11 October 2019

Pressure on actuarial interest rate for pensions increasing

Currently, there is much uncertainty about potential cuts and the related actuarial interest rate in the pension sector. In September, the Federation of Dutch Pension Funds sounded the alarm on the devastating effects of the lower/negative interest rate on pension funds’ coverage ratio. According to the Federation, pension cuts will threaten the pension system’s durability. A pension fund must carry out pension cuts if its own funds drop below a coverage ratio of about 104% for a number of years. Coverage ratios are calculated on the basis of the actuarial interest rate. A lower actuarial interest rate leads to lower coverage ratios. The government has said that it is no longer reasonable to continue applying the 104% ratio; it will discuss a 100% ration with the sector. On 10 September, parliament unanimously adopted a motion asking the government to prevent pension cuts and to develop plans which take the short and long-term durability of the system into consideration. The government has committed to responding to the motion and discussing the actuarial interest rate with parliament.

 This article is only available in Dutch, click here to read it.

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