Dutch social affairs minister Wouter Koolmees is to assess potential measures to limit cuts to pension rights and benefits in the Netherlands, after the Pensions Federation became the latest organisation to ring the alarm about a looming disaster in the sector.

In a position paper, the pensions industry organisation called for urgent consultations between the minister and the sector in order to prevent the pensions system being severely damaged by collapsing interest rates, and to prevent public confidence in the system being undermined.

The Pensions Federation warned that contributions would have to rise significantly to keep pensions at an adequate level. Without such an increase, annual accrual rates would have to be reduced.

The organisation said that prospects had worsened following the cabinet’s recent decision to reduce the prescribed assumptions for future returns, to be used in pension fund recovery plans as of 2020, and to lower the discount rate for liabilities from 2021.

It added that the trade war between the US and China, “rumours about new monetary measures” by the European Central Bank as well as Brexit developments had caused all warning signs to become “deep red”.

Within a short time span “extraordinary things” had happened, the trade body said, such as a negative German government bond yield curve for all durations, and residential mortgages issued against negative interest rates in Denmark.

The Pensions Federation said it would be sensible for the cabinet set the minimum required funding permanently at 100%, rather than 104.3%, ahead of the introduction of a new pensions contract.

In June this year, following an pensions agreement struck between the cabinet and the social partners, the government said it would temporarily reduce the minimum required funding level for Dutch schemes to 100% in order to reduce the scale of cuts of pension rights and benefits.

Wouter Koolmees

Credit: Mark Prins

Dutch social affairs minister Wouter Koolmees

The new financial assessment framework (nFTK), introduced in 2015, required pension funds to reduce pension rights if their coverage ratio had been below 104.3% for a consecutive period of five years.

The industry organisation said it now expected that 2m pension fund participants and pensioners would be hit by cuts next year.

Cuts of up to 8%

It added that cuts of up to 8% would be possible, despite the reduction of the minimum required funding level.

Although the Pensions Federation  did not dispute the reduced return assumptions, it noted that the combination with falling interest rates and a lower discount rate had created a “very worrying outlook”.

The worsening financial position of schemes would have significant consequences for contribution levels and annual accrual rates for pensions, it added.

The organisation estimated that contributions could have to rise by between 10% and 30% as a direct effect of the new parameters.

Stock markets

Volatile equity and bond markets have worsened the financial position of Dutch pension funds

If contributions could not be raised, annual accruals would have to be reduced to between 1.3% and 1.5% for defined contribution plans, rather than the 1.875% deemed necessary for an adequate pension, it said.

According to the federation, pension funds’ financial position is expected to deteriorate further in 2021, when the new lower discount rate for liabilities comes into effect. Pension funds with a young demographic in particular could lose up to 10 percentage points of their funding.

In August, pension funds’ coverage ratio fell to 98% on average, according to Aon Hewitt, and to 96%, according to Mercer.


During a debate in parliament last Thursday, Koolmees said it wouldn’t be possible to entirely prevent rights and benefits cuts.

He said he would look into the cuts prescribed by the nFTK for pension funds that were unlikely to be able to restore their funding level to at least 120% within 10 years.

Under current circumstances, this prospect applied to the civil service scheme ABP and healthcare sector pension fund PFZW, the two biggest funds in the Netherlands. At the end of July, their funding levels stood at 93.9% and 94.8%, respectively.

Koolmees rejected raising the discount rate as a way to prevent cuts, while acknowledging that a discount rate would not be relevant in a new pensions system with individual pensions accrual.

A large majority in parliament demanded an investigation into the sustainability of the current capital-funded pensions system in the context of persistently low interest rates.

Politicians also demanded independent advice – for example from the Netherlands Bureau for Economic Policy Analysis and supervisor De Nederlandsche Bank – about financing pensions in a zero interest rate environment, and what this would mean for supervision.

This article was updated on 9 September 2019 to clarify the wording in the third paragraph and the second paragraph under the ‘ABP and PFZW’ heading.