefits further.

Brouwer called the decision taken in April this year to cut benefits “particularly bitter” and had meant confidence in both it and the pension sector more generally had fallen further.

For its part, ABP said it had been working to control costs to try and boost its coverage ratio. Additional boosts came from settling various legal cases the fund brought against banks and their conduct in the financial crisis.

Over 2012, it negotiated lower custody fees, but due to high-performing investments, its asset management fee increased. Overall, its fee-per-participant fell from €87 to €86.

ABP has tried various methods to improve its funding level. In January last year, it implemented a temporary contribution hike, before finally agreeing to cut member benefits in 2013.

The giant is not alone. Some 80 pension funds were revealed as significantly underfunded-according to the DNB’s criteria-and were forced to implement such measures.

For an up-close-and-personal look at what is happening in the Dutch pensions sector, read about aiCIO‘s Charlie Thomas’s recent visit in the next edition, which is published later this month.