Further drop in policy funding ratio

Statistical News Release
Date 23 June 2015

The average policy funding ratio of Dutch pension funds dropped from 109% in March 2015 to 108% in May 2015. At the end of December 2014, the average policy funding ratio stood at 110%. Under the revised Financial Assessment Framework (nieuw Financieel Toetsingskader – nFTK), which was introduced on 1 January 2015, pension funds must determine their financial policy on the basis of their policy funding ratio. The policy funding ratio is the twelve-month average funding ratio based on daily market information.

By contrast, the funding ratio based on daily market information went up to 107% in May, from 103% in March, mainly on the back of the rise in the interest rate term structure (Table 1.3.1) in that period. For instance, 30-year rates were up by 42 basis points. The interest rate increase brings down the pension funds' liabilities, but it also reduces the value of their fixed-income asset portfolios, albeit to a smaller degree. Equity prices (Table 3.1) also went up in the second quarter of 2015, which had a positive effect on the value of pension funds' equity portfolios. Despite these positive developments, the funding ratio based on daily market information is still lower than its level twelve months ago, causing the policy funding ratio to come down.

At end-May 2015, the pension funds representing the majority of all members, i.e. 3.1 million active members and 1.7 million pensioners, had a funding ratio between 100% and 105%. As most of these funds have a policy funding ratio below the required funding ratio, they are in a deficit situation. Pension funds in deficit must submit a recovery plan to DNB by 1 July 2015 at the latest.

Chart 1: Policy funding ratio (%)

Policy funding ratio - june 2015