NETHERLANDS – Contributions will need to increase by several percentage points under the new Dutch financial assessment framework (FTK), the €2.3bn industry-wide fund for cabinet makers and furniture manufacturers has warned.
In its response to the government consultation on the FTK, the scheme said: "Pension plan participants and employers will have to pay contributions of at least several percentage points higher than they do now, while the quality of the pension arrangement will further deteriorate."
According to Jos Huisman, actuary with the pension scheme's manager Syntrus Achmea, the abolishment of contribution smoothing, in particular, is bound to result in higher pension premium contributions.
Other elements of the new FTK – which is currently circulating as a draft proposal and is scheduled to be sent to Parliament after consulting with the industry – are also expected to contribute to a hike in pension contributions, such as the higher capital buffer requirements for the nominal contract, as well as the framework's indexation requirement for the real contract.
Numbers showing the impact on the cabinet makers scheme were not available, but Huisman said colleagues at Syntrus Achmea calculated the impact for several other pension clients.
"Both of these schemes currently apply a smoothed contribution rate of 4%," he said. "Switching to contributions on a cost-covering basis means a contribution hike of 35-40%.
"In terms of percentage point the hike is smaller; depending on the type of arrangement the pension fund would opt for – nominal or real – this amounts to 16.5% and 22% respectively for one pension fund and 20% and 14% for the other fund," he said, declining to name the pension funds in question.
The percentages to which Huisman referred were based on the assumption that the rate of pension accrual remained the same. However, the Dutch parliament has announced its intention to limit tax-exempt accrual and before summer recess the country's Senate agreed to lower tax-exempt pension accrual to 1.75% by 2015.
The Dutch Cabinet argued the change would allow pension funds to lower contribution levels and an explanation published with the FTK proposals assumed an expected contribution drop of at minimum 3% and up to 20%. Based on annual contributions of €30bn, the decline would amount to as €0.9-€6bn.
However, the contribution drop assumed by state secretary Jetta Klijnsma was based on preliminary calculations by pensions supervisor DNB and the ministry of Social Affairs and Labour Ministry declined to say how these calculations were made. It has therefore been difficult to establish how much the intended contribution drops are really worth, Huisman said.
"It's very difficult to say what the impact will be, exactly. It is very possible that the social partners will decide to improve the quality of the pension contract instead," he said.
The social partners might, for instance, decide to use part of the contribution to finance survivor benefits, he noted.
It is clear the new FTK will not automatically result in lower pension contributions, even if employees tax-exempt accrual is curbed, Huisman said, echoing a point repeatedly expressed by the country's Pension Federation.
Commenting in response to the publication of the FTK proposal, the €286bn ABP noted that "premium contributions for ABP may rise significantly when applying the proposed methodology." ABP declined to provide figures.
PFZW, the €132bn healthcare scheme, remarked that the impact of the proposed regime will depend on the discount rate.
The new regime's exact discount rate is expected to be clarified by mid-September and a committee of experts charged with evaluating the ultimate forward rate has already delivered its final report, according to sources, but it is believed that the Cabinet is holding off on publishing the committees findings until it has prepared a response.