Nearly all Dutch workers and pensioners will on average enjoy higher pension benefits in the new defined contribution (DC) system, with workers aged 25-30 benefiting the most. Only one age group has lower expected benefits, according to new calculations from pension regulator DNB.

“The new pension system will grosso modo lead to better pension expectations than the current system,” concluded pensions minister Carola Schouten in a letter to parliament.

The calculations are based on a ‘standard scenario’ for financial markets, with long-term expectations for inflation set at 2%.

DNB assumes annual listed equity returns of 5.4%. Non-listed real estate is supposed to return slightly less at 4.4%, while other non-listed asset returns are set at 7.7%. Risk-free assets are expected to provide a return in line with the UFR (Ultimate Forward Rate) curve.

Several political parties that oppose the pension changes had called for the debate on the new pension law to be adjourned until the new calculations, hoping these would provide them with additional ammunition to shoot down the law.

Older pensioners at risk

The DNB analysis shows almost all members will be better off under the new system. Younger members benefit most, with 25-30-year-olds enjoying benefits of up to 40% higher under an average scenario for financial markets.

The older the members, the less time they have to benefit from the new system and the additional risk pension funds can take with their investments. Nevertheless, 75-80-year-olds can still expect slightly higher benefits than under the current system.

Only the 85-plus age group is expected to see lower pension benefits.

The main reason for the higher expected benefits is the disappearance of most buffer requirements in the new DC system. As a result, pension funds can take more risk and increase pensions more easily.

Under current rules, pension funds cannot increase pensions by more than inflation or wages if they follow a price or wage index, which most pension funds do. This limitation will also disappear in the new system, paving the way for higher handouts.

On the other hand, pension cuts will also occur more often. This is the reason pension results are less rosy for older age groups. “Older people will have less opportunity to make up for poor investment results in the future,” DNB explained.

For the original article, go to Pensioen Pro