Netherlands' biggest pension fund calls for rule changes to avoid payout cuts next year: De Telegraaf

AMSTERDAM (Reuters) - The head of the Netherlands’ biggest pension fund, ABP, said Dutch pension rules should be changed to avoid an expected cut in pensions payouts next year due to low interest rates.

FILE PHOTO: Corien Wortmann-Kool, Chairman of ABP speaks at the Global Entrepreneurship Summit 2019 (GES 2019) in The Hague, Netherlands June 4, 2019. REUTERS/Piroschka van de Wouw

Several Dutch pension funds, including ABP - which oversees 464 billion euros ($506 billion) in assets - saw their coverage ratios fall below 90% for the first time in August as falling interest rates led to a sharp increase in their liabilities.

Under current Dutch rules, if funds’ coverage ratio is below 95% at the end of 2019 they must cut payouts, which means pensions will be cut for millions of retirees in 2020 unless there is a rule change.

Corien Wortmann, CEO of ABP, said in an interview with Dutch daily De Telegraaf that she thought payout cuts would be unfair, given that ABP has earned reasonable investment gains over the past decade.

“The rules of the game in the current contract are bankrupt, we need new rules quickly. Otherwise we’re making our pension(s) into a football,” she said in the interview published on Friday.

Pensions funds and insurers around the globe saw their solvency slide in August. The Dutch private pension system, one of the world’s largest, was shocked by the slide of government bonds yields into negative rates 20 years in the future.

A large share of pension premiums are now being invested at negative rates, locking in losses on day one.

Wortmann dismissed the argument that low interest rates were the sole driver of funds’ good performance.

“We have a varied investment portfolio of bonds, shares, infrastructure, real estate and private equity,” Wortmann told the paper. “Experience tells us that sometimes one or another does well, so it’s not true to say we have had our good returns due to low interest rates.”

The Netherlands’ central bank president, Klaas Knot, and other experts have called for pensions cuts to be carried out according to the existing rules, to avoid even more dramatic cuts in the future.

“I think we have no other choice but to accept that the low and negative rates will be with us for a long time, and so we have to change our pension system to accommodate that. We are late, we should have done that 10 years ago,” Knot told Dutch lawmakers on Monday.

($1 = 0.9163 euros)

Reporting by Toby Sterling; Editing by Susan Fenton