The four largest Dutch pension funds saw their coverage ratios drop during the third quarter – despite strong returns – due to the sharp drop in long-term interest rates. Long-term interest rates have fallen from 3.15% to 2.78% in the third quarter, down from 3.9% at the end of 2009.
The €230bn civil service scheme ABP reported a 5.7% return on investments, but said its funding ratio still fell by 1 percentage point to 94%. However, the scheme added that, due to the volatility of interest rates – the mandatory criterion for discounting liabilities – its coverage ratio had increased again by 6 percentage points in September, after a 10-point drop in August. ABP’s recovery plan stipulates that its funding ratio must be 96% at year-end to avoid benefit cuts or a further increase of contributions.