Pension coverage rate falls sharply – Financieele Dagblad (Registration)

The reduction of interest rate by the Dutch Central Bank (DNB) in mid-July and the lower market interest rates, the ratios of pension funds in the last month strongly pushed down. The average funding has decreased in July by 4% points, from 108% to 104%, reports pension adviser Aon Hewitt Monday. The coverage ratio shows how pension funds are able to pay pensions

HH

In mid-July, DNB, the discount rate for the longer term, the so-called ‘ultimate forward rate’ reduced. On the basis of the pension discount rate to calculate their future liabilities. The lower the discount rate, the pension funds have more money in the coffers to fulfill their promises.

more realistic

The UFR was 4.2%, which means that the long-term interest rate tended towards it level. According to DNB this percentage, however, was no longer realistic given the fall in interest rates in recent years. The UFR will therefore now be calculated based on long-term forecasts of the market over the past decade. In July, the UFR came as 3.3%.

According to Aon Hewitt, the coverage ratios through this adjustment on average 3 5% point fell in July. In addition, falling interest rates too, making further commitments increased by 3.6%.

Invested capital

The sharp increase in commitments of 7.1% in total, could be compensated only with a limited increase invested capital. The net assets grew by 2.9%. This growth was mainly due to the positive returns of 4.1% on the bond portfolio, resulting also from the low interest rates. The value of shares increased by 1.3%.

Since January, however, use pension funds no longer current, but the so-called policy coverage as indicator of the health of their finances. The policy coverage is the average coverage over the past twelve months. Which has remained on average equal to 107% in July. Pension funds pensions may only increase with inflation from 110%.