“This sharp decline is largely explained by the effect of the three-month average of the interest rates to be used,” says Aon Hewitt. In September, the market interest rate rose slightly. Normally this would be expected to lead to an improvement in the financial position of pension, because the value of the liabilities decreases.
“Under the current calculation rules, the discount rate for the liabilities, however, calculated as the three-month average,” says Frank Driessen, Chief Commercial Officer at the Department Retirement & amp; Financial Management Aon Hewitt. “This is still the value of the liabilities increase with a rise in market interest rates. If, therefore, the total return on the investment is negative even with an increase in market interest rates, the decline in the coverage ratio strengthened. “
Increase in interest rates leads to negative returns
Driessen points out that the value of the bond portfolio by the increase of the market has declined. The return on bonds was -2.4% in September. This investment loss could not be compensated by the shares, which only booked a small positive return of 0.5%. Because the real estate portfolio also struggled with negative returns, the total return for the month of September negative, ie was -1.6%.
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