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OPF: pre-pension plans to hit economy, markets

NETHERLANDS – The OPF, the Dutch Association of Company Pension Funds, has launched an attack on the government’s latest pre-pension proposals, saying they could hit the economy, destabilise markets and have an unclear social impact.

The OPF was responding to the cabinet’s reported decision to adopt junior minister Joop Wijn's proposal to allow pre-pension scheme entitlements to be cashed in as a lump sum and make participation in pre-pension schemes voluntary.

“The OPF believes these plans as reported are exceedingly ill-advised.”

It said that while the move would stimulate consumer spending in the short term it would also fuel inflation – “to the detriment of pension funds”.

“But a much more serious impact for pension funds in the long term would be the lack of returns from our investments. These are largely generated in other countries. For this reason our pension provisions represent a sustainable international competitive advantage in today's greying society. That advantage is now in jeopardy.”

And the OPF warned that the measures could cause a run on pension fund assets. “Pension funds would therefore be put under unexpected sharp pressure to divest their equity, bond and property holdings. That could endanger the stability of our already fragile financial markets.”

“Even if the participants do not use the buy out option right away, pension funds will be forced to change their investment strategy because the employees can exercise this option at any moment.”

The OPF said the move could also be “hurtful” to younger generations. “In effect it means the government is predating tax revenue and narrowing its future tax base. Younger generations will consequently have to pay higher taxes because taxable pension payouts will be reduced.”

And it questioned whether the government could legally implement the measure, as it would encroach on agreements made between pension funds and the social partners.

“That would erode the legal certitude and freedom of contract of pension funds with retroactive effect. In practice it would be a matter of introducing an opting-out facility with retroactive validity.”

“Pension fund management is a long term business,” the OPF stated. “It cannot properly thrive in an environment where the government adheres to a zig-zag line of policy. The government ought to be a stable partner.”

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