Netherlands’ ABP, one of the world’s largest pension funds warned Friday that it may have to reduce pension payments and called on authorities to change regulations, as historically low interest rates are making it increasingly difficult for it to maintain guarantees under current valuation rules. The pension fund also warned that higher life expectancy will have a bigger negative impact than previously expected.
Experts say that the Netherlands’ generous pension system, in which many citizens over the age of 65 receive 70% of the net minimum wage, needs to prepare for a drastic restructuring to cope with these challenges. ABP, which covers 2.8 million active and retired civil servants and teachers in the Netherlands, said Friday it may have to cut pension payments as of 2011 because its coverage ratio–a gauge that measures the fund’s assets relative to its liabilities–dropped to 88% in August, far below the legally required minimum of 105%.
It said it may not be able to guarantee current payout levels at the end of the year, adding that it will assess if it needs to take additional measures at the beginning of 2011. It is another setback for ABP, which was hit hard by the financial crisis. The fund, which currently has EUR218 billion worth of assets under management, lost around 20% of its total capital in 2008, although it managed to offset most of these losses since 2009.