The average funding ratio of Dutch pension funds fell from 127 per cent to 124 per cent in November, according to Aon’s Pension Thermometer.

The biggest driver for the decline was the fall in interest rates over the month, Aon stated.

Aon noted that November turned out to be a good investment month, with both equities and fixed-income securities showing gains.

A rise in liabilities was observed, but this did not outweigh the improved investment performance.

The indicative policy funding ratio, based on the average funding ratio of the past 12 months, rose to 121 per cent in November.

Aon stated that this offered room for indexation, which has been “taken up in a big way” by the large pension funds.

According to the consultancy, these higher funding ratios have reduced the urgency for a different pension system.

“Positive market sentiment and declining inflation led to good returns on equities and falling interest rates,” Aon said.

It found that returns on global equities increased by about 5 per cent, while developed markets equities rose by around 4 per cent and emerging markets equities rose by as much as 10 per cent.

Real estate stocks benefited and rose by around 3 per cent on falling interest rates, and the fall in interest rates and reduced credit risk resulted in positive returns on corporate bonds (2.8 per cent) and high yield (3.9 per cent) in November.

Due to the fall in long-term interest rates, the entire fixed-income portfolio increased by approximately 8 per cent.

Overall, the portfolio increased over the month by approximately 5 per cent.

Commenting on the increased year-on-year funding ratios and subsequent widespread indexation, Aon Wealth Solutions Netherlands CEO, Frank Driessen, said: “We think it's positive that funds can do something extra. Today's retirees could really use this, but we advise funds not to push the boundaries.

“As this month showed, funding ratios can fall back again and a buffer will soon be needed for the transition to the new system.”

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