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Not everyone loves the Pensions Agreement

After much wrangling, heel-dragging and finger-pointing, the Dutch government and social partners have hammered out a Pensions Agreement. In mid-June, the social partners and the cabinet unveiled an agreement that aims to increase the official retirement age for the first pillar (AOW) to 66 in 2020 and to 67 in 2025. First pillar benefits will be raised an extra 0.6% annually, amounting to indexation in line with real earned wages, a major demand of umbrella union FNV. Early retirement will remain an option, but against a loss of 6.5% of the AOW for each year.

In the second pillar, the exact degree of certainty offered and the amount of uncertainty allowed to help realise indexation goals will be determined by individual plans. FNV union leader, Agnes Jongerius, said funds will be “free to choose which balance they wish to strike” between offering guaranteed benefits on one hand and the pursuit of indexation ambitions on the other. Among other advantages of the agreement, she cites the fact that fiscal restrictions on retirement savings are off the table.

Social affairs and labour minister Henk Kamp also announced the introduction of a tax break for seniors. Jongerius said she was very pleased with this “income-dependent senior tax discount”, as it allows people to still retire at 65 and receive adequate pension benefits. Both Kamp and Jongerius stressed that people would be given freedom of choice with regards to their retirement age. Indeed, Jongerius considered the flexibility “an important win”.

But not everyone has been enamoured with the Pensions Agreement. The Pension Federation - the umbrella group for pensions lobbying organisations VB, OPF and UvB - said it was satisfied with the central agreement, as it allows for “sustainable pensions, also for younger workers”. But it also called for clarity about the options of merging existing and new pension rights into one new pension plan. Because the responsibility of funds’ boards will increase in the new system, clarity is needed on how the responsibility will be shared between boards and the social partners of employers and employees, it added. In its opinion, a new and full pension contract cannot be introduced before 2014.

Casper van Ewijk, deputy head of the Dutch Bureau for Economic Policy Analysis (CPB), said the agreement would increase risk for younger workers, while the compensation for this increase remained unclear. He suggested that allowing pension funds to link the interest rate for discounting liabilities to predicted returns would also increase risk. His sentiment echoed that of Theo Kocken, director at Cardano Risk Management, who said the agreement would cause younger workers to lose out on 20% of the value of pension assets, not to mention pay for the rise of AOW.

The Alternative for Trade Union (AVV) was more to the point, describing the agreement as “useless” and saying the promised yearly rise of the AOW benefits would ultimately compensate for the discount following early retirement. The AVV, which supports the pension rights of younger workers, said it was opposing discounting liabilities based on expected returns, rather than on the “safe” forward curve, the current criterion. In the opinion of the AVV, the 6.5m non-union members should also have a say in the elaboration of the new Pension Agreement.

FNV Bondgenoten, the Netherlands’s largest trade union has strongly opposed the agreement. Although Jongerius stressed she was pleased with it, FNV’s constituent union FNV Bondgenoten may yet refuse to accept the deal by advising its members to vote against it.

In the wake of these criticisms, Kamp has promised to change the law to allow for the agreed changes to the pension system, including “improving, and possibly expanding, the financial framework FTK” and specifically looking into the Pension Agreement’s effects on younger generations. Additionally, he said the government would study the legal and technical implications of the reforms, including examining how previously accrued rights could be absorbed into the new system.
 

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