The average funding ratio of Dutch pension funds increased to 118 per cent in February 2024, up 2 percentage points on January’s figure, data from Aon Netherlands reveals.

According to Aon’s Pension Thermometer, the rise in interest rates that began in January continued in February. This, combined with good equity returns, is having a positive effect on funding ratios.

The average policy coverage ratio, based on the average coverage ratio of the past 12 months, remained stabilised at 119 per cent in February.

Aon said good sentiment drove up equities by 4.7 per cent in February. Developed market equities rose 4.6 per cent and emerging markets equities rose 5.2 per cent. In addition, China's stock market performed well. The People's Bank of China cut the five-year mortgage rate by 25 basis points to 4.2 per cent to support the country's struggling real estate sector.

The fixed-income portfolio fell 1.3 per cent on the back of rising interest rates. However, more risky bonds were less affected by interest rate movements, with credits (-0.9 per cent) falling and high yield (0.8 per cent) and emerging markets hard currency (0.9 per cent) rising. The portfolio's total return this month was 1.7 per cent.

Regarding interest rates, the risk-free interest rate over the first 40 years rose by an average of 11 basis points. The Ultimate Forward Rate (UFR), which pension funds use to calculate the value of their future liabilities, stood at 1.4 per cent. The rise in interest rates reduced the value of liabilities by about 1 per cent.

Commenting on Dutch pension funds’ transition to the new regime, Aon said many funding ratios are looking good as they approach the transition. This makes the discussion of whether funding levels should be protected in the run-up to the new regime topical.

"We see this topic being discussed in abundance at board tables," Aon Netherlands Wealth Solutions director, Frank Driessen, said.

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