What is the coverage ratio?

"Dekkingsgraad" is the ratio between the assets (the available resources) of a pension fund (such as investments) and the pension obligations that the fund has towards all participants (the present value of the amount to be paid out to them).

The coverage ratio gives an indication of the solvency position of a pension fund and is therefore also called the "pension thermometer". A coverage ratio of 105%, for example, means that 105 euros are available for every 100 euros of pension obligations.

The coverage ratio is a crucial measure to determine whether a pension fund is able to pay both current and future pension benefits. The interest rate plays an important role in this; the higher the interest rate, the lower the present value of the liabilities and the higher the coverage ratio.

There are different types of funding ratios, such as the current funding ratio, policy funding ratio, economic funding ratio, nominal funding ratio, and real funding ratio, each of which contributes in its own way to the insight into the financial health of a pension fund.