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Dutch cabinet to propose continued accrual in DC schemes

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  • Ridderzaal, the Hague

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The Dutch government has announced legal proposals to allow retirees to continue accruing into defined contribution (DC) schemes post-retirement.

In a letter to parliament state secretary Jetta Klijnsma said that, together with the pensions sector, insurers, social partners and the supervisors DNB and AFM, the cabinet would flesh out two new variants of DC schemes, with the aim of the variants being in place by 2016.

The aim of the proposals was to allow an increase in benefits even during the payout phase, as well as for benefits to keep up with inflation, according to Klijnsma.

One variant would focus on placing investment risk with individual participants in both accrual and benefits phase, and focus on how to combine continued accrual with ensuring against longevity risk.

In the second variant, participants are to share investment risk. Klijnsma said she would look at both collective risk sharing at retirement date as well as up to ten years before retirement.

Participants in a DC scheme who join a collective fund with risk sharing would keep their individually accrued pension rights, she said.

“The collective assets are the addition of the individual assets of participants within the collective, in order to ensure clarity about participants’ individual rights,” Klijnsma added.

She continued: “Sharing of assets across individual participants won’t be affected by discretionary decisions of, for example, the scheme’s board.”

A new allocating mechanism must make clear how positive and negative investment results, as well as developments in longevity, are to be shared, she said.

However, participants would also be offered the option of fixed benefits, according to the state secretary.

In other news, Klijnsma said that supervisor DNB had complied with a request from the Dutch senate to postpone the introduction of a new ultimate forward rate (UFR) as part of a new discount mechanism for liabilities.

During the recent reading of the bill for the new financial assessment framework (FTK), a majority of the Upper House questioned the rationale of setting a new UFR just months before European Insurance and Occupational Pensions Authority (EIOPA) was set to decide on a UFR for insurers.

A survey must make clear if and how EIOPA’s UFR can be streamlined with the UFR for pension funds, according to Klijnsma.

Earlier, the pensions sector had indicated to support the current UFR for the time being, as it feared that the proposed new UFR would come at the expense of indexation of pension rights.

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