NETHERLANDS - The IMF has warned that the financial losses on pension fund assets will have macroeconomic consequences for the Dutch economy and has called for a strengthening of the second pillar funding position.
The problems stem from the high allocation to equities that many funds have developed over the last few years and the subsequent downturn in world equity markets. In times of economic downturn, companies are forced to contribute more to make up the losses, thereby exacerbating the cycle.
From September 2002, the Dutch insurance and pension supervisor (PVK) has stipulated that the funding ratio must remain at or above 105%. In addition, buffers must be held to ensure solvency in the case of a 40% decline in equity values relative to the peak in the previous 48 months, or a 10% decline from the lowest value in the last 12 months, according to the IMF report. Funds have been given eight years to comply with the PVK regulations.
The Dutch Bureau for Economic Policy Analysis (CPB) has previously said that in order to comply with such buffers, pension funds would need to have a funding ratio of 130%. This represents an increase in average contributions to 15% from the current 11%.
The knock-on effect is higher labour costs, lower employment and lower cumulative GDP to the tune of -1.2% between 2002 and 2007.
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