Peter Borgdorff has called for a shift away from the Netherlands’ famed risk-sharing “solidarity” in favour of equal contributions from young and old members in order to make the system more sustainable.
The managing director at PFZW, the €152bn scheme for healthcare and welfare workers, said changing the way pensions were accumulated in the Netherlands would be his top policy, were he put in charge of the industry.
Speaking at the World Pensions Summit in The Hague, Borgdorff emphasised the importance of resolving the issue of intergenerational “unfairness” and criticised the pensions industry for focusing on the “wrong angle” respecting the system’s sustainability.
“The debate in the Netherlands should be about the future of the pensions system,” he told delegates. “But, unfortunately, the debate tends to be about everything that went wrong, and what is wrong with the system and what is wrong about how we do things.”
He said the average contribution structure – where younger members subsidise older members – was no longer tenable.
Until recently, PFZW was one of the larger Dutch pension funds to defend the average contribution approach, saying it was a pillar of solidarity in the system.
Borgdorff did, however, criticise individual defined contribution as a system that ignored the issues of longevity and inflation.
“If you ignore the advantages of a collective arrangements – and the risk-sharing and solidarity – you will have no answer for longevity or the erosion of pensions by inflation,” he said.
Given just one area to change within the Dutch pension system, Borgdorff said he would move to create an equal contribution system.
“We have to change the way we build our pensions,” he said. “The average contribution for pensions works so the younger pay more than they get, and the older get more than they pay.
“This is not a problem when you have the same amount of years before and after 45, but this is not always the case.
“We have to solve this problem. One way is doing something about the risk-sharing in pensions, and I would want to stick to equal contributions for everybody, as it important for the labour market.
“This is not because the current system is bad but mostly because people [want to know] whether what they get is what they were promised. We need to promise what we can stick to, as members do not believe us any more.”
Borgdorff also reiterated his scheme’s commitment to becoming fully sustainable by 2020.
PFZW recently announced that investments for its 2.6m members would see a reduction in carbon footprint by 50% within six years.
According to the Association of Investors for Sustainable Development (VBDO), the €156bn healthcare scheme performed best regarding sustainability last year.