Dutch pension fund reform unaffected by government collapse – ING
The collapse of the Dutch coalition government is not expected to disrupt plans to transition the country’s €1.5trn pension fund industry to a new system, according to research from ING, a move that holds major implications for the €125trn euro interest rate swap market.
“The current polls suggest that the parties against the pension reforms won't find a majority in the next parliament, which reduces the chance of further proposals to change the transition rule,” ING strategists wrote in a research note on Wednesday.
Dutch pension funds have been on a rollercoaster ride over the past few weeks amid continued uncertainty over the timing and extent of a forthcoming overhaul of Europe’s largest pension system. Those reforms will have a significant impact on the euro swap market, in which Dutch pension funds have long featured as one of the largest players at the long end of the curve because of their need to hedge future payouts to members.
The new pension system will reduce the need to hold long-dated hedges and instead encourage hedges that are smaller and shorter dated – a development that traders say should make the euro swaps curve steepen by around 30bp. Positioning for a much steeper euro swaps curve has become a favourite hedge fund bet in recent months, and one that looked vulnerable last month amid political wrangling over the pension reforms.
On May 19, watered-down proposals that would have opened the door to Dutch pension funds potentially opting out of transitioning to a new system were defeated by a single vote in the Dutch parliament. That provided a reprieve to hedge funds and prompted some to double down on their steepener wagers.
Tuesday's decision from far-right politician Geert Wilders to withdraw his party's support for the governing coalition created further uncertainty for the Dutch pensions transition, with prime minister Dick Schoof resigning later that day.
However, Schoof's ministers are expected to remain in power in a caretaker capacity until a date is set for Dutch voters to return to the polls – a scenario that is expected to prevent any drastic changes being made to pension transition plans, ING said.
“A caretaker government won't be able to make any drastic changes to the legal framework,” the ING strategists said. “Even if pensions become a hot topic in public debate again, changing anything before the transition date of January 1 2026 will be difficult, if not impossible. New elections would likely take place in October or November.”
Dutch pension funds have until 2028 to transition to the new system. While some won’t be transitioning until January 2027, roughly half the Dutch pension fund industry is expected to move on January 1.