The coverage ratio at Pensioenfonds Zorg en Welzijn (PFZW) improved slightly in October. Compared with a month earlier, the funding ratio rose by 1.9 percentage points to 94.1 percent, just above the level at which PFZW must reduce pensions this year.
"It is only a daily rate, but it gives a glimmer of hope," PFZW director Peter Borgdorff writes in a message. "The fact that our financial health is improving somewhat reduces the chance of a reduction in pensions in the short term."
PFZW has to cut short if the current coverage ratio falls below 94 percent or when the average coverage ratio of the last twelve months, the policy coverage ratio, falls below 104.3 percent for more than five years.
The pension agreement proposes to lower the minimum required policy funding ratio to 100 percent. For PFZW, if the policy funding ratio falls below 100 percent at the end of 2020, the fund must shorten. At present, the coverage ratio is 96.8 percent.
Lower actuarial interest rate = low coverage ratio
The coverage ratio is the ratio between what the pension fund currently has in cash and what the liabilities are for the coming years.
With many pension funds, the coverage ratio has fallen sharply, especially in the last year. This is mainly due to the so-called discount rate. That interest level determines how much return the funds can expect in the coming years. In practice, this return may be higher, but also lower.
That actuarial interest rate has fallen further and further, so the pension funds can also expect less and less return.