In-built derisking mechanisms in the Dutch pension sector means APG, the largest manager of pension fund assets in the Netherlands, is not considering longevity swaps as a hedging instrument, according to Onno Steenbeek, director of asset liability management and risk policy at the firm.
APG manages about €220 billion (£191 billion) of assets and liabilities for "several" Dutch schemes (exact figures are not released by APG), including civil service fund ABP. Rotterdam-based Steenbeek said it had investigated the potential value of longevity swaps to these schemes.
Despite UK investment banks telling Life & Pension Risk a longevity swap deal is set to be signed with a Dutch firm in the near future, Steenbeek ruled it out for APG. He said it was not obvious how to resolve the issue of spousal pensions, and argued in any case the Dutch pension sector's ability to review benefits in light of investment performance meant swaps were less useful than in the UK market.
"Small changes in life expectancy may be hedged by using these novel products. However, these changes are dominated by financial market risks. For larger shocks, like the ones we've seen in the Netherlands over the past few years, we should look at the pension contract."
Steenbeek did however concede there were parts of the Dutch financial sector that could find longevity swaps a useful tool. "I could see longevity de-risking as potentially interesting to Dutch insurers running defined contributions schemes, but as they are also the main potential buyers of this risk it simply adds to the impression the market is not in balance."
The director did say that as a result of this pricing longevity, swaps did present a potential investment opportunity, but that APG had no plans to do so.