Dutch pension funds should ‘under-promise and over-deliver’
The Netherlands’ pensions sector could improve trust among members by promising less and delivering a better result, according to Kick van der Pol, the exiting chairman of the Dutch Pensions Federation.
During the industry organisation’s annual conference yesterday, he suggested that pension funds should aim to generate a surplus in eight out of 10 years.
“Now we could be facing rights cuts in 2021 as a result the financial crisis in 2008, which is impossible to explain to participants,” he argued.
Van der Pol – who will be replaced as chair of the federation by Shaktie Rambaran Mishre in December – supported a similar plea by Martin van Rijn, former chief executive of the €215bn asset manager PGGM.
In a presentation about the parallels between care and pensions in gaining and keeping trust, Van Rijn – who also served as minister for health, welfare and sport until October last year – advised the sector to focus on the concept of “under-promise and over-deliver”.
He argued that pension funds should put themselves into the position of the individual members, for example by understanding that the expectations of low and high earners regarding their pensions can differ significantly.
Van Rijn also warned against providing too much transparency about risks “as this would increase uncertainty among participants, in particular if they lack the ability to act themselves”.
The former PGGM CEO added that pension funds’ expectations about the effects of increased freedom of choice in their pension arrangements shouldn’t be too high.
“Participants often can’t gauge the impact of their decisions, which could trigger new problems later,” he said.
During the conference, Wouter Koolmees, minister for social affairs, reiterated that he would not raise the discount rate for pension liabilities because that “an articifical increase would come at the expense of confidence in the pensions system”.
He said he was surprised that directors of pension funds had pushed for an increase, highlighting that he also supported inflation compensation “but in a responsible way”.
Koolmees referred to a recent letter to financial newspaper NRC Handelsblad, in which the five largest schemes had called for a new pensions contract with “soft” pension rights, combined with a higher discount rate, to prevent benefit cuts in the next few years.
Both the minister and Klaas Knot, president of regulator De Nederlandsche Bank, told pension funds they must stick to the risk-free interest rate for discounting liabilities, even if planned reforms introduce a pensions contract providing for soft rights.
Speaking to IPE on the discount rate issue, Toine van der Stee, chief executive of the €22bn asset manager Blue Sky Group, emphasised the importance of a stable rate. In his opinion, the stakeholders should opt for a single rate and stick to it.
“The discussions about the discount rate raise the impression in society that we are messing with the pensions outcome, which is bad for public trust in the system,” he said.