NETHERLANDS - The planned extension of the FTK recovery period, announced yesterday, could save the Dutch pension industry e20-25bn and the Dutch tax payer almost e10bn.
These estimates, calculated over the pension funds’ lifespans, were given to Global Pensions by Con Keating, principal at The Finance Development Centre.
Yesterday social affairs minister Aart Jan de Geus extended the recovery period from one year to three years for pension funds whose coverage ratio drops below 105%.
Keating’s estimated savings are based on the fact that such a move would lower the degree of past dependency imposed on the investment process by solvency tests.
The minister’s decision could also be instrumental in helping the new pensions bill [Pensioenwet / PW], of which it is a part, through the Dutch parliament.
“It’s a very positive step,” said Keating. “A major plus point is they [the government] have shown themselves prepared to listen and to change.”
Bart Heenk, managing director of Benelux and Nordic at SEI, said it was also good news for participants.
“Relaxed restrictions might not seem like good news for them but it is because this way pension funds and sponsors will not be inclined as much as they were before to scrap their defined benefit system in favour of a defined contribution system,” he explained.
The extension includes exceptions for individual cases. If, for example, a three year recovery period endangers an investment programme, more time could be granted.
But on the flipside, if the government considers that responsibilities are being avoided, the Dutch central bank (De Nederlandsche Bank / DNB) would be empowered to demand payment.
According to Keating, the next major step will be to tackle the IAS19 international accounting standard.
“The problem with the accounting standard for pensions is that we use discounted present values from bond prices for liabilities, and we use market prices for supporting assets; those are not consistent,” he said.
“The perversity of the accounting standard is the better you are at managing your assets and the more diversified your portfolio is relative to a bond portfolio, the worse you look. It’s so wrong it’s not funny.”
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