The average coverage ratio of Dutch pension funds increased by 2 percentage points to 120 per cent in May, Aon Netherlands’ latest Pension Thermometer analysis has shown.

Aon pointed to increased interest rates and positive equity returns as the drivers behind the improvement.

Due to the interest rate increase, the value of liabilities fell by around 0.9 per cent, while assets increased by approximately 1.2 per cent.

Dutch pension funds’ average policy funding ratio, based on the average coverage funding ratio of the previous 12 months, remained stable at 118 per cent in May.

During the month, developed market equity returns were 2.8 per cent, while emerging market equity returns were -0.9 per cent.

Meanwhile, the relatively high inflation caused interests rates to rise further, resulting in the fixed-income portfolio returning -0.2 per cent.

Aon stated that the riskier bonds benefited from a declining risk premium and rose slightly, with corporate bonds returning 0.3 per cent, high-yield bonds returning 1.1 per cent and emerging markets hard currency bond returning 1.3 per cent.

The portfolio's total return in May was 1.2 per cent.

The Dutch pension sector is currently busy with the transition to the new pension system, and there is “huge demand” on the industry, according to Aon Netherlands director wealth solutions, Frank Driessen.

"We are on the eve of the largest transition in our pension system ever,” he continued.

“Many calculations are needed; a well-founded process and many choices have to be made. We agree with the minister's call. But it is also important that pension fund directors realise that this process requires a lot of time and energy. Plan sufficient consultations and ensure that there is room for board work."

With the increased coverage ratio, pension funds are in a “relatively good shape”, Aon noted.

"With a good coverage ratio, all pots can be filled and there is room for a starting bonus,” Driessen said.

“That makes discussions a lot easier. It is therefore logical that all parties would like to keep this situation intact."

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