Dutch schemes are required by law to hold in reserve a minimum of 105% of obligations. The rapid erosion in its coverage ratio has forced PME to ask for an increase in employee contributions by 1%, according to the source. PMT, the industry-wide pension fund for Dutch metalworkers, has seen its coverage ratio (assets divided by liabilities) erode to 86% at the end of November, 19% short of the required minimum. PMT’s coverage ratio had been at 116% at the end of the third quarter. The scheme’s board will also raise contributions by 1% to 15.1%.

Contributions to increase

PMT has sought to minimise pensioners’ worries by pointing out that contributions in 2009 are estimated at €1.8bn, which it notes is more than enough to offset pension benefits of €1.2bn. PMT has seen big swings in its coverage ratio in the past. In 2002, the fund edged close to the danger zone as its coverage ratio slipped to 104% from 118% a year earlier, but this year’s drop is unprecedented: a reflection of the sharp drop in global equities and government yields.

ABP’s last reported coverage ratio was 118% at the end of September. The updated ratio, which will likely be significantly lower, will be announced December 19, the same day an announcement will be made on the fund’s indexation policy. ABP has opted for a 0.3% increase in contributions and is preparing a recovery plan to increase its coverage ratio. The Dutch central bank has given pension funds until April 2009 to submit their plans.

In the UK, the average funding ratio of 7,800 defined benefit schemes deteriorated from 94% at the end of October to 84% at the end of November. The aggregate funding position (total assets minus liabilities) of the schemes is estimated to have worsened over the month to a deficit of £136bn at the end of November from a deficit of £97.3bn at the end of October, according to the Pension Protection Fund (PPF).

In the past year, lower bond yields resulted in a 4% increase in aggregate liabilities while weaker equities reduced assets by 18.7%, reported the PPF December 9. Meanwhile, the total surpluses of schemes fell to £19bn from £24.7bn in November, down from a month earlier.

VB