Dutch pension funds lost €77 billion in first quarter

Dutch pension funds lost €77 billion in first quarter

The coronavirus-triggered panic on the financial markets was a massive blow for the five large pension funds in the Netherlands. In the first quarter of 2020, they together lost over 8 percent of the total 910 billion euros in cash they had at the end of December, NOS reports.

That is a total of 77 billion euros lost, resulting in the pension funds’ coverage ratios dropping. At the end of December, ABP, PFZW, PME, bpfBouw, and PMT all had a coverage ratio of near or over 100 percent. At end-March only bpfBouw was still over 100 percent. The other four were hovering around or under 85 percent.

The coverage ratio is the extent to which a pension fund has cash available to cover all future pension payments. The care and welfare fund PFZW, for example, had a coverage ratio of 83.5 percent at the end of March. That means that the fund could only cover 83.50 euros for every 100 euros in future pension payments.

In absolute terms, civil service fund ABP lost the most at 46 billion euros, followed by PFZW at 20 billion euros. These funds also manage the most pension money by far. On the plus side, stock prices rebounded somewhat in the first weeks of April.

“The past quarter has been dramatic,” Peter Borgdorff, director of PFZW, said to NOS. “It is very difficult to see yourself losing that much money in a short time.” But he pointed out that there are also days when share prices rise quickly, so the pension funds may recover. “It is far too early to say anything meaningful about the consequences of the corona crisis on pensions.” He does not want to look too far ahead, “but if the situation has not changed by the third quarter, we have a very difficult discussion waiting.”

The low coverage ratios mean that pension funds may have to cut pensions. That is not certain yet, as markets may recover and the government may come with measures. Last year, for example, Minister Wouter Koolmees of Social Affairs prevented pension cuts by lowering the mandatory coverage ratio pension funds must maintain from 100 percent to 90 percent.

Borgdorff thinks the government should also help pensioners in this difficult time. “I currently hear retirees say: I don’t think we should be let down while others are being helped,” he said to NOS. But according to Borgdorff, it is too early to speculate whether this government aid should come in the form of lower pension cuts or a deferral of cuts.

The risk of deferring pension cuts is passing cuts on to later generations, a spokesperson for pension advisor Aon said to the broadcaster. “If you pay 100 euros when you actually have 85 euros, there will be less money left for younger generations.