The Dutch Pensions Federation has called on the country’s pensions industry to come up with an alternative to the current, predominantly defined benefit (DB) system.
The Federation’s director, Gerard Riemen, said DB arrangements had become “too complicated” and that explaining to participants how the system worked was now “impossible”.
Even though the Dutch pensions system is widely considered one of the world’s best, participants are increasingly seeing their pension rights being eroded while still having to pay high contributions, he said.
Riemen also cited the increasing rarity of indexation and the reduction of tax-facilitated annual pensions accrual.
“We can no longer explain how, despite [our having] an improving economy, the chances of rights discounts have increased,” he said.
Riemen warned that low interest rates and volatile equity markets meant millions of participants were facing additional cuts within just a few years.
To improve transparency in the industry for participants, he recommended communicating in terms of “available individual pension assets” rather than “conditional pension rights”.
“This would eliminate the problem of setting a discount rate and allow for greater freedom of investment, as there would no longer be liabilities that must be funded,” he said.
“As a result, pension funds could focus fully on getting the right balance between risk and return.”
Riemen recommended switching from DB arrangements to collective defined contribution plans, where the risks of investment, inflation, interest rates and longevity would be shared.
As long as financial burdens are not deferred, no single age group will be unduly affected, he said.
Under current Dutch legislation, Riemen’s proposed pension arrangements would not yet be possible.
He said, however, that the Federation was already assessing the options of a pension plan based on a combination of paid premiums and risk sharing.