Dutch financial regulator De Nederlandsche Bank (DNB) has said that pension funds and insurers in the Netherlands are “financially sound” but their solvency “remains vulnerable”.

Despite this, DNB’s Financial Stability Overview Autumn 2024, said pension funds' solvency remains vulnerable to a macro-economic scenario in which interest rates fall rapidly. However, the report noted that pension funds have a “good starting position”, which will provide protection in the event of an economic shock.

For example, Dutch pension funds have an average coverage ratio of 119 per cent. However, the solvency position of Dutch pension funds does deteriorate in a scenario of rapid interest rate declines, according to DNB’s Financial Stability Overview Spring 2024.

In light of higher interest rates in recent years – and in the run-up to transitioning to the new pension system – Dutch pension funds have increased their average interest rate protection from 37 per cent to 64 per cent over the past four years, reducing the negative impact of a fall in interest rates.

On transitioning to the new Dutch pension system, DNB said pension funds must take into account changing financial and economic conditions between the entry decision and the actual moment of entry. For instance, higher government debt can reduce pension assets via a fall in the value of government bonds.

Overall, DNB found that financial stability in the Netherlands has been supported in recent months by an improving economy and optimism in financial markets, after a brief period of turmoil in the summer. In addition, steadily falling inflation in the eurozone and the economy's 'soft landing' are contributing to stability.

However, geopolitical uncertainty is increasing, as is the risk of cyber attacks. Both developments pose a risk to financial stability.

Commenting, DNB director, Olaf Sleijpen, said: “The financial sector is in good shape, but risks are never far away. Think of geopolitical unrest and high economic uncertainty. And the threat of cyber-attacks is increasing. Financial stability risks also stem from budget deficits and high public debts in many countries.”

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