UPDATE 1-PostNL to renegotiate pension obligations

* PostNL can't meet obligations under current conditions

* To reduce pension contributions

* To start negotiating new pension agreements

* Cash dividend payment to stop

* Investment budget reduced (Adds more detail)

AMSTERDAM, Dec 19 (Reuters) - Dutch postal group PostNL said its current pension obligations are untenable due to financial market turbulence and low interest rates and as a result it will reduce its pension contributions and stop its cash dividend.

PostNL said it would start talks with the pension funds and the trade unions to discuss changes to the pension arrangements and that in response to these "unforeseen circumstances," it will be reducing its investment budget and won't be paying out a dividend in cash "for the time being."

The firm said a variety of factors including, turbulence on the financial markets, a falling coverage ratio caused by low interest rates, and the unusually high premiums it pays per employee, have made its current pension obligations untenable.

The coverage ratio of PostNL's largest pension fund, a figure used to judge a fund's ability to meet its future liabilities, fell this autumn to 96 percent, while underfunding in its pension funds had risen to almost 500 million euros by the end of Sept. 2011, the firm said on Monday.

In the Netherlands, pension funds are legally required to have a 105 percent coverage ratio set by the Dutch Central Bank to ensure the fund is in good health and capable of meeting its payments or liabilities.

Under the current circumstances, PostNL said it would have to supplement the pension fund, but as it fears the problem could only get worse in the coming years due to financial turbulence, it would rather renegotiate the terms of the funds.

"The current arrangements put too much financial pressure on the company....we recognise the impactful nature of these steps and the unfortunate timing, but they are unavoidable under the present circumstances," said Harry Koorstra, PostNL chief executive said.

(Reporting By Roberta B. Cowan. Editing by Jane Merriman)