Significant reductions of pension rights and benefits in the Netherlands next year are unlikely, even if coverage ratios don’t improve, several pension experts and economists have suggested.
“Drawing on past experience, it would be unusual if rights cuts would go ahead,” Hans Kennis, pensions adviser at Montae & Partners, told the Dutch financial daily Het Financieele Dagblad (FD).
During the past years, relaxed rules have led to rights discounts being repeatedly postponed or avoided.
Wichert Hoekert, senior consultant for retirement solutions at Willis Towers Watson, as well as colleagues at Aon, agreed that the chances of cuts seem small.
It noted that players involved in the elaboration of the pensions agreement between the government and the social partners also anticipate a new delay.
Many pension funds are facing cuts next year, if their funding is still short of 100% in December.
In March, coverage ratios of Dutch schemes had dropped to no more than 90% on average. Based on current funding levels, millions of pensions could decrease by 15-20%, either as a single discount or spread out over several years.
The measure would, for example, hit the civil service scheme ABP and the healthcare pension fund PFZW.
Their participants include nurses, doctors, police officers and teachers, occupations that are on the front line in tackling the COVID-19 crisis.
Wouter Koolmees, the minister for social affairs, already announced last year a delay in rights cuts, by allowing pension funds from refraining from such a measure in 2020 as long as their funding exceeds 90%.
According to FD, economists at the Netherlands Bureau for Economic Policy Analysis (CPB) have already included the absence of rights cuts in 2021 in all their scenarios, despite the hit incurred by the pensions sector.
Recently, Klaas Knot, president of Dutch central bank and pensions supervisor De Nederlandsche Bank (DNB), said it is still too early to discuss rights cuts, as schemes’ funding level at year-end is the legal criterion.
His view was echoed by Lex Hoogduin, a former DNB director and economist, who argued that pension funds’ positions in December should be assessed in the context of the entire economic situation then.
However, a delay of rights discounts will not solve the problems facing the Dutch pensions system, as low interest rates are to persist and a market crash looms at the expense of a significant part of schemes’ assets.
Montae’s Kennis said he expected the minister to also take into account the progress made on fleshing out the pensions accord.
According to the FD, the elaboration of the agreement is by and large on schedule, and the steering group is about to discuss the first draft of a new pension contract lacking both certainty and a discount rate for liabilities.
It added that the negotiators are still aiming at delivering a framework for a new pensions system before the summer. That said, the large funding shortfall in many pension funds is likely to complicate the transition to a new system.
The envisaged merger of current pension plans with new arrangements is expected to be one of the most troublesome parts of pensions reform.