The Dutch pension reform law will be more successful and increase confidence in the country’s pension system if it is changed to make it impossible to move defined benefit (DB) accruals to a defined contribution (DC) system without explicit consent of members, according to pension actuary turned politician Agnes Joseph.
Joseph and her New Social Contract (NSC) party shook up the pension sector last month with their plan to require consent by a majority of a pension fund’s members for DB accruals to be converted to DC in the new pension system.
“I think our plan can make the transition more successful,” Joseph – number eight on the NSC electoral list – said during an interview with IPE’s sister publication Pensioen Pro on Monday.
“Transitioning accruals is a very important change. Until recently, pension funds needed to ask individual consent for every small change they wanted to make to accrued pensions. With the new law, this would change suddenly, which brings risks: the risk that you miss support for the transition, that confidence in the system disappears,” said Joseph.
NSC currently polls around 25 seats and will likely need to be included in any majority coalition post-elections.
“We want a majority of members of a fund to agree to a transition of DB accruals to DC, but we don’t yet know what percentage this should be exactly,” Joseph said.
It is still unclear whether NSC would require a minimum turn-out for a vote to be valid. The pension fund of bank ING recently organised a poll asking its members whether they supported a move to the new pension system, which received a response of only 15% – 41% of whom agreed to a DC conversion, with 26% opposed and the remainder neutral.
NEST as an example
NSC also said in its electoral manifesto that it wants to maximise investment and administration costs for pension funds.
The party is worried about rising costs and wants to introduce a limit. Joseph mentioned the UK multi-employer scheme NEST as an example of how to do this:
“NEST only charges a maximum of 1.8% of contributions and 0.3% of assets, though I realise the UK situation is not entirely comparable to those of Dutch pension funds.”
Whether pension funds would continue to be able to invest in expensive asset classes such as private equity, is unclear.
“Pension funds should invest in the interest of members. I don’t have deep knowledge about private equity,” said Joseph.
Company pension schemes that want to provide better service to members could get an exemption from a cost cap, provided the employer shoulders these additional costs, she added.
Joseph, however, also keeps other options open. “A carve-out for only retired members is also an possibility, but our first choice is to introduce a collective right of assent,” she said.
“This would force pension funds to think thoroughly about the decision whether or not to make the transition, about the pros and cons, etc. In the end, I simply want the pension transition to be a success. That members are given a say and that they have confidence in the system. That’s the goal,” she concluded.