Funding ratio of pension funds down to 101% at end-August

Statistical News Release
Date 22 September 2011

At end-August 2011, the average funding ratio of pension funds had fallen to 101%, down from 112% at the end of March.

This deterioration of the funding ratio – the ratio of available assets to liabilities – was related to the simultaneous decline in equity prices, which reduced the value of the available assets. At the same time, pension funds’ liabilities increased owing to a decline in long-term interest rates.

Funding ratio of pension funds

During the period between end-March and end-August, the AEX declined by 19.9% and the MSCI World Index by 10.8% (Table 3.1). The decline reduced the value of pension funds’ available assets, directly affected the funding ratios. A positive return on fixed-rate asset portfolios could not compensate the loss.

At the same time, pension funds’ liabilities increased, mainly owing to a decline in long term interest rates. The long-term rate (15-year, Table 1.3) declined from 4.04% at end-March to 3.35% at end-August. When interest rates fall, pension funds need to increase their provisions for future benefit payments.

As a result of these developments, many pension funds currently face funding deficits. A funding deficit is defined as a funding ratio below 105%. Pension funds facing a funding deficit are required to submit recovery plans to De Nederlandsche Bank. The plans will be evaluated in early 2012. At end-August, 207 Dutch pension funds, totalling 4.7 million active members and 2.1 million retirees, had funding deficits. At end March, these figures had been 94 pension funds numbering 1.2 million active members and 0.6 million retirees.