Dutch pension funds' policy funding ratio at 97.5% at year-end 2016

Statistical News Release
Date 31 January 2017

The Dutch pension funds' average policy funding ratio dropped by 0.6% to 97.5% in the final quarter of 2016. This means it was below the minimum required funding ratio at 31 December. The policy funding ratio is the funding ratio on which pension funds must base their policy decisions. It is calculated as the average of the funding ratios for the past twelve months. Over the final quarter of 2016, the funding ratio based on daily market information – the ratio of pension funds’ assets to pension liabilities – went up 5.3 percentage points to 102.1%, returning to the level seen at year-end 2015.

Funding ratio
The total value of the pension liabilities decreased by EUR 84.6 billion to 1,246.0 billion at year-end 2016, largely driven by a rise in the interest rate term structure on the basis of which they are calculated. For example, the interest rate for a 30-year maturity went up by more than 40 basis points in the fourth quarter, against a fall of almost 9 in the previous quarter. The value of the available assets fell by EUR 16.1 billion, to reach EUR 1,272.0 billion. As capital market rates went up, the value of government and corporate bonds fell on average, whereas equity indices showed a marked increase in the final quarter of 2016. For example, the AEX index was up 6.8 percentage points, and the Dow Jones index 7.9. On balance, this caused the value of available assets of pension funds to decline in the fourth quarter of 2016. The value of pension liabilities dropped more than that of available assets, however, causing the funding ratio based on daily market information to increase.

Pension funds must meet the statutory minimum funding ratio, which for most of them is 104.2% or slightly above. The policy funding ratios of more than half (61%) are currently below their statutory minimum. At 31 December 2016, these pension funds represented around 4.1 million active members and around 2.4 million retirees. Pension funds must also meet a statutory required funding ratio that depends on the risks inherent in their investment policy. Pension funds whose policy funding ratio is below their required funding ratio are obliged to draw up a recovery plan, outlining the measures they will be taking to improve their financial position, and review the plan each year. As a last resort, these funds may decide to curtail pension benefits.