Pension funds’ funding ratios slightly up since September

Statistical News Release
Date 15 December 2011

At end-November 2011, the average funding ratio of Dutch pension funds was 97%, slightly up from the average ratio at the end of the third quarter. At that moment, the funding ratio had been 94%, the lowest seen since the first quarter of 2009.

The rise of the funding ratio – that is, available assets over liabilities – reflected upward movements of both equity prices and long-term interest rates. As a result, available assets increased in value, whereas liabilities decreased.

Equity prices went up between end-September and end-November. The AEX rose by 7%, while the MSCI World index increased by 6.8% (Table 3.1). This movement positively affected funds’ available assets. Conversely, the liabilities of pension funds decreased between end-September and end-November, mainly on account of a simultaneous rise of the long-term interest rate (15-year, Table 1.3), from 2.9% to 3.1%. When the long-term rate is high, pension funds need to make less provisions for future benefit payments. At the same time, a higher interest rate affects available assets adversely, as it causes a depreciation of the fixed-rate instrument portfolio. Over the review period, however, this negative effect was compensated by a rise in equity prices.

Funding ratio of pension funds

Despite these developments, many pension funds continue to face funding deficits. A funding deficit is defined as a funding ratio below 105%. At end-November, 261 Dutch pension funds, totalling 5.1 million active members and 2.5 million retirees, faced funding deficits. At end-September, there had been deficits in 276 pension funds numbering 5.3 million active members and 2.5 million retirees. Pension funds facing a funding deficit are required to submit recovery plans to De Nederlandsche Bank. The plans will be evaluated in early 2012.

For further information please contact Flore Kraaijeveld (tel.nrs. 020 524 3091 and 06 3102 8660) and Kees Verhagen (tel.nrs. 020 524 2272 and 06 2112 3922).