Dutch Pension Funds Rebound from December’s Santa Claus Blues

Despite a Q1 comeback, ABP, PFZW officials are worried about low interest rates, future benefit reductions.

After a rough 2018, Dutch pension funds are finding redemption in the markets.

Civil service plan ABP ($484 billion) and health care retirement fund PFZW ($243.6 billion) felt the sting of a cold, winter gust that knocked assets around. The two plans suffered losses (-2.3% and -0.4%, respectively) in 2018, sinking their funding ratios a bit.

Amid this year’s cold, wintry gusts, first quarter assets showed signs of recovery. ABP returned 8.2% and PFZW gained 8.5% in the period ended March 31. Both public equity and real estate worked in their favor, raking in 14.2% and 10.4% for the former and 11.5% and 12.7% for the latter.

As the European Central bank held off on raising rates, government bond prices rose, and, in turn, the plan’s fixed-income portfolios did, too. ABP’s gained 3.9%, while PFZW’s generated 1.7%.

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Corien Wortmann-Kool, ABP’s chairman, is pleased with the plan’s recovery, but she doesn’t like Europe’s low interest rates. “This is not good news because it means we need to keep more money in reserve in order to meet our pension obligations,” she said, adding that the fund could very well cut benefits in 2021.

Peter Borgdorff, director of PFZW, is also not impressed with the low rates, despite the bond portfolio’s short-term boost. He also is worried that the fund might have to reduce benefits. “The situation shows once again that the current pension agreements and regulations no longer work,” said Borgdorff. “A pension agreement is now more urgently needed than ever. “

The two funds also did extremely well in commodities, which enjoyed a bounce back in recent months. The civil service fund achieved 15.8% in the space while the health care plan hammered home 24.2%.

Their peer pension funds—BpfBouw ($68.5 billion), PME ($56.1 billion), and PMT ($86.4 billon), which are responsible for investing the retirement assets of building sector employees and metalworkers—posted similar results. They returned 8.1%, 7.8%, and 7.5% over the same period, respectively. They had bad spells in 2018, losing 2.7%, 2.7%, and 1.8%, respectively.

Funding ratios for the five plans are still high, although the 2018 chill has left four of them down a bit. The required minimum funding level for Dutch pensions is 104.3%. Thanks to some slippage, ABP, PFZW, PME, and PMT’s are a few percentage points shy. BpfBouw, however, coasts along at 117.5%.

As for the global economic outlook, ABP is positive despite the “backdrop of declining business confidence in Europe.” It pointed to China’s stimulus program to reverse a slowing economy there and the pause in monetary policy tightening from major central banks. The fund also said political risk is currently lower than it was last year, as Brexit appears to be calmer and trade tensions between the US and China may be cooling. Low interest rates are also producing a stock market rise. “We therefore expect lower returns than in recent years,” it said.

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