We investigate the consequences of a possible rate hike for the interest rate hedge policy of Dutch pension funds.
An increasing market interest rate means that the moment approaches when the market rate and ultimate forward rate (UFR) reach a similar level. In this case the positive effect of the UFR on the funding ratio disappears. An interest rate hike can thus lead to a renewed discussion about the UFR method and even a return to a valuation based on market rates. We examine the impact of this scenario and indicate how pension funds can prepare themselves for this situation.
Author: David van Bragt
See the (abbreviated) article in De Actuaris (in Dutch) »
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