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Dutch trade unions demand higher discount rate for liabilities

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The three largest trade unions in the Netherlands will only support a new pensions agreement if the regulator and government concede to changing discount rate rules and the country’s financial assessment framework (FTK).

In an opinion piece published by left-leaning broadcaster BNNVARA, the unions said that the current discounting rules posed “an insurmountable barrier to a new pensions contract and a deal with the social partners”.

The unions referred to the views of social affairs minister Wouter Koolmees and regulator De Nederlandsche Bank (DNB). Both have insisted that the risk-free interest rate should be applied for defined benefit (DB) plans.

“A new pensions contract should be accompanied by new and matching rules,” wrote Tuur Elzinga, Nic van Holstein and Arend van Wijngaarden, representatives of unions FNV, VCP and CNV, respectively.

According to the unions, the theory of a risk-free interest rate made sense for a risk-free pension, but not for a new pensions contract without a nominal guarantee.

Tuur Elzinga, FNV

Tuur Elzinga, FNV

“This new contract acknowledges the reality that a pension is the result of paid in contributions and returns that can be achieved collectively. This is not risk-free,” the unions said.

In an interview with financial publication NRC Handelsblad, Elzinga denied that the unions wanted to scupper a pensions accord with their demand for a higher discount rate.

“I just wanted to make clear that this pension contract won’t work without a different discount rate, because if it doesn’t, then we can’t confidently consult our members about the result of the negotiations,” he explained.

In their opinion piece, the unions reiterated that they wanted to slow down the rise of the retirement age for the state pension AOW, which is set to increase to 67 by 2021. They also called for more leeway for early retirement arrangements as well as mandatory pensions accrual for self-employed people (zzp’ers) in industry-wide pension funds.

The Netherlands’ five largest pension funds have expressed disappointment with the position of the regulator and the minister. Coen Teulings, former director of the Dutch Bureau for Economic Policy Analysis (CPB), has also criticised their approach.

Last week, Jean Frijns, former head of investments of the €414bn civil service scheme ABP, argued that the DNB’s view on the discount rate was blocking progress on negotiations for a new pensions contract.

Today, Dick Sluimers, former chief executive of ABP’s asset manager APG, joined the public discussion by also criticising the view of DNB and Koolmees, urging them to seek a compromise.

The negotiations are now focused on a nominal “target pension” in collective arrangements rather than individual pensions accrual with collective risk-sharing.

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