Average funding ratio of pension funds unchanged

Statistical News Release
Date 15 June 2012

The average funding ratio of Dutch pension funds at the end of May stood at 99%, unchanged from the end of March. The funding ratio– the ratio between available assets and liabilities – remained stable, because positive returns on fixed-rate assets and the effect of using the average interest rate were offset by losses on the stock exchanges.

Between the end of March and the end of May, stock prices declined. The MSCI World index lost 8.8% (Table 3.1) and the AEX even 10.3%. As a result, the value of pension funds’ equity portfolios declined. Conversely, the value of fixed-rate asset portfolios increased owing to a sharp decline in long-term interest rates. As fixed-rate assets constitute a larger part of pension funds’ investment portfolios than equities, the total impact on available assets was mildly positive.
The drop in interest rates was steep, but as pension funds are allowed to apply a three-month average, the upward effect on the value of technical provisions was limited. Indeed, the average long-term interest rates (15-years, Table 1.3) dropped 16 basis points to 2.56%. This decline was far less severe than the drop in actual 15-year interest rates by 72 basis points to 1.96%. Consequently, liabilities, just as available assets, were slightly up. On balance, the funding ratio remained stable at 99%.

Funding ratio of pension funds

With an average funding ratio of 99%, the pension sector as a whole was still facing a funding deficit at the end of May. A funding deficit is defined as a funding ratio below 105%. In such a case, a pension fund does not have the minimum required own funds at its disposal. At the end of May, 180 Dutch pension funds, totalling 4.2 million active members and 2.1 million retirees, faced funding deficits.