Dutch Government Accused Of Kicking Can Down the Road Over Actuarial Rate Adjustments
25 September 2012 (PLANSPONSOREurope.com) – The new Netherlands government has been accused of kicking the can down the road over adjustments to the actuarial rate for pension funds.
Among a number of measures discussed and agreed with De Nederlandsche Bank (DNB), which supervises pension funds, the DNB has committed to altering the actuarial interest rate for pension funds.
From 30 September 2012, an amended method using an ultimate forward rate will be applied to determine the value of the liabilities of pension funds as from twenty years’ time .
This move aims to make the interest rate less sensitive to fluctuations in the financial markets. Insurers have followed a similar method since 30 June 2012.
The change means for durations of 1-20 years for loans and benefits to be paid out for the next 20 years, funds still take the actual market interest rate but from the 20 year point they gradually go to a (forward) interest rate of 4.2% so the further funds go into the future, the higher the interest rate will be.
But Jeroen Koopmans, principal at Dutch actuary LCP told PLANSPONSOR Europe adjusting the actuarial rate does not mean the problem goes away.
“We are not too happy with the new ultimate forward rate," he said.
"It makes the funding ratios of pension funds less sensitive to the long duration interest rates. This actually means that part of the current interest risk is moved towards the future.
“As of year 21 market interest is just neglected and the forward interest rates will move gradually to 4.2%."
And he warned:“We think the actual risks for the pension funds haven’t changed.
"There is still interest risk with respect to the benefits due in 30 or 50 years’ time, but pension funds will only be judged on their risk management concerning the first 20 years.
"Pension funds should find a balance between managing the actual market risks and the newly introduced model risk. ”
But a spokesperson for the FNV trade union told PLANSPONSOR Europe calculating a person’s pension based on current interest rates was unrealistic.
“The pension funds are steered by employers and employees because it is the money of the workers.
“They are facing one big problem and that is the interest rate because of the financial crisis and in Europe,” the spokesperson added.
For the long term, FNV hopes for a change in conditions, according to the spokesperson.
“We believe the interest rate is not a realistic rate because we are in a crisis. We believe hopefully in 20, 30 years times will have changed and the interest rate would have changed.
“It is unrealistic to say the situation we are dealing with right now, we will be dealing within 15 years,” said the spokesperson.
“Nobody can predict the future but a lot of experts have said it is unrealistic to calculate pensions that will have to be paid to the next generation on the present interest rate.”