Dutch pension funds saw both their average funding ratio and policy funding ratio increase during 2022, according to analysis by Aon.

Aon noted that while pension assets had fallen from around €1.9bn at the end of 2021 to €1.5bn at the end of 2022 due to “substantial losses” in equities and fixed-income securities, pension funds were still in a slightly better position than a year ago.

This improvement was primarily driven by a sharp rise in interest rates as the effect on liabilities outweighed the fall in fixed-income securities.

Over the year, the indicative average funding ratio increased from 115 per cent to 117 per cent, taking into account the extra indexations in the second half of 2022.

As of 1 January 2023, the funding ratio will decrease due to the indexations granted as of that date.

The indicative policy funding ratio, which is based on the average funding ratio over the past 12 months, rose from 112 per cent to 120 per cent in 2022.

Aon noted that pension cuts therefore seem to be out of the question for almost all funds and many pension funds are allocating “substantial” indexations.

“It is precisely this allocation of indexations that has resulted in the current funding ratio falling below the policy funding ratio,” the consultancy noted.

“Globally, developed country equities fell more than 12 per cent, with the United States, heavily weighted in technology, the worst region at -14.4 per cent, and the Pacific excluding Japan, rising another 0.3 per cent.

“The European market most affected by the war in Ukraine fell by around 9 per cent. If global equities were fully hedged for currency risk, they fell -17.8 per cent, mainly due to the stronger US dollar rising 6 per cent.

“The major differences were visible within the equity sectors. The energy sector rose by 57 per cent due to high oil prices, while sectors such as technology and real estate fell more than 26 per cent and 19 per cent due to higher interest rates.

“Emerging markets equities fell more than 14 per cent, with Chinese equities falling 18 per cent due to the lockdowns.”

“In the fixed income markets, rising interest rates and widening spreads, due to the increased likelihood of inflation and recession, did little good.

“For example, credits, high yield and emerging market debt all achieved strongly negative returns of -13.7 per cent, -12.7 per cent, -13.5 per cent, respectively."

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