ABP loses half a billion a day, but improves financial position

They suffer mega losses on their investments. And yet the pension funds have not been doing so well in the last fourteen years.

On Thursday, the four largest funds presented quarterly figures that show the same paradox as at the beginning of this year: their assets are falling, but their ‘funding ratio’ – which shows financial health – is improving.

However, this time it was a relatively small improvement. For example, the coverage ratio of Pensioenfonds Zorg en Welzijn rose from 110 to 113 percent. So it now has 13 percent more capital than is needed to guarantee the promised benefits. The metal funds PMT and PME are now around 110 percent. And the largest pension fund, ABP, at 122.7 percent.

Modest raise

Last month it appeared that the pension funds ABP (government and education), Care and Welfare and the metal funds PMT and PME are going to increase their pensions, for the first time in years. These are modest increases, from 1.29 percent (PMT and PME) to 2.7 percent (Healthcare and Welfare), based on last year’s inflation.

Also read: First large fund increases pensions after 14 years of standstill

If they manage to maintain their funding ratio, the funds may again issue an inflation correction at the end of this year. But the financial situation is uncertain. “Developments in the housing market, the war in Ukraine and a revival of corona in the autumn could throw a spanner in the works,” said PME chairman Eric Uijen in a press release.

It is also unlikely that the funds will be able to offset this year’s full inflation, which is now around 9 percent. “We do not consider that very likely,” said Zorg en Welzijn chairman Joanne Kellermann recently NRC.

‘Unfollowed’

The fund chairmen find it difficult to explain that their wealth is declining while their financial health is improving. “It is no longer possible for most participants to follow,” says Harmen van Wijnen of ABP.

His pension fund lost 45 billion euros in the past three months, and now has 496 billion euros left. In other words: ABP saw around 500 million euros evaporate every day.

But the amount that the fund needs to guarantee the promised benefits fell even more, by about 600 million euros a day. As a result, the coverage ratio increased.

Pension funds need less money if interest rates rise. They can then assume that their wealth will increase more quickly in the future.

The new pension system, which the funds intend to introduce between 2024 and 2027, should be clearer. They will then no longer make promises to employees about the amount of their future benefit. As a result, they no longer have to calculate how much money they now need in order to fulfill those promises.

In the new system, employees mainly see how much money is in their personal pension pot at a given moment. And it is only cautiously forecasting how that wealth will pay off in the coming years or decades.

The pension fund chairmen think that this setup is easier to explain. The current “paradoxical situation”, says ABP chairman Van Wijnen, “underlines once again why we need to move towards a new pension system.”

After the summer, the House of Representatives will discuss the amendment to the law that should regulate this adjustment.

Also read: A multi-billion dollar operation with pensions – what is it for?