Netherlands must learn from others ahead of DC reforms, experts say
The Netherlands must learn from countries with experience in defined contribution (DC) pension provision as it looks to reform its pension system, PGGM has argued.
Actuary Dick Boeijen and Niels Kortleve, innovation manager at the Dutch pension provider, said the industry accepted DC was the “less popular” starting point for reform over the continued use of defined benefit (DB) or the defined ambition (DA) system.
“The advantage of this approach is that a new solution will be much more in line with DC schemes prevailing in most other European countries,” they said in a Guest Viewpoint written for the current issue of IPE.
“The Dutch pension sector can learn much from countries with more experience with DC schemes and the way they have structured these.”
They cited the practice of forced annuitisation, lump-sum payments and restrictions on higher-risk investment options after retirement as areas of concern.
“For other countries, the outcome of this [thinking] could be useful as well,” they argued. “If we can succeed in our aim to find a sustainable DC system with risk sharing, this could be the starting point to improve DC in other countries.”
Boeijen and Kortleve pointed to the potential benefits of a more responsible approach to risk sharing netting an additional 1% return per annum, and how the interest of such a gain would compound over the lifetime of a scheme member.
They suggested launching a collective buffer for DC funds to draw on in years of underperformance, to be boosted in years of overperformance.
“In this way, members will receive stabilised capital accrual on their individual accounts, and the fund smooths the difference between pension outcomes of good and bad luck generations,” they said.
“This improves the options for all members and beneficiaries to search for higher yields at an acceptable risk.”
Healthcare scheme PFZW, PGGM’s largest single client, has previously said it supported the notion of DC with collective risk-sharing.