Household financial assets: how did they fare across the financial crisis? - The Netherlands

1. Household financial assets: how did they fare across the financial crisis?- The Netherlands Dirk van der Wal De Nederlandsche Bank, Statistics department Working Party on Financial Statistics – OECD, 30 November 2010

2. Household (HH) financial assets in the Netherlands • Aim: analysis of HH financial investments to better assess risks & vulnerabilities • Focus: main financial assets Dutch HH: 1. savings, 2. securities, 3. claims on pensions/life insurance • How did these assets developed during the financial crisis since 2007? • Topics: - measurement of balance sheet items - analyse underlying macroeconomic factors - discuss the special situation of HH pension claims.

3. Household financial assets in the Netherlands • DNB observes prominent financial assets at the source (Mfi’s, domestic custodians, pension funds) • Financial components: input for NA/FA: NSI compiler • Close cooperation CB-NSI • In NA/FA source data are adjusted --> integration • Differences relatively small : CB data reflect accuracy, NSI data reflect mutual consistency • CB data also input for policy actions (timeliness)

4. Household financial assets in the Netherlands Basic data: • Total financial assets> € 1.300 bln Twice Dutch GDP • Net financial assets € 700 bln  € 53.000 per citizen older than 18 yr • Net financial worth grows  since start crisis 2007 Q1: + € 116 bln

5. Main components financial balance sheet Dutch HH, 2010 Q2In percent of total financial assets

6. 1. Savings deposits/GDP ratio, in per cent • Savings deposits on a growing trend

7. Savings deposits mix and rate differential • Mix of savings varied strongly during crisis • Households reacted on rate differentials • Agreed maturity at top 40%, but now 12%

8. 2. Household equity holdings/GDP, in per cent 1) • Holdings of quoted equity & mutual fund shares dropped sharply in 2007-2008

9. Household equity holdings1) highly correlated with stock market • Value drop due to price losses: € 11,1 bln (≈ 2% GDP) • Also net equity sales: € 9,9 bln • Share of all securities fell from 10% to 7% of total assets

10. 3. Old age pensions in the Netherlands • Dutch system consists of 3 pillars: * State / social security * Funded employer pension scheme * Funded individually arranged pensions • Pillar 1+2 should result in pension ≈ 70% of wage • Future pension rights are calculated using interest rate swap curve (supervisory requirement) • Statistically, liabilities of pension funds are financial assets of households

11. Net equity households in life & pensions/GDP • Net equity/claims in life & pensions is increasing • Dutch share in euro area almost 18%

12. Why increase in net equity life/pensions? •  declining interest rates •  higher life expectancy • Present value of future liabilities increases • Pension funds should have more assets now because of the low return of current investments

13. Do pension funds have enough assets now? • Not to achieve fully inflation-proof pensions • Interest rate decline caused liabilities to increase more (+15%) than assets (+7%) in 2008 • Pension funds underestimated portfolio risks:  shocks larger than in standard model • As a result buffers and funding ratio declined:

14. Net equity in pension funds – some qualifications, and conclusions • Rise in banks savings and pension claims outweighted losses on equities during crisis • Does higher net equity mean that HH became richer? Are you ‘richer’ when you live longer? • Households cannot take out their pensions (no free savings) • Statistical measurement of future liabilities cannot predict whether pension funds will meet their obligations • For a realistic view  not focus only at HH balance sheet; also look at financial situation of agency that invests collective savings for retirement

15. Household financial assets in the Netherlands