Dutch Cabinet seeks to rein in mandatory sector scheme growth
The outgoing Dutch cabinet has called for clarity on the limits of mandatory industry-wide pension funds taking over schemes and companies in other sectors.
In a letter to parliament, Jetta Klijnsma, state secretary for social affairs, said companies voluntarily joining mandatory sector schemes could put at risk the principle of mandatory participation in such schemes that is required under Dutch law.
This trend could push the new general pension fund (APF) vehicles out of business, she warned.
By tightening the rules, the government aims to ensure that mandatory industry-wide schemes only manage pension plans for their own sector.
As an option for highlighting the limits, Klijnsma cited a “more systematic application of the requirements for the coherence between an industry-wide pension fund and voluntarily joining schemes”.
During the past 20 years, mandatory sector schemes have seen their stake in the non-mandatory pension market – companies that are not forced to join a pension scheme – increase from 6% to 11% of the number of active participants.
In the same period, non-mandatory sector schemes saw their share decline from 15% to 3%, while the stake of company pension funds fell from 47% to 23%.
The growth of mandatory schemes is in part attributable to the low interest rate environment, which has made defined benefit (DB) arrangements at insurers much more expensive.
In addition, some sector schemes have significantly extended their sphere of influence. For example PGB, initially the pension fund for the graphic design sector, now also covers the industries of rubber manufacturing, maritime fisheries and the wholesale of flowers and plants.
“Without this extension, more employers would have had to diverge to the low-cost defined contribution vehicle PPI or insurers,” argued Klijnsma.
The new multi-plan APF vehicle offers employers an additional alternative for DB arrangements.
However, stricter financing conditions apply to providers starting an APF than to an existing mandatory sector pension fund, resulting in up to one-third lower costs for employers joining an industry-wide scheme.
Klijnsma warned that “in particular temporary differences in the rules for calculating contributions could see APFs pushed out of the market by sector pension funds, even if the latter are less efficient”.
She said the domain demarcation was also necessary to prevent industry-wide schemes getting into an even stronger position and dominating the market.
Last summer, the government approved a bill that would allow mandatory sector pension funds to merge but keep their assets separated for a period of five years.
Klijnsma also explained that the proposed new limitations would only apply to the current rules requiring companies to participate in a pension fund.
Earlier, the government had indicated that it considered mandatory participation in pension arrangements – rather than a pension fund – as “an interesting and useful option” for the mid-term.