Policy funding ratio falls to 102% in first quarter of 2016

Statistical news
Datum 28 april 2016

The Dutch pension funds' average policy funding ratio fell from 104% to 102% in the first quarter of 2016. A year earlier, at the end of March 2015, the average policy funding ratio stood at 109% (see Table 8.8). The policy funding ratio has been the main indicator for pension funds' financial policies since the new Financial Assessment Framework came into effect on 1 January 2015. The policy funding ratio is the twelve-month average funding ratio based on daily market information.

Policy funding ratio

The Dutch pension funds' average policy funding ratio based on daily market information declined sharply from 102% to 96% in the first quarter of 2016. The decrease is primarily due to the downward trend in the interest rate term structure (Table 1.3.1). For example, the 30-year rate including the UFR fell by 53 basis points to 1.31% (Table 1.3.1). Whereas on the one hand falling interest rates have caused the pension funds' liabilities to increase, on the other the value of their fixed-income portfolios also grew. However, the effect on liabilities was much greater than on fixed-income securities. The most important equity prices (Table 3.3) mainly lost value in the first quarter. The MSCI World index, for instance, fell by 2.5% and the AEX index by 0.4%. This had a negative impact on the pension funds' equity portfolios.

Both developments have led to a lower funding ratio based on daily market information. Because this funding ratio is lower than one year ago, the policy funding ratio has declined.

At the end of March 2016, the pension funds representing the majority of all members had a policy funding ratio of below 105%. i.e. 3.9 million active members and 2.2 million pensioners, had policy funding ratios below 105%.