NETHERLANDS - The new Pension Agreement currently being hammered out by the Dutch social partners will lead pension funds taking more risks and offer substantially lower guarantees to plan members, said Dutch central bank director Joanne Kellermann.

Speaking at a parliamentary hearing about pension fund investment policies, Kellermann said the new system would therefore require a clear and strong supervisory framework.

Her remarks echo similar concerns in the supervisor's annual report, which was published yesterday.

In its annual report, the central bank (DNB) states that the current pension system is structurally "under stress".

The system's capital buffers have been eroded over time by higher life expectancy, lower-trending interest rates, insufficient pension contributions and the cost of early retirement programmes, as well as investment strategies that, in hindsight, must be considered too risky - "and now we are presented with the bill".

Although the DNB does not offer any opinions regarding the content of the new contract, Kellermann made it clear the DNB believes a new pension deal is needed to replace the current system.

"The pension system, as it is, is not sustainable, and it is doubtful whether it has sufficiently broad support," she said. "In addition, the current deal is not fully developed, nor is it transparent."

However, Kellermann stressed that any new pension deal must meet a number of minimum criteria.

"The new system should be sustainable both in terms of financial solidity and public support," she said. "It should be transparent and understandable, and it should help put an end to the schism between what people expect and what they actually get.

"In addition, it should be possible to administer the system at a reasonable cost, which has implications for any transitional arrangements."

The DNB wants to ensure that scheme members will be clearly informed about the implications of the new pension deal, particularly with regard to the pension promises.

"This should not become a matter of 'promise more, get less'," Kellermann said. "There must be accountability both before and after - existing pension rights must be properly dealt with and member interests must be secured. That takes a solid supervisory framework with clear standards."

Employees must be clear on what to expect, Kellermann added: "Particularly since research shows people value security. If the pension arrangement cannot offer them this security, they will have to buy it elsewhere."