The viability of the Dutch capital-funded pensions system is in danger if interest rates remain at their current low levels, according to the country’s social affairs minister Wouter Koolmees.
During a debate in parliament last week about the recent pensions agreement, the minister said that “we all have a problem in a capital-funded system, if interest rates remain zero for a very long time”.
He made the remark while answering questions from Pieter Omtzigt, who had suggested that no capital-funded system could survive such a situation. The MP noted that the issue touched the core of the pension system and arming against the effect of low interest rates wasn’t possible.
“We could keep on reforming as much as we want, but low rates would fully erode the value of pensions,” Omtzigt argued.
In his opinion, the European Central Bank (ECB) was the main cause of the low interest rate level “as it has been keeping rates at 0% for 10 years, and is planning for a further decrease”.
“We could keep on reforming as much as we want, but low rates would fully erode the value of pensions”
At its most recent meeting on 6 June, the ECB said it would maintain its current record-low interest rates at 0-0.25%, and expected them to remain unchanged “at least through the first half of 2020” or “as long as necessary” to keep inflation at roughly 2%.
However, Koolmees defended the ECB, noting that interest rates had been steadily falling for 30 years.
He said he would address the effects of long-term low interest rates on pensions in his “road map” for reform, which is to be published this autumn.
Meanwhile, at a conference hosted by Dutch pensions publication Pensioen Pro last week, economist Matthijs Bouman said lower expectations for inflation and growth, as well as saving levels exceeding investing, were the main causes of low interest rates.
“We want to save, we want to increase security and we want to accrue financial buffers,” Bouman said. “As returns on investment are low, so is the risk-free return on capital.”
Also at the conference, Paul Frentrop, senator for the new right-wing party Forum for Democracy, argued that the capital-funded pensions system was no longer sustainable and suggested that the Dutch second pillar system should be transferred to the state.