By Toby Sterling
AMSTERDAM, Sept 1 (Reuters) - The Netherlands’ Central Bank on Tuesday gave Dutch pension funds, which including some of the largest in the world, 12 years to rectify low funding ratios.
In the past, funds had been required to repair their funding ratios - their current estimated assets compared with their estimated future obligations - within three years by cutting pension payouts and increasing premiums. But the central bank said neither would be necessary.
The longer recovery plans will allow 154 troubled funds to restore their solvency gradually and “almost entirely from expected returns on investments.” It did not name the funds.
The announcement comes seven years since the onset of the financial crisis, after the central bank completed a review of recovery plans for funds that needed to restore their funding ratios. Roughly two-thirds of Dutch pensions are under stress, in a system considered one of the most robust in the world.
In July, the central bank announced it would measure pension liabilities more strictly than required by European rules, by assuming that interest rates will remain low into the distant future.
But Tuesday’s announcement of the results of the review show the central bank is not taking a hard line on the other side of the equation, expected returns. It is allowing funds to calculate a return of 7 percent on equities and a 4.7 percent overall average return.
“A number of mostly larger funds are choosing to assume this maximum allowed return on investments,” the bank said in a statement. “Whether this return will actually be achieved is of course dependent on development in the markets.” (Editing by Anthony Deutsch, editing by Larry King)