PME's premium rise, benefits cut could be 'start of trend'
NETHERLANDS - Dutch economist Lans Bovenberg has suggested that the €25bn pension scheme PME may have "started a trend" after it conceded it faces a considerable increase in contributions and a 9% benefits cut if its financial position fails to improve.
Bovenberg, a professor at Tilburg University, was responding to an announcement by financial daily Het Financieele Dagblad that PME is facing a premium rise to 28% next year, as well as a benefit discount of 9% in 2013.
"If the long-term interest rates remain at the same level, more pension funds might have to follow PME's example - particularly the schemes that have based their contribution on expected returns," he said.
Bovenberg said many pension funds might also need to economise on their pension arrangements, by linking the yearly pension accrual to a retirement age of 67 rather than the current pensionable age of 65, for example.
"This measure can instantaneously decrease the premium level by 10%," said Bovenberg, who is also a founder of Netspar, the platform for pensions, retirement and population ageing.
He noted that the considered increase of contributions at PME was at odds with the agreement between employers and employees to stabilise the premiums.
"This is bad for the economy and is an extra reason to implement the new Pensions Agreement as soon as possible," he said.
Gerda Smits, spokeswoman at PME, confirmed that her pension fund needed to increase contributions by 5 percentage points to a cost-covering level.
She added that the pensions supervisor had blocked the scheme - which had a coverage ratio of 88.7% at the end of October - from postponing this move a second time.
But she also stressed that the social partners would make the final decisions at the end of this year.
"The premium rise must come into force next year, but any rights cuts don't have to be implemented before April 2013," she said.
PME's recovery plan requires an improvement of funding to 96% by the end of the year and to 100% by the end of 2012.
The €39bn metal scheme PMT, which had a funding ratio of 88% at the end of last month, is not considering similar measures, according to spokeswoman Annemieke Biesheuvel.
"With 30.3% of the pensionable salary, our contribution is already cost-covering and in accordance with our recovery plan," she said.
Ab Fraterman, pensions secretary at employers organisation VNO-NCW, declined to comment on the developments at PME and the looming extra costs for the affiliated companies.
However, he said the VNO-NCW had noticed "an inconsistency" with the earlier agreements on stabilising premiums.
Gert Kloosterboer, spokesman at the Pension Federation, said: "A contribution increase is a matter of individual pension funds. If pension funds don't have the option to postpone a premium rise, they need to do something else for recovery."
According to Kloosterboer, only a small number of pension funds have already been granted such a postponement by the regulator.