(updated with clarification)
More Dutch defined benefit plans might be following the U.K.'s lead in transferring their pension risks to insurance companies through buyout or buy-in transactions, according to consultants and insurers.
“What's happening in the rest of Europe is that the buyout and buy-in markets have started to develop,” said Kelvin Wilson, associate director in the pensions advisory division at Grant Thornton UK LLP based in London. “Sponsors in other European countries are looking at the lessons learned from the U.K.”
A buyout involves buying bulk annuities to partially or completely transfer pension assets and liabilities to an insurance company. In comparison, a buy-in is usually less expensive and involves insuring the pension liabilities while keeping the pension fund on the company's balance sheet.
In addition to the Netherlands, some corporate pension funds in Scandinavia also are considering transferring their pension assets and liabilities to an insurance company, according to other sources. Irish corporate plans, which are struggling with similar issues, might be next in line.
Since 2000, the number of pension funds in the Netherlands has nearly been cut in half, to 545 as of Sept. 30, 2010. While many have merged or joined an industrywide pension fund, others have implemented insurance-based approaches such as buyouts. Exact numbers are not available, but estimates based on data from De Nederlandsche Bank, the Dutch central bank, show that as many as 250 have liquidated by transferring assets and liabilities to an insurance company.
Initially, mostly small plans — those with a few million euros in assets implemented buyouts. Now, however, sponsors of larger plans are considering liquidating through an insurance company. Among the latest is the €270 million ($372 million) Stichting Nutreco Pensioenfonds, Nutreco Holding NV's DB pension fund based in Tilburg, Netherlands.
“A lot of funds have vanished,” said Kristel Kusters-van Meurs, principal and head of the pension fund advice group at Mercer LLC based in Amsterdam. “We expect that many more (pension fund executives) are considering closing their pension funds.”
Some of the factors driving larger Dutch pension funds to consider a buyout are similar to those that occurred in the U.K. in the early 2000s. Back then, a combination of increasing life expectancy, falling interest rates and increasing market volatility caused pension liabilities to rise at the same time that stricter accounting regulations meant that pension deficits became more visible on company balance sheets.