Stichting Pensioenfonds ABP, Heerlen, Netherlands, wants rules over the transition to a new retirement system in the country to be clarified quickly so funds are not forced to unnecessarily cut benefits.
The Netherlands will introduce a new retirement system, moving to a defined contribution system from defined benefit, by 2026. ABP, which has €493 billion ($443.9 billion) in assets, wants the Dutch Minister of Social Affairs and Employment, Wouter Koolmees, to quickly clarify the rules for the transition period up to 2026 to prevent any benefit cuts caused by falling solvency ratios.
"A pension increase is a long way off and the chance of a reduction will remain realistic in the coming years," Corien Wortmann-Kool, CEO of ABP, said Thursday in a news release. "Together with other large funds, we are working hard on a new pension contract for 2026, in which interest rates play a less important role, so that we can increase pensions sooner if the economy is going well. In addition, the chance of it decreasing if things go wrong. But there can only be a pension reduction if it is necessary from the perspective of the new pension contract and that is currently insufficiently arranged. That is why I call on Minister Koolmees to quickly clarify the rules of the game for the period up to 2026, so that we can prevent unnecessary cuts," he said.
In the Netherlands, pension funds are usually required to maintain a funding ratio of 104%. If the ratio falls below that level for five consecutive years, it is subject to cutbacks in benefits until the fund reaches the required funded status. However, to help pension funds cope with the transition to the new system, the Dutch Ministry of Social Affairs and Employment in 2019 said pension funds with a funding ratio above 90% do not have to reduce their pension benefits. This was the case in 2020, largely due to the impacts of the coronavirus pandemic.
ABP said that it was unable to prevent a reduction in pension benefits at the end of last year due to the impact of the coronavirus outbreak in Europe in the first quarter.
Due to the crisis, its funding ratio fell to 82% as of March 31, from 97.8% as of Dec. 31, 2019.
It rebounded in the second, third and fourth quarters to reach 93.2% by the end of 2020. As a result, ABP participant benefits will remain the same in 2021.