NETHERLANDS - Pension funds will be given more time to submit recovery plans during times of financial crisis, so they can avoid the effects of volatile markets.
Dutch social affairs minister Piet Hein Donner has written to Parliament and delivered a comprehensive response to recommendations from several experts' committees on the future of the Dutch pension system.
Within those recommendations, however, Donner has also stated he wants to maintain use of the swap curve, rather than AAA government bonds, as pension funds' benchmark for accounting liabilities; a move some pensions experts oppose.
He also suggested pension funds should be allowed to differentiate their investment policies depending on the age groups of its participants, particularly in the case of schemes with many older and risk-averse participants.
The minister said he agreed with the committees' conclusions that the present regulatory system is not future-proof and felt changes should be implemented urgently.
"If the present course remains unaltered, a hard landing seems to be inevitable," he noted, although he stressed he wants to keep the principles of collectiveness and solidarity - including risk-sharing between the generations - as the corner stones of the Dutch pensions system.
In the minister's opinion, the financial assessment framework (FTK) must be adjusted "as it still allows [schemes] to shift pension costs into the future".
In contrast to the present situation, an updated FTK must ensure that a pension fund's nominal promise of 97.5% of a pension - which equates to a cover ratio of at least 125% - can be substantiated, the minister argued, and announced the introduction of a mandatory model for fund-specific risks.
The continuity analysis will be extended with a mandatory stress test in order to improve the risk return balance of a pension fund, while a financial emergency scenario will be added to pension funds' actuarial memorandum (ABTN), according to Donner.
He said pension funds will also be required to provide their participants with more clarity on their real value of their future pensions as well as on the risks involved.
At the same time, however, Donner also wants to offer pension funds more leeway in the agreements they make with participants on conditional pension rights, particularly where they depend on a scheme's financial position.
He said criteria for pensions rights cuts will have to be established and a bill - to be tabled before the summer - will be introduced to enable workers to stay in employment beyond the age of 65; to help top up any income where pension rights could be cut.
Donner has also adopted a suggestion presented by the Goudswaard Committee stating the pension system should increasingly focus on real pension values, rather than nominal ones.
He also wants to abolish the option of cushioning contributions ahead of expected returns.
The cabinet's conclusions will be the basis for discussions with social partners who decide on additional pension arrangements.
That said, the government is responsible for the legal framework, such as the Pension Acts and the FTK, which guarantees workers' pension rights.