The Dutch pension fund industry reform proposal

Highlights:

The Dutch pension fund industry is facing yet another reform. The main innovations, which go towards a more market-consistent direction, are:

• Change of the risk-free rate term structure, to be introduced on January 1, 2021, towards a more market-based Ultimate Forward Rate (UFR).
• Reduction in assumptions on returns for various asset classes
• Pension contract re-design, characterized by an Accrual phase at the individual level, based on Lifecycle strategies,and a collective Retirement phase, with investment and longevity risks shared among all the universe of pension funds’ participants.

Although the overall proposal should take at least 3 years to be operative and a number of non-negligible details are still to be defined, we expect that the reform will reduce by 2.5% on average the funding ratio, which is already under pressure due to the low yield environment. This should call for an increase in pension contributions rate in order to avoid pension cuts. LDI strategies and ALM-consistent allocations should become key in the years to come.

Read the full publication below.