Measures for pension funds in deficit
There are two statutory measures that pension funds in deficit must take. First, pension funds with a funding ratio below the minimum required funding ratio must draw up a recovery plan, setting out how they intend to eliminate their deficit. The average minimum required funding ratio for pension funds is 123.9%. DNB annually assesses whether the pension funds' recovery plans are meeting the statutory requirements.
The second measure enters into effect when a pension fund's funding ratio has been below its minimum required funding ratio for five consecutive years. This funding ratio – the minimum required own funds – has been set at 104.2% [NC1] . After five years, pension funds are required by law to curtail pension benefits until their minimum funding ratio reaches 104.2% again. The first time this could happen may be in 2020.
Both measures aim to prevent pension funds in deficit from paying more in pension benefits than they reserved for a prolonged period.
Curtailment is one of the four measures that pension funds can propose in their recovery plans to restore their financial position. The plans assessed by DNB this spring show that almost none of the pension funds expect they will be forced to apply curtailment this year. Only two pension funds, with a combined member base of around 13,000, foresee they will have to resort to benefit curtailment in 2017.
Other recovery measures include achieving surplus returns on investments, raising pension contributions or postponing annual index-linking.
Figure 1 presents the measures proposed in pension funds' recovery plans.