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Mr Gilfedder said: "There are two potential risks. It could give pension funds the opportunity to avoid making tough choices – with regard to their funding level, for example. And in terms of risk management, it could lead to a potential divergence of economic and regulatory risk – in other words, trustees may see the lower risk that is forecast using the UFR."
The introduction of the UFR has led to a jump in the funding level of Dutch pension funds, with MSCI estimating an increase from an average 98.6 per cent to 101.6 per cent. By making pension funds appear better funded than they actually are, this eases the pressure on them to cut benefits. This may change the dynamics of the discussions on pension fund boards, according to Gilfedder.
At the same time, it reduces a lot of the volatility in the yield curve for long maturities and therefore the volatility of the liabilities and the surplus, meaning pension funds may decide to hedge less.
He said most pension funds were still trying to figure out what to do and whether to keep two sets of books, a regulatory as well as an economic one. Furthermore, the introduction has raised the issue of inter-generational solidarity because younger generations will have to pay into the new system to ensure retirees and older workers continue to hold on to their benefits.
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