The average funding ratio of Dutch pension funds fell to 122 per cent in June, according to Aon Netherlands.

Aon’s Pension Thermometer also found that the policy funding ratio, based on the average funding ratio over the past 12 months, rose to 115 per cent in June.
Over the month, central bank policy dominated financial markets in their fight against inflation. Annual inflation reached a record high in the US and eurozone at 8.6 per cent and 8.1 per cent, respectively.

For the financial markets, a bad cocktail of record inflation and very rapid rise in interest rates and further rising tension in the conflict in Ukraine emerged in June, making the chance of a recession increasingly likely due to the strong intervention of central banks.

All risky investments performed poorly. Developed market equities fell more than 6 per cent and emerging market equities fell 4.3 per cent. Real estate also fell by about 6 per cent. Rising interest rates and rising credit risk led to negative corporate bond yields (-3.5 per cent), high yield (-7.3 per cent) and emerging market debt (-7.3 per cent) in June. Long-term interest rates rose, causing the entire fixed-income portfolio to fall by more than 6 per cent. On an overall level, the portfolio achieved a negative return of approximately 6.2 per cent.

In addition, interest rates maintained their upward trend in June. Over the first 40 years, the yield curve rose by about 28 basis points. Due to the higher interest rates, liabilities have fallen. On balance, liabilities decreased by approximately 4.7 per cent.

Last week, large Dutch pension funds such as PME, ABP and PRWI announced that they would make use of the General Administrative Order (AMvB), which allows funds to index on the basis of the relaxed rules from 1 July.

"We still see hesitation with funds; they are afraid to create expectations," Aon Netherlands CEO Wealth Solutions, Frank Driessen, said. "But if there is one sheep over the dam, more may follow. We also understand that it is a difficult trade-off. The transition to the new system also requires money. On the other hand, pensioners and employees feel the consequences of high inflation in their wallets on a daily basis.”

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