The upcoming transition of Dutch pension funds to the new pension system is expected to have a notable impact on international financial markets, with analysts predicting Dutch funds may cut their exposure to long-maturity bonds and swaps by around €100bn-€150bn.

According to De Nederlandsche Bank (DNB), this represents a small but significant portion of the €900bn in outstanding long-dated government and semi-government bonds and the €300bn net swap position currently in the market.

The shift to the new defined contribution (DC)-style system, scheduled to take effect from 2026, will reshape allocations on a large scale, with pension funds collectively holding more than €1.5trn in assets.

Under the new system, funds will tailor investments more closely to participants’ age profiles.

Younger members are set to move towards higher-risk assets such as equities to target long-term growth, while older members and retirees will see portfolios weighted more heavily towards safer assets, including government bonds and interest rate swaps.

On balance, this is expected to reduce demand for long-dated bonds and swaps, particularly those with maturities of 25 years or more, which could push long-term yields higher.

However, the extent of these shifts remains uncertain, with many funds yet to finalise their transition plans.

Both SPF and the veterinarians’ fund (SPD) had previously postponed their planned transitions, while major sectoral funds, such as PME, have pushed back migration to 2027.

Although government projections envision around 11 million participants transferring into the new system by early 2026, many schemes have warned of ongoing difficulties with systems, communication, and legal compliance.

Meanwhile, the precise investment mix will also depend on each fund’s coverage ratio at the time of transition and on whether they opt to increase interest rate hedging in the run-up to the reform.

A recent funding update revealed that several Dutch pension funds saw further improvements in September 2025, driven mainly by higher investment returns and changes in actuarial interest rates.

However, Dutch financial institutions, including banks and pension funds, recorded losses of €23bn on their foreign government bond holdings in the first half of 2025

Despite concerns about potential market volatility amid the transition, DNB noted that several factors are expected to cushion the impact.

Pension funds will have up to 12 months after the transition to adjust their portfolios, allowing them to spread trading activity over time and avoid executing large transactions under pressure.

Most transitions are set to take place between January 2026 and January 2027, further reducing the risk of bottlenecks.

Investors have also had ample time to prepare.

The reform has been on the radar for years, meaning that traders, including hedge funds, have already taken positions to anticipate potential market movements.

While this could result in slightly higher transaction costs for pension funds, it should also help maintain liquidity and market stability, DNB said.

Indeed, recent movements in the swap market suggest that investors are already pricing in the expected effects.

The 30-year interest rate rose faster than the 10-year rate during the first half of 2025, a trend partly attributed to the anticipated pension transition and partly to broader global factors such as increased government spending and debt issuance.

Analysts said they expected the reform to continue exerting upward pressure on long-term rates, while shorter maturities are likely to remain less affected.

Even with the recent steepening of the yield curve, the gap between 10- and 30-year rates in the eurozone remains narrower than in other major markets, such as the UK and Japan, suggesting there is room for further widening.

If that happens, it could influence borrowing and lending across the economy, warned DNB.

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