NETHERLANDS - Abandoning the average pension premiums will threaten rather than improve the Dutch pensions system, says the director of the Association of Industry-wide Pension Funds, or VB.
Peter Borgdorff’s view is at odds with that of pension experts Lans Bovenberg and Roel Jansweijer. They had claimed that average premiums and a time-proportional build-up of pensions will undermine the collective system. This would set younger employees at a disadvantage, they have argued.
“Average salary schemes mean that younger workers don’t have to be in solidarity with late careerists any more,” Borgdorff said in the daily Het Financieele Dagblad.
“Moreover, during an average career, they still can get good pension results via a higher build up percentage, or a lower franchise compared to a final salary scheme.”
According to Borgdorff, experience shows that average premiums encourage women to keep on working at an older age, or even return to the labour market.
“They don’t need to pay sky-high premiums for a normal pension build-up, because of the unique Dutch combination of value transfer, indexed premium-free rights and the granting of pensions over short periods.”
Borgdorff doesn’t agree with Bovenberg and Jansweijer that the overpayment of older employees is hampering a flexible retirement age.
“The average premium is exactly meant to protect the position of older employees in the Netherlands,” he argues. “Without the average premium, the premiums for older workers have to be much higher.”
“Especially at industry-wide pension funds employers don’t have the urge to get rid of older employees. Average premiums contribute to a higher labour participation at older ages,” he added.
“Without the average premium, workers need to start building up their pensions at a young age. Within a knowledge economy it’s important that they use this period for studying, so they can keep on being productive for longer.”
Borgdorff agrees that abandoning the average premiums will cause a big transitional problem which “will be so complicated and expensive that it will undermine the collective ‘defined benefit’, like the average salary pension”.