Netherlands pensions

Dutch Pension Funding Ratios Drop By 5 Percent in January

The funding ratios of Dutch pension funds have fallen on average by 5 percentage points in January on the back of low interest rates, according to Mercer and Aon Hewitt.

Average funding, according to estimates by Aon Hewitt and Mercer, fell by 5 percentage points over the period, due to persistently low interest rates, the criterion for discounting liabilities.

[…]

The consultancies also attributed the sudden drop in funding to a new accounting method for calculating coverage ratios.

Since 1 January, when the Netherlands introduced its new financial assessment framework (FTK), schemes’ funding has been based on actual interest rates while applying the ultimate forward rate (UFR), rather than the three-month average of interest rates plus UFR.

In addition, the new FTK came with a ‘policy funding ratio’ – meant as a criterion for rights cuts and indexation – consisting of the average coverage of the previous 12 months.

According to Aon Hewitt, policy funding stood at 109% at January-end, while Mercer placed the figure at 109.6%.

[…]

[Aon Hewitt chief commercial officer for retirement and financial management Frank] Driessen said the ECB’s recently announced quantitative-easing programme had led to a further slide of interest rates and predicted that rates would remain low for “a long time”.

The average funding ratio of Dutch pensions stood at 103 percent at the end of January, according to Aon Hewitt.

Netherlands Regulator: Some Pension Funds Not Doing Enough to Manage Conflicts of Interest

The Nederlandsche Bank (DNB), the entity that regulates the Netherlands’ pension funds, is concerned that some pension funds have not implemented adequate policies protecting against conflicts of interest.

From Investments and Pensions Europe:

Most pension funds’ boards pay insufficient attention to potential conflicts of interest of policy makers, pensions regulator De Nederlandsche Bank (DNB) has suggested.

It indicated it was not satisfied with the outcome of a sector-wide survey, during which it checked whether schemes had conducted a risk analysis or had formulated a policy on conflicts of interest.

DNB concluded that a large number of pension funds had not conducted an analysis, and had at best a policy that was not based on such a risk assessment.

Additionally, it found that many schemes did not declare and register the main functions and jobs on the site of board members and other decision makers, and did not have a view on their private interests either.

However, almost all pension funds had rules in place for how to deal with gifts, according to DNB.

In its opinion, merely a handful of pension funds fully managed the risks posed by conflicts of interest.

The watchdog commented that conflicts of interest could lead to “impure decision-making, which could harm pension funds”. Therefore, trustees must actively fight conflicts of interest, it said.

DNB added that, during discussions with trustees, it had noted that the subject is charged, and that the sector needed clear examples as to what constituted a conflict of interest.

DNB now says it will come up with a list of “good practices” for combating conflicts of interest.

Pension Funds Criticize Excessive Private Equity Fees; More Look To Direct Investing

Pension fund officials from Canada and the Netherlands expressed their frustration with private equity fees during a conference this week.

The chief investment officer of the Netherlands’ $220 billion healthcare pension fund said it needs “to think about” the fees it is paying, according to the Wall Street Journal.

Ruulke Bagijn, chief investment officer for private markets at Dutch pension manager PGGM, said a Dutch pension fund for nurses and social workers that she invests for, paid more than 400 million euros ($501.6 million) to private-equity firms in 2013. The amount accounted for half the fees paid by the PFZW pension fund, even though private-equity firms managed just 6% of its assets last year, she said.

“That is something we have to think about,” Ms. Bagijn said.

Among the things pension officials are thinking about: bypassing private equity firms and fees by investing directly in companies. From the Wall Street Journal:

Jane Rowe, the head of private equity at Ontario Teachers’ Pension Plan, is buying more companies directly rather than just through private-equity funds. Ms. Rowe told executives gathered in a hotel near Place Vendome in central Paris that she is motivated to make money to improve the retirement security of Canadian teachers rather than simply for herself and her partners.

“You’re not doing it to make the senior managing partner of a private-equity fund $200 million more this year,” she said, as she sat alongside Ms. Ruulke of the Netherlands and Derek Murphy of PSP Investments, which manages pensions for Canadian soldiers. “You’re making it for the teachers of Ontario. You know, Derek’s making it for the armed forces of Canada. Ruulke’s doing it for the social fabric of the Netherlands. These are very nice missions to have in life.”

But an investment firm executive pointed out that direct investing isn’t as cost-free as it sounds. From the WSJ:

[Carlyle Group co-founder David Rubenstein] warned that investors who do more acquisitions themselves rather than through private-equity funds will have to pay big salaries to hire and retain talented deal makers.

“Some public pension funds will just not pay, in the United States particularly, very high salaries and will not be able to hold on to people very long and get the most talented people,” Mr. Rubenstein said at the conference. “I don’t think there are that many people who will pay their employees at these sovereign-wealth funds and other pension funds the kind of compensation necessary to hold on to these people and get them.”

[…]

Mr. Rubenstein had a further warning for investors seeking to compete for deals with private-equity firms. “If you live by the sword you die by the sword,” he said. “If you are going to do disintermediation you can’t blame somebody else if something goes wrong.”

Pension360 has previously covered how pension funds are bypassing PE firms and investing directly in companies. One such fund is the Ontario Municipal Employees Retirement System. The fund’s Euporean head of Private Equity said last month:

“The amount of fees that we were paying out for a fund, 2 and 20 [percentage points] and everything that goes with that, was a huge amount of value that we were losing to the fund,” Mr. Redman said. “If we could deliver top quartile returns and we weren’t hemorrhaging quite so much in terms of fees and carry that would mean that we would be able to meet the pension promise.”

Photo by http://401kcalculator.org via Flickr CC License

Video: Do The Dutch Have The Pension Problem Solved?

The Dutch pension system is in the news again after an extensive New York Times report that shined light on a pension system that is “scrupulously funded” and “brutally honest” about its pension liabilities.

In light of that report, we though it would be appropriate to re-visit this 2013 video by PBS, which can be viewed above.

From the video description:

As cities and states across the U.S. grapple with their pension programs, we travel to one country — The Netherlands — that seems to have its pension problem solved. Ninety percent of Dutch workers get pensions, and retirees can expect roughly 70% of their working income paid to them for the rest of their lives. Olaf Sleijpen of the Central Bank of the Netherlands says “I think what makes it successful is that you basically force people to save for their old age.”