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Centre-right government likely to shape Dutch pensions system

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With the liberals under prime minister Mark Rutte as the clear winner of the Dutch elections, and current coalition partner PvdA having imploded, the long-debated new pensions system is likely to be shaped by a new centre-right government.

Such a coalition could be possible with the Christian democrats, CDA, and the liberal democrats, D66, but will need the support of at least one other party.

Candidates for a backing role could be the five-seat religious-right party CU or the green-left party GroenLinks, which jumped from four to 14 seats.

The possibility of Geert Wilders’s populist Freedom Party, PVV – which gained 20 seats in the 150-strong lower house – becoming part of a new government is remote, as most parties have ruled out co-operation with the PVV.

The PvdA, which collapsed from 38 to 9 seats, is also unlikely to be part of a new coalition or to provide a new pensions minister.

Jetta Klijnsma, who oversaw the discussions about a new system as state secretary for Social Affairs, has already said she won’t return to parliament.

Coalition negotiations in the fragmented Dutch pensions landscape – with 13 political parties to be represented in the lower house – will be complicated and wil probably take months to complete successfully. It is far from clear what a coalition agreement would say about the final design of a new pensions system.

The views of the political parties differ widely and the complexity of the various issues has turned the discussion into a conundrum.

One of the key issues is what kind of pensions contract is to replace the current predominantly defined benefit plans, which are deemed unsustainable.

The Social and Economic Council (SER) is still elaborating two alternatives. One comprises individual pensions accrual, while the other is a “target contract” for accrual in real terms, with both contracts sharing some risks.

The VVD strongly supports the individual contract, but most other parties have different views on the issue.

Parties are also divided on replacing the current average pensions accrual with an age-related degressive one, which is expected to benefit younger workers but would cost at least €25bn in compensation for affected participants.

An analysis by IPE Dutch sister publication Pensioen Pro suggested that the support of the CDA is crucial for a switch to individual pensions accrual and the abolition of average accrual.

Another important issue is whether pension funds should offer participants freedom of choice for personalised arrangements.

VVD and D66 present themselves as the champions of additional options, but these are likely to complicate pensions administration.

One thing is clear. In the new parliament there won’t be a majority for turning back the increase of the official retirement age for the state pension from 65 to 67, as advocated by the PVV and 50Plus, the party for the elderly.

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