July 14, 2015 / 1:21 PM / 4 years ago

Dutch pension costs to rise as assumed investment returns cut

AMSTERDAM, July 14 (Reuters) - Dutch regulators lowered the average return pension funds are allowed to assume over the long run, forcing them to hike premiums to build up capital in the latest blow to financial institutions caused by persistent low interest rates.

The decision, announced on Tuesday by the Dutch central bank, which regulates most financial institutions in the country, comes soon after it warned that sustained low interest rates in Europe were threatening insurers’ solvency.

Until now, pension funds have been able to calculate their assets and liabilities assuming long-term returns at an Ultimate Forward Rate (UFR) of 4.2 percent, but this level has now been cut to 3.3 percent, reflecting the low interest rate environment.

“For pension scheme participants it is important that there be a realistic pricing of pension obligations and premiums,” the central bank said. “The new level of the UFR reflects real developments in market interest rates.”

Relative to the size of its economy, the Netherlands has the largest pool of pension fund assets in the world, with some $1.2 trillion invested in pension schemes in 2012, according to consultancy Towers Watson.

The Pension Federation, an industry group, said it was “very disappointed” by the decision, which it said would impose a cost on scheme participants.

The new guideline means funds will need to raise more money from working-age pension scheme participants and their employers in order to be judged capable of meeting their obligations to future pensioners. (Reporting by Thomas Escritt; Editing by Mark Potter)

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