Increase in average funding ratio since end-June

Statistical News Release
Date 20 September 2012

The average funding ratio of Dutch pension funds climbed to 97% in August, up from 94% at end-June. The improvement in the funding ratio – the ratio of available assets to liabilities – was driven by positive returns on equities in an environment of relatively stable long-term interest rates.

The main equity indices increased between end-June and end-August. The MSCI World Index rose by 3%, while the AEX gained as much as 7.1% (Table 3.1). The positive returns on equity portfolios have an upward effect on the pension funds' available assets. Fixed-income securities also boosted the available assets through a slight decrease in short-term interest rates.
Average long-term interest rates (Table 1.3) remained relatively stable between June and August, with 30-year interest rates falling slightly from 2.27% to 2.24%. Lower interest rates generally mean that pension funds must put more funds aside for future benefit payments. However, as these changes in interest rates were so small, their effect on the liabilities was negligible. Overall, this resulted in an increase in the funding ratio.
Funding ratio of pension funds

Despite the rise in the funding ratio to 97% at end-August, the pensions sector as a whole is still running a funding shortfall. A funding shortfall is defined as a funding ratio below 105%, in which case a pension fund does not have the minimum required own funds at its disposal. At end-August, 4.9 million active members and 2.5 million retirees belonged to one of the 231 pension funds with funding deficits.