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Dutch Nurses’ Pension Payouts May Be Cut Amid Low Rates

July 19, 2012

The 118 billion-euro ($145 billion) pension fund for 2.5 million Dutch health-care workers became the latest retirement plan to warn of payout cuts due to lower interest rates.

Pensioenfonds Zorg en Welzijn, or PFZW, today said that its coverage ratio, a measure of assets relative to future benefit payments, fell to 92 percent at the end of the second quarter from 96 percent at the end of March. The ratio would need to recover to at least 100 percent by the end of December to prevent payment cuts.

“Although our assets increased by investment returns, the low interest rates and increasing life expectancy may make it inevitable to lower pensions next year and increase premiums,” Peter Borgdorff, managing director of the second-biggest Dutch pension fund, said in the statement.

Dutch retirement plans have been struggling to keep their financial buffers at levels required by the nation’s central bank as Europe’s debt crisis lingers, driving down yields on bonds from nations perceived to have the soundest finances, including the Netherlands. Investment returns haven’t been sufficient to keep up with the value of obligations. The liabilities are discounted at a market rate, and the value of those liabilities rises as rates fall.

The Netherlands has the euro region’s biggest pension industry, with 913 billion euros in assets at the end of the first quarter, data from the Dutch central bank show. The assets are held in collective plans run by industry, company and occupational pension funds.

Discount Rate

The discount rate dropped to 2.27 percent at the end of June from 2.54 percent at the end of March, decreasing the coverage ratio by 5 percentage points, PFZW said. Investment returns and interest-rate hedges had a positive effect of 1 percentage point.

Stichting Pensioenfonds ABP, the Netherlands’ biggest retirement fund, said in January it may reduce pensions by about 0.5 percent in 2013 and raise premiums by 3 percent if it doesn’t recover sufficiently during the year. More than 100 plans in the Netherlands have announced similar intentions.

ABP, which manages 261 billion euros for 2.8 million people, today said additional cuts for 2014 may be needed. Its coverage ratio fell 5 percentage points to 90 percent during the first quarter, putting its recovery further off course. Return on investment was 0.1 percent in the second quarter.

Call for Change

The central bank’s decision to allow retirement plans to use a three-month average swap rate to calculate liabilities, rather than the rate at the end of the reporting period, hasn’t provided relief to the funds.

PFZW had a return on investment of 1 percent in the second quarter, compared with an annual average of 8.2 percent since the fund’s inception in 1971. Equities lost 3.9 percent during the quarter, while commodities fell 16 percent as oil prices declined on a worsening global economic outlook.

Borgdorff called on the Dutch government to speed the introduction of a new method of calculating liabilities using a less volatile rate, which may make payout cuts for the plan’s participants less severe.

Minister of Social Affairs Henk Kamp said in May that he plans to allow funds to value obligations using a “stable and realistic prognosis of long-term interest rates,” known as the ultimate forward rate. The government hasn’t decided when this will apply.

Kamp told Het Financieele Dagblad this week that the change’s effects on coverage ratios will be limited to make sure younger savers’ pensions aren’t at risk.

To contact the reporter on this story: Maud van Gaal in Amsterdam at

To contact the editor responsible for this story: Frank Connelly at

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