Dutch Plan Sponsors Warned to Be Alert to Risks Within Pension Fund
20 July 2012 (PLANSPONSOREurope.com) - Dutch plan sponsors have need to be alert to the risks of their fund as pension funds in the Netherlands come to terms with the impact of low interests on coverage ratios, Kristel Kusters-van Meurs, Mercer’s DB Risk Leader for the Netherlands has told PLANSPONSOR Europe.
This week DutchNews.nl reported that a number of Dutch pension funds had recorded coverage ratios lower than the country’s legal requirement increasing the possibility that they would have to cut pension benefits.
Kusters-van Meurs told PLANSPONSOR Europe: “In general the investment policy is the responsibility of the fund, consulted by the investment committee. We advice sponsors to take good notice of the risks within the fund. The new pension agreement gives sponsors the opportunity to determine and set down their risk appetite.
“There is a limited group of sponsors that pays a lump sum in case of a low coverage ratio. If the fund is relatively young, the premium has a bigger impact on the financial position. The premium margin and the new accrual can then limit the fall of the coverage ratio.
“Still, most funds don't receive a lump sum from the sponsor and are rather mature. They can influence the coverage ratio by their investment policy. Attributors to a higher coverage ratio generally were: a relatively high level of interest rate risk hedge, allowing for currency risk against the Euro (e.g. not hedging the dollar) and exposure to certain alternative investments / commodities. These type of investment decisions can have a big impact on the funding ratio.”