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)