Assessment of recovery plans
Pension funds with a funding ratio below the minimum required funding ratio must submit a recovery plan to DNB, setting out how they expect to eliminate their deficit within a maximum period of ten years. We recently completed our assessment of the recovery plans of 157 pension funds. Similar to 2015 and 2016, pension funds expect to recover through surplus returns on investments. In general, contributions have a negative effect on recovery, since many pension funds actually impose lower contributions than required to purchase pension commitments.
Returns on investment for 2017 exceed expectations
Contrary to 2015 and 2016, the pension funds did manage to achieve their target returns for 2017, causing the value of their investments to rise and improving the funding ratio by an excess 1.8 percentage points above the target set in the recovery plans. Moreover, interest rates went up in 2017, causing the liabilities to go down and yielding an additional funding ratio rise of 1.3 percentage points. The pension funds are now partly back on track with the recovery plans they made in 2015, as can be seen in Figure 1. The figure shows the real increase of the funding ratio (red line) compared to the estimated increase from the 2015 recovery plans (blue line).