Dutch should reconsider 'flawed' new FTK contracts

NETHERLANDS – Dutch social partners should spend longer developing the new pensions contract to be implemented by a revised FTK, rather than settle for either of the current, flawed proposals, Keith Ambachtsheer has argued.

In his latest 'Ambachtsheer Letter', the Canadian said he disliked both the nominal and real contract being considered, and that he believed neither model scored well against such sustainability criteria as affordability, payment certainty, fairness, clarity of property rights and other areas.

He suggested alternative models, including pooling of longevity risk within age consorts rather than across the pension fund's entire membership.

"Another good 'collective' example is for large groups of pension plan participants to use the same pension management organisation," the letter said.

"Large organisations can manage investments and deliver pension administration with higher skill levels and greater economies of scale for the benefit of all."

He called on the Dutch system to recognise the lessons of Jan Tinbergen – that two distinct goals require two separate instruments – and that affordability of pensions and payment certainty of benefits should therefore be treated as distinct but equal goals.

"Some argue the Dutch pension reform window is closing, and that it is better to implement the proposed – but flawed – 'nominal' and 'real' contracts now," he said, "rather than spend more time finalising a contract that can truly pass the sustainability tests of affordability, payment certainty, fairness, clarity of property rights, sensitivity to individual preferences and pension contract understandability by plan participants."

Instead, Ambachtsheer said he endorsed the opposite point of view.

"It is far better to spend a little more time getting the contract right now, than spending much more time later cleaning up an even bigger pension mess," he said.

Ambachtsheer previously told a National Association of Pension Funds conference in Edinburgh that collective arrangements had to be tested for their "win-win capacity" and ability to maintain such an approach over the longer term.

For more on Dutch pensions, see the September issue of IPE magazine.