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Majority of Dutch pensions professionals oppose switch to new system – survey

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  • Majority of Dutch pensions professionals oppose switch to new system – survey

NETHERLANDS - Two-thirds of Dutch pension professionals oppose a switch to a new pensions system and believe plan participants should instead be given the choice to keep their "old" accrued rights, according to a new survey.

In addition, nearly 80% believe any new pensions system should allow plan participants to insure against the risk of lower-than-expected pension results.

A survey of 200 pension professionals - including trustees, pension fund managers, insurers and consultants - shows that 66% are in favour of a clear distinction between past accrued benefits and benefits accrued under the new pension system, which is scheduled to take effect in 2014.

Sixty-five percent of respondents said plan participants should be allowed to retain the benefits accrued under the old system.

The issue of migrating past accrued benefits from the existing system of nominal guaranteed pensions to a new system of real conditional pension rights is a contentious one.

In recent weeks, experts ranging from pensions supervisor DNB to pensions manager APG have warned that absorbing old benefits into the new system would be a crucial element of the planned pension reforms.

Henk Kamp, minister of social affairs and labour, has commissioned a feasibility study with regards to a collective switch to the new system.

Such a switch may not be legally possible without explicit consent of individual plan participants, and the complexity of allowing the old system to co-exist with the new system - to accommodate participants who do not want to make the change - may be prohibitive, experts say.

If the majority of participants were to choose to keep their 'old' benefits, the sweeping reforms of the Dutch pension system, announced with much fanfare last summer, would in effect be stillborn. 

Against this backdrop, the fact that a sizeable majority of pension professionals believes old rights should co-exist with the new system is a "significant finding with considerable impact", according to financial marketing company Bridgevest and pensions magazine Pensioen Bestuur & Management, which commissioned the survey, with support from Cardano Risk Management. 

In addition, the vast majority of respondents (79%) believe plan participants under the new system should be given the opportunity to insure against the risk of lower-than-expected pension results, as the proposed new pension system will make the pension outcome more uncertain for plan participants.

Just 20% of respondents believe the transfer of risk to plan participants - a major effect of the pension reform - is a positive development.

And 67% of respondents insist sponsor companies have a responsibility to help weather setbacks.

Kamp has said segmentation of pension plan participants - whether by age cohort or otherwise - is out of the question, for now at least.

Respondents to the survey, however, do call for further segmentation.

Respondents believe the new Pensions Agreement should distinguish between different groups of participants to ensure a fair distribution of risks and benefits, with 49% in favour of distinguishing between age cohorts and 36% in favour of segmentation according to target income to provide protection to lower-income pension groups.

Asked which issues would be most important with regard to the future of the Dutch collective pension system, respondents identified better communication with plan participants as the number one issue (25%), followed by implementation of the new Pensions Agreement (17%), better pension fund governance (13%) and improving trustee expertise (13%).

Two out of three pension professionals participating in the survey worry that, under the accounting rules of the new pensions system, schemes may appear to be 'richer' than they actually are. 

Adopting expected returns as a discount ratio for liability valuation will tempt pension funds to grant indexation when they cannot really afford it, to the detriment of younger participants, 61% of respondents fear.

Another 57% expect that the use of expected returns as a discount ratio will lead to investments that are 'too risky'.

Some 79% of pension professionals are concerned about the future sustainability of the schemes they are involved with. 

In this regard, 39% of respondents expect that their pension arrangement will be made less generous, and 11% expect to merge with an industry-wide pension scheme.

Just 2% expect to join a multi-employer corporate scheme.

Buyout/buy-in solutions are equally unpopular and considered by only 2% of respondents.

The so-called PPI solution is only marginally more popular at 5%.

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