AMSTERDAM, Sept 16 (Reuters) - Several Dutch pension funds, including the biggest, ABP, which oversees 464 billion euros in assets, reported on Monday their coverage ratio fell below 90% for the first time in August, meaning pensions will be cut for millions of retirees in 2020 unless there is a rule change.
Pensions funds and insurers around the globe saw their solvency slide in August. The Dutch private pension system, one of the world’s largest, was shocked by the slide of government bonds yields into negative rates 20 years in the future.
A large share of pension premiums are now being invested at negative rates, locking in losses on day one.
“The situation became even worse because the European Central Bank pushed rates down further” on Sept. 12, said Peter Borgdorff, director of the health workers pension fund PFZW, which has 225 billion euros in assets under management and reported a coverage ratio of 89.8% on Monday
“We must operate as if we can’t earn anything on investments with your pension funds for decades,” Borgdorff said in a note on Friday. “The situation is not sustainable.”
Pensions are quickly becoming one of the most explosive issues facing Prime Minister Mark Rutte’s Cabinet, as most retirees have not seen a cost-of-living increase on pension payouts since the financial crisis of 2008.
Meanwhile, inflation has been rising and was running at 2.8% in August from a year earlier.
“We oppose cuts that we think are not necessary,” said spokesman Harrie Lindelauff of the FNV Union, the country’s largest.
“We have called on the Cabinet to prevent it from happening, as it is impossible to explain to our members, given the good returns made by pension funds over the past decade.”
Under current Dutch rules, if funds’ coverage ratio is below 95 percent at the end of 2019, they must cut payouts.
In a debate with Parliament on Sept. 6, lawmakers called on Social Affairs Minister Wouter Koolmees to stop using market rates to forecast asset growth.
“In simple terms, against those large assets, and yes they are big — around 1.5 trillion euros — there are even greater obligations, more promises to participants,” he said, arguing market rates should be used to measure both funds assets and liabilities.
“That’s why the coverage ratio is less than 100 percent, and that’s the reality.”
A spokesman for Social Affairs Ministry said Koolmees is in talks with funds to see “what the possibilities are”. (Reporting by Toby Sterling, editing by Ed Osmond)