Dutch Pension Perspectives: Average policy coverage ratio increased to 104.5% in Q3 - Rabobank
Bas van Zanden, Senior Pension Analyst at Rabobank, notes that the average policy coverage ratio was 104.5% (up from 101.9% in Q2) and 67% of the funds have a policy coverage ratio below the minimum required capital ratio by Dutch pension sector.
Key Quotes
“Last week DNB published an update of key indicators of the pension sector for Q3 2017. The average policy coverage ratio increased to 104.5% in Q3 (up from 101.9% in Q2), mostly due to an increase in assets which was the result of positive equity markets. This is still well below the average required coverage ratio of 123.5%.”
“General pension funds only make up a fraction of the total market but they see the highest relative growth. The assets under management increased from € 2.1 bn in Q2 to € 3.7 bn in Q3 mainly explained by pension fund Holland Casino joining Stap APF.”
“The policy coverage ratios of all type of pension fund increased, except for general pension funds. This is mainly explained by new inflows and high interest rate hedging.”
“In Q3 less than 1% of the pension funds have a coverage ratio below 95%. However, 67% of the funds still have a policy coverage ratio below the minimum required capital ratio, which on average is 104.2%. Most pension funds will have to cut pensions if they are still below the minimum required capital ratio at the end of 2020.”
“The weighted average return in Q3 was 1.6% qoq (up from -0.3% qoq in Q2) mainly due to the positive equity markets. Overall performance was very similar between different types of funds with the best performance for the industry wide funds (1.7%).”
“Pension funds had an average interest rate hedging ratio of 39%. This hardly changed compared to previous quarter. On average, general pension funds have the highest while the industry wide funds have the lowest interest rate hedging ratio. The top 3 biggest changes qoq in the interest rate hedge ratios for funds with assets under management above 500m.”