Policy funding ratio lower in first two months of 2015

Statistical News Release
Date 25 March 2015

The revised Financial Assessment Framework for pension funds was introduced on 1 January 2015. One of the framework's aims is to bring down the funds' dependence on daily asset prices, which is why all pension funds must use what is known as the policy funding ratio.

A twelve-month average funding ratio, it fluctuates less than non-average funding ratios. For instance, the February 2015 policy funding ratio represents the average of all non-average monthly funding ratios for March 2014 through February 2015.

During the first two months of 2015, the policy funding ratio for the sector showed a decrease, from 110% at end-December 2014 to 109% at end-February 2015. The non-average funding ratio is currently below the policy funding ratio and fell from 108% (note 1) to 105% during the same period. Expectations are for the policy funding ratio to drop further, given the low non-average funding ratio.

Equity prices (Table 3.1) went up markedly between end-December and end-February, with the AEX rallying 14.0% and the MSCI-World Index increasing by 5.1%, while capital market rates fell. Both developments had a favourable effect on pension funds' investment portfolios. As of 1 January 2015, non-average funding ratios are no longer calculated on the basis of three-month averaging. Interest rates decreased sharply across the interest rate term structure between end-December 2014 and end-February 2015. The 30-year rate, for example, fell by 46 basis points to 1.64%. At the same time, however, lower rates pushed up pension funds' liabilities, also referred to as technical provisions, whose increase outstripped that of investment portfolios.

Note 1: The non-average funding ratio at end-December 2014 was still calculated on the basis of the interest rate term structure including three-month averaging.

Pension funds’ policy funding ratios (at month-end)

Pension funds' policy funding ratios