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Experts offer alternative for Dutch pensions reform

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  • Experts offer alternative for Dutch pensions reform

NETHERLANDS - Pension experts Jean Frijns, former CIO at ABP, Guus Boender, co-founder of Ortec, and Theo Kocken, chief executive at Cardano, have proposed an alternative to the fundamental reforms now under consideration for the Dutch pension system.

The three agreed on a single, simple and "generation neutral" alternative to the proposed new financial framework, or FTK, over the course of a pension conference hosted by IPE sister publication IPNederland.

Initially, the expert opinions seemed to diverge, but over the course of the day's discussion, the various perspectives began to converge, resulting in a single viewpoint, presented jointly during the final panel session.

The alternative aims to marry valuable features of the now-defunct Pensions Agreement with the current system change proposals put forward by social affairs and labour minister Henk Kamp.

"The current proposals involve a nominal system and a real system existing side by side, which is hard to work with from a practical standpoint," said Frijns.

"This creates tremendous complexity, so we would like to put forward an alternative."

The idea is to wed the very best of the nominal and real systems in a way that leads to a fair and generation-neutral division of pain and gain, according to Kocken.

"In the proposal currently under consideration, nominal arrangements differ significantly from real schemes," he said.

"If there were a way to bring those two extremes closer together, we would not need an entirely new pension arrangement.

"You'd simply get a single new supervisory framework that is simple to explain to anyone at all."

In the proposed new nominal system, benefit cuts would have to be completed in a very short time period while previously cuts could be spread endlessly over time.

At the same time, the new system introduced real arrangements that would allow cuts to be spread over longer time periods - without extending the courtesy to nominal schemes.

And while nominal schemes are allowed to stagger indexation-benefit payouts, this methodology is off limits for real schemes.

The three experts recommended moving these extremes closer together and combing the best features of both systems in one.

Boender, for instance, suggested allowing real schemes to stagger payouts depending on financial solidity, while Kocken pushed for allowing nominal schemes to spread pain and gain in a more "symmetrical" way.

"This means nominal schemes would be allowed to spread cuts over time," he said.

By bringing the two ends together in one solution, there would be no need for two separate types of schemes, they argued.

"You'd simply need one single new financial framework, the new FTK," Kocken said.

The day-long discussions led to a list of six recommendations, which were formally presented to director Gerard Riemen of the Pension Federation.

Concerns raised by Frijns - who suggested that politicians and authorities would increasingly try to gain control of the country's €800bn in pension savings - led to the recommendation that the Pension Federation should spearhead a vigorous defence of the legal standing of pension schemes as private schemes.

In addition, the umbrella organisation should push for allowing the "staggering" methodology in real schemes, while nominal schemes should be fair, complete, and "symmetrical" in the way benefit cuts and indexation advantages are distributed, they said.

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