Dutch caretaker government relaxes rate rules for stretched pension funds

IN ADVANCE of the September general election, the Dutch caretaker government has relaxed the interest rate rules for financially stretched pension funds – so they will not have to cut payments to millions of pensioners from 2013.

The decision takes the political heat out of a warning from the Central Bank earlier this year that some 7.5 million people – some retired and others still at work – would face lower than expected pensions starting next year unless the 103 Dutch funds took action.

In a lead which could be followed by other euro zone countries, minister for social affairs Henk Kamp said the government would allow the pension funds to increase their key discount rates – the rate at which they calculate the value of the assets currently available to meet future obligations.

By increasing that rate, and therefore the value of the assets, the funds will not be obliged to cut payouts immediately to meet the statutory minimum coverage ratio of 105 per cent – the figure used to calculate and ensure the solvency of the funds.

In response, the health service fund, PZW, one of the largest in the Netherlands, calculated that the government’s imaginative pre-election action would have the immediate effect of boosting its coverage ratio by 10 percentage points to a stable 107 per cent.

The change will form part of a package of new pension rules to be introduced in the September budget, said a spokesman for Mr Kamp – in the expectation that caretaker prime minister Mark Rutte’s Liberal Party (VVD) will be returned to power in a new coalition government.

The pension news may have been at attempt to balance a warning that further spending cuts of €24 billion will have to be made over the next four years.