Many Dutch people are at risk of receiving less pension next year. Pension funds were in better shape at the end of September than a few months ago, partly due to a lower life expectancy, but they are not out of the danger zone. This is evident from figures published by the funds on Tuesday. Premium increases are also imminent.
Pension funds must cut their pensions if their funding ratio, the degree to which a fund can meet its future obligations, is below 90 percent by the end of this year. At the largest fund in the Netherlands, the ABP civil service fund, this coverage ratio was 88.2 percent at the end of last month. That was higher than the 85.2 percent at the end of the second quarter.
The increase was partly due to the fact that life expectancy in recent years rose less rapidly than initially thought, as a result of which the funds have fewer future payment obligations. The consequences of COVID-19 have not been included in this. There is still too much uncertainty about this.
However, the lower life expectancy does not mean that the civil service fund is out of trouble. “As it stands now, the chance of a pension reduction for next year is real,” says ABP chairman Corien Wortmann-Kool. “At the current level, for an average ABP pension of 700 euros net, that would be about 15 euros net per month.”
Other funds also do not rule out a reduction
The Pension Fund for Care and Welfare (PFZW) also saw that its funding ratio at the end of September was not high enough at 88.5 percent. “We are seriously considering a reduction in pensions in 2021,” the fund said in an explanation.
The pension funds for the metal and engineering sector, PME and PMT, had funding ratios of 93.7 and 92.2 percent respectively at the end of September. Although that may seem sufficient at first sight, the funds are by no means certain that a pension cut will be over.
Despite the increase, “there remains a chance that the funding ratio will fall below 90 percent before the end of the year and that we will have to reduce pensions next year,” says PME chairman Eric Uijen. PMT also does not rule out a reduction.
The problems at the various funds were caused by the disappointing returns on investments in the first part of the year, when the corona crisis erupted. Since then, the funds have recovered somewhat from the blow, but not to the extent that pension cuts are off the track.
Pension premiums may be increased
The current financial position of the funds also means that some of these may need to increase pension contributions. In the summer, for example, ABP already indicated that it expected premiums to increase by a few percentage points in 2021. The PFZW reports on Wednesday that it also expects premiums to rise.
The financial position of the pension fund for the construction sector (bpfBOUW) was much better at the end of September, with a coverage ratio of 107.1 percent. The fund is therefore not talking about a possible reduction in pensions.
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