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New Dutch coalition aims for pensions reform in early 2018

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The four coalition partners making up the Netherlands’ new government have said they aim to conclude an accord for a new pensions contract early in 2018.

Their governing agreement – presented yesterday – made clear that the cabinet would also provide clarity about how a transition from average to age-related “degressive” pensions accrual would take shape.

The necessary legislation must be approved by parliament by 2020 before the implementation of the new arrangements can start.

In the governing accord, the coalition partners – the liberals (VVD), the Christian democrats (CDA), liberal democrats (D66) and small religious-right party CU – said that they would increase the freedom of choice for pension fund participants by introducing the option of a lump sum at retirement.

They also promised that the government would contribute to the transition costs – largely as a compensation for the affected participants – to degressive pensions accrual. Costs have been estimated at between €25bn and €100bn.

The coalition agreement also indicated that the new cabinet, which is still to be constructed, would keep the principle of mandatory participation. This comes despite three of the coalition partners initially advocating freedom to pick a pensions provider.

The four parties also said that they would facilitate the collective transition of existing pension claims into individual pension assets.

The new pensions contract is most likely to comprise individual pensions accrual combined with a certain amount of collective risk sharing, and is to be added to the existing range of pension arrangements.

Recently, the coalition partners said they wanted to enable the social partners of employers and workers – which have been discussing the issue in the Social and Economic Council (SER) for the past two years – to come up with their own proposals.

Commenting on the government’s plans, the Netherlands’ Bureau for Economic Policy Analysis (CPB), said that abolishing average pensions accrual would be bad for purchasing power. It estimated that combined pension contributions would have to rise by €1bn.

The coalition agreement also said that deploying pension assets to pay off a mortgage would not be possible for the time being. This option would be looked at after the reform of the pensions system has been completed, the parties said.

The governing accord did not mention plans to further limit the tax-facilitated pensions accrual either. Currently, the annual tax-friendly accrual is 1.875% for a salary of up to €103,317.

The agreement explicitly stated that the new government rejected additional European pension rules, emphasising that “the pensions system would remain a local competence”.

The new coalition government must operate cautiously, as it has the smallest possible majority in parliament.

As a consequence, three of the four political leaders won’t take up a ministerial post, but instead will stay on as chair of their respective parliamentary parties.

The new cabinet will again be headed by VVD leader Mark Rutte, who has been prime minister for the past two Dutch parliaments.

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