Extending Dutch scheme recovery periods ‘irresponsible’
The Dutch government’s leading legal adviser has warned against extending the recovery period of underfunded pension schemes beyond the current five-year limit.
The Council of State (RvS) said such a decision would be “irresponsible” given the earlier relaxation of several other rules to reduce the likelihood of cuts to pension benefits.
Since 2006, the government has extended the initial recovery period from one year to three, and subsequently to five years.
The RvS published its advice after assessing draft legislation tabled by MPs Martin van Rooijen, of the party for the elderly 50Plus, and Paul Smeulders of green left-wing party GroenLinks.
In their proposals, initially filed separately, they demanded extending the recovery period by a further two years, arguing that it wouldn’t be logical to cut pension rights just as changes were about to be made to the Netherlands’ pension system.
Van Rooijen and Smeulders said a pension fund’s financial health should be measured using eight measurement points across seven years, rather than the current six points in five years.
Previously, the RvS had suggested that pension funds weren’t responding “timely and adequately” if they needed six measuring points ahead of benefit cuts.
At the moment, pension funds must apply cuts if their funding levels have been short of the minimum required level of 104.3% for five consecutive years.
The €72bn metal scheme PMT and its €47bn sister pension fund PME are facing rights cuts next year if their coverage levels – currently 100.7% at both schemes – are still below the required minimum at the end of this year.
Both MPs said the RvS’ advice was no reason to withdraw their proposals.
“Applying rights cuts just ahead of pensions reform is impossible to explain to participants and detrimental to their support,” Smeulders said. “And we don’t want the trade unions to have to negotiate with a knife on their throat because of looming discounts.”