The Dutch regulator (DNB) has adopted a new discount rate for pension funds that takes into account a 4.2 per cent 'ultimate forward rate' (UFR), similar to the term structure for insurers.
The DNB made clear that the methodology would differ from the one used for insurers, the main difference being that the term structure for pension funds will take market rates into account for durations beyond 20 years. In addition, pension funds will continue to apply a three-month average rate to discount liabilities; for insurers, the three-month average rate is cancelled once they begin to apply the UFR.
Pim van Diepen, actuary and principal at Mercer, said the UFR had effectively raised the average pension scheme's funding ratio by approximately 3 percentage points. "The term structure as published by DNB is as we expected", he said. "The UFR as presented now offers several advantages over the UFR methodology as proposed in Solvency II for insurers.
Van Diepen said he hoped the UFR adjustments introduced in the Netherlands as a result of pension funds' lobbying efforts would also be adopted at the European level. "A decision on Solvency II has been put on the European Parliament agenda for 20 November, but, because this has been postponed twice before already, I would not be surprised if this were to be postponed again", he said.
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