Further, in July, the pensions regulator (DNB) replaced the prescribed – and fixed – UFR of 4.2% with a progressive one, initially set at 3.3%.The rate, according to consultants, has since dropped to 3.2%.Frank Driessen, chief commercial officer for retirement and financial management at Aon Hewitt, said: “Because pension funds are only allowed to grant indexation if funding is at least 110%, inflation compensation seems far away.”He said the combined effect of UFR changes and the hiking of the prescribed financial buffers was likely to lead to more defensive investment policies at Dutch schemes, with less focus on generating surplus returns.Mercer estimated that adjustments to the discount rate’s calculation method had lead to a 6.5-percentage-point decrease in funding. Last year’s average 1.1% return on investments and 2% decrease in liabilities, in the wake of rising interest rates, failed to offset this “considerable” loss, according to Mercer actuary Dennis van Ek.He said rising interest rates and improved equity markets had, on balance, prevented a further funding drop over the course of 2015.“Had both remained unchanged, funding would have been close to 101% on average now,” he said, adding that such a drop was still possible if markets failed to improve further and 30-year swap rates remained at their current level of 1.6%.Mercer concluded that pension funds had lost up to 3% on their fixed income holdings last year, but that equity returned 6% on average.Commodities and hedge funds lost 16% and 4% on average, respectively, it said.Aon Hewitt cited a 7% return on equity and said property investments generated 8% last year, adding that the remaining asset classes produced a 1% loss on average. According to the consultant, pension funds’ coverage dropped 1 percentage point in December.It said the portfolio return was -3%, following losses on fixed income, equity and property of 2%, 4% and 1%, respectively.The rise in interest rates, which lead to a 2% drop in liabilities last month, partly offset the poor returns. The average coverage ratio for Dutch pension funds fell by 4 percentage points to 104% last year, due chiefly to changes in the way liability discount rates are calculated, consultancies say. Had the rates been left as they were, Dutch coverage ratios over 2015 would actually have increased by 2 percentage points, according to Mercer. Since the introduction of the new financial assessment framework (nFTK) at the beginning of last year, Dutch schemes have had to switch from using a funding representing the three-month average of their actual coverage to the actual funding, with the new rate also including an ultimate forward rate (UFR).Aon Hewitt said this adjustment had had a negative effect on pension funds’ coverage ratios.