THE NETHERLANDS - Insurers are grappling with the problem of how to treat pension premiums under FTK, which demands liabilities be discounted at the market rate. Insurers are to implement FTK in January 2007.
“In the case where the pension scheme has been liquidated, to insure the pension scheme without the pension fund directly, you will get an interest rate of 3% for the future pension premiums,” said Rajish Sagoenie, managing consultant, Aon Consulting in Amsterdam. “Although for the accrued pension rights an interest rate of 4% is still applicable, the future pension premiums will increase roughly by 20-30% because of the decrease in the interest rate.
“Part of our solution is trying to negotiate an 4% interest rate for the future pension premiums for a five year contract, although we both know that FTK is coming. Why? The 4% interest-rate is close to the 10-year market rate at the moment. But be aware: this is a difficult discussion.”
Aegon, one of the largest of the Dutch insurers is currently in the process of developing a guaranteed contract that complies with FTK valuation rules.
A fixed interest rate will probably continue to remain the basis for the determination of premiums to be paid to the insurance company, said Jean-Louis d'Hooghe, international sales manager, institutional sales, Aegon Nederland. The market rate will have an impact, but it will be on top of that. At the end of the day clients appreciate a stable premium.
“If you base the premiums to be paid on market rates, then of course they will fluctuate much more.
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