Dutch MPs call for review of career average move

NETHERLANDS – Two Dutch parliamentarians have asked for a review of the pension system in the light of a continued shift to career-average pensions.

Labour party MPs Depla and Crone have asked for the bureau of economic policy, the CPB, for a review of the total system.

In the last year, more than 70% of all Dutch pension funds, including industry giants ABP and PGGM, has changed from the final salary system to the average salary reference.

According to the VB, the Dutch Association of Industry-wide Pension Funds, more than 65% of its members have already introduced this system. From January 1 this year ABP and PGGM, also implemented the system.

One of the reasons for this current change has been the need to counter negative aspects of ageing, to increase the possible financial basis of the fund and the possibility of lower or no indexation of pensions.

Peter van Meenen, spokesman for social affairs minister Mark Rutte, told IPE that the Dutch government was supportive of this new development.

According to the current liberal-Christian led government, the need to counter ever-increasing pension costs, based on the final salary system, is only possible when implementing the average salary system.

He said the government view is that the latter is the best option at present. Negative effects for future pensioners are low, largely because current pensioners which are in the last salary system will still get the benefits of the former system in regards to their paid-in years, the other years will be based on the new system.

One of the leading Dutch trade unions, CNV, the Christian Trade Union, is also positive about the new developments. According to Erik-Jan Slootweg, secretary pensions of CNV, the public sector is currently introducing the new system too.

Other sectors, such as the private international operators, already have introduced this earlier. According to Slootweg, the changes are based on expectations that it will counter the negative results of the current coverage ratios in due course.

If there will be negative aspects for employees, trade unions will still try to repair this within ongoing CAO arrangements with the employers. There are even positive effects possible of the new system if it is combined with a different franchise system.

ABP spokesman Marcel Vleugels said that the reason to change to the new system is that they did not have to deal with so-called back-service, the latter is the risk that a pension fund needs to deal with unforeseen costs due to higher commitments. The average salary system gives you already an overall reference for future commitments.

One other aspect also has returned to the fore of the discussion. In a research done by Laurens Jan Blom, pension analyst and former financial director of FDA in Amsterdam, the need to adjust pensions to increased salary levels has cost pension funds around 50 billion euros in the last six years.

The cost increase has been largely due to adjustments of pensions to inflation rates. Dutch inflation has been higher during those years than the European average. In comparison to the inflation cost increase, during the same period all Dutch pension funds only made 11 billion euros on their share portfolios.

Indexation costs were higher than the total gain on shares. According to Blom, if Dutch inflation had been around the European average, coverage ratios currently would be much higher.

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