NETHERLANDS – The chairman of the board of directors at Europe’s largest pension fund, the 135.6 billion euro Stichting Pensioenfonds ABP, has said that wage restraint is the only way to keep pensions affordable.

“Of course, in the long run, the best way to keep pensions affordable is wage restraint,” said John Neervens in the Dutch civil service fund’s 2002 annual report. Neervens says there are “acceptable” career-average pension systems that ABP is “looking at with more than usual interest”.

“If you reduce pension accrual in respect of large salary increases, the fund benefits a great deal,” he says.

The report says that “intergenerational solidarity, the basis for the second pillar” is being severely tested by population ageing.

It said that the evaporation of gains made in the equities markets in the last 1990s have revealed that pension funds are now in a “fundamentally different position” due to lower interest rates.

“An additional factor is that the mismatch between liabilities and contribution base due to the ageing of the membership is eroding the capacity of the pension fund to absorb risk.”

ABP reckons it is impeded by its constitution – which restricts the amount the fund can set contribution rates. It said that this was a good idea when the fund was privatised.

“In the present situation, however, with its financial position under pressure, the board of governors is clearly impeded in the fulfilment of its statutory responsibilities by the constraints on its freedom to respond promptly to changes in the fund’s financial position.”

It will consult employers and employees on an amendment to the constitution this year – on the basis of an updated asset/liability study and new proposals on a “cohesive” indexation and contribution policy.

ABP will submit these proposals as part of a recovery plan to the regulator, the PVK.

The report says ABP contributed in 2002 to the European directive on occupational pensions. It said that the final draft of the directive had an “acceptable outcome” as it only imposed a few quantitative restrictions.