U.S. Markets

Top two Dutch pension funds ABP, PFZW warn of impending payout cuts

AMSTERDAM (Reuters) - The two biggest Dutch pension funds, ABP and PFZW, warned on Thursday that they will likely be forced to cut pension payouts in 2020 due to sustained low interest rates in Europe.

The funds, which are also among the world’s largest, are both suffering after the sharp fall in European interest rates in August, which increased the size of their liabilities.

ABP said its assets of 459 billion euros ($508.25 billion) at the end of the third quarter were not enough to cover liabilities of 504 billion euros, leaving it with a coverage ratio of 91%.

A coverage ratio for a fund of less than 95% is considered a critical threshold under the country’s pension rules, and cuts will be necessary if they are below that level on Jan. 1 unless the rules are changed.

“It looks like we will have to lower pensions next year and it also does not look good for the years after that,” said ABP chairwoman Corien Wortmann-Kool in a statement.

“Continuing low interest rates are a reality,” she said, adding she still hopes to avoid a cut next year via a rule change.

The PFZW fund, with 238 billion euros in assets, said its coverage ratio stood at 92.2% at the end of the quarter.

Though interest rates have been falling in the Netherlands for years, many blame the European Central Bank’s (ECB) bond-buying program for keeping rates artificially low, which would mean the funds’ liabilities are artificially high.

With national elections coming no later than March 2021, many politicians are lobbying against “unnecessary” pension cuts.

On Wednesday evening the Dutch parliament unanimously passed a resolution seeking an ECB policy review.

“Seeing that low, negative interest rates are seen by the Dutch central bank as the largest risk facing the Dutch economy, parliament declares that it is very desirable the ECB carries out a deep review of its strategy, methods, and theoretical underpinnings,” the resolution said.

It instructed Prime Minister Mark Rutte’s government to deliver the message to incoming ECB President Christine Lagarde, who takes office from November.

Reporting by Toby Sterling; Editing by Muralikumar Anantharaman