Elections driving pension debate
The Dutch pension sector is headed for a period of heated debate, prompted by the prospect of parliamentary elections next May. Pension funds will be placed higher on the political agenda as the respective political parties unveil their policies on current pension issues.
Issues such as the role of the first pillar AOW, the implementation of the new Pension Law or the problem of an ageing population are likely to become the hottest topics.
However, pension fund spokesmen in both government and opposition parties must be aware of the political cost of taking an unpopular line on these issues. The current government party, the CDA, discovered this when it proposed radical changes in the 1990s.
The Labour Party, the largest opposition party, seems to have made the same mistake. For several years, Labour Party leader Wouter Bos appeared to be heading for an easy victory in the next elections, since all opinion polls showed Labour in the lead. Now Bos appears to have made a critical mistake by calling for a possible tax on the AOW. As a result potential voters are deserting the party en masse.
The latest opinion polls showed that the current coalition government, made up of Christian Democrats (CDA), Liberal Party (VVD) and Progressive Liberals (D'66), is catching up on the opposition. Most polls indicate that the Labour Party's stance on the AOW is the main reason for this.
The CDA is reportedly opposed to supervision being split between the two financial regulators, the Autoriteit Financiële Markten (AFM) and the De Nederlandsche Bank (DNB} as is currently proposed. The CDA believes that the DNB should be the lead supervisor.
Pieter Omtzigt, CDA MP says the AOW should be considered a national insurance, where everybody pays premiums until 65 . Beyond that date, people will receive payment. Everyone will receive the same payment, which not be related to the level of former salary. It would be illogical, he says, to impose a tax on the AOW for people that already have paid.
Omtzigt, sees the new Pension Law as an extension of the former PSW, which he says has functioned well. However, the issues of ageing and financial stability have had to be addressed and changes are necessary. The Pension Law should also deal with widow-widower pensions issues once and for all, he says.
Dutch pension funds must work to increase their overall reserves, he suggests, to give them the leeway they need to be able to invest more actively. So far as future threats to the pension system are concerned, he believes that the end of VUT and prepension systems has removed a costly element of the pension system in the Netherlands.
At present, he says, the pensions system is viable and does not face real financial threats. However, he believes that the issue of ageing will need to be addressed in the future if the Netherlands is to generate enough revenue to pay for a viable system.
There is no serious threat from the European Commission in Brussels, he says. However, European directives could cause problems if they fail to take national systems into account. In particular, the CDA has concerns about the EU portability directive. This could lead to pension arbitrage, whereby people move their pensions to the most favourable jurisdiction.
Staf Depla, a Labour Party MP, suggests that Bos has proposed to secure part of the AOW system by taxing it for higher income pensioners. Bos also sees it as a possible counter measure to the proposed increase of the AOW pension age to 67, based on the Labour Party's principle, "the strongest shoulders should carry the heaviest burden".
Depla says that if the Labour Party becomes a partner in a new government it will press for the AOW to increase in line with salaries. In the current system, the government has allowed the AOW to lag behind salary increases.
Bos has reaffirmed that people with only AOW and a small second or third pillar pension of around e10,000 will not be taxed. The overall position of pensioners will not worsen , he says, since the Labour Party proposes to increase the AOW substantially.
or Depla the new Pension Law is a major change since, for the first time, it provides a single law for pension funds and insurance companies. It has also changed and improved supervision of the pension fund sector, especially in relation to financial issues. Yet several features of the new Pension Law still need amendment, he says. One of the main changes is that pensions should be linked to the normal salary increases. Otherwise the loss of purchasing power will lead eventually to a divided society.
Depla is also critical of the current proposal for financial supervision. He agrees that supervision should be increased, but argues that it should be less short-term, and should not focus on the quarterly reporting of market valuation of assets and liabilities. Pension funds should have more room to manoeuvre, he says, since they are long-term investors. At the same time, he supports the idea of capital covered pension contributions, which are a major contributor towards the increased financial reserves of a pension fund.
Depla's view on the need for increased participation of pensioners in the boards of pension funds differs slightly from the that of the trade unions. He believes that pensioners should have an increased say in the total management of a pension fund and insurers. The trade unions have indicated that they would oppose such a proposal, since the unions already represent pensioners on the boards of pension funds.
The Labour Party and the CDA are currently considering how to increase the attractiveness of the life course (levensloop) arrangements.
The Labour Party MP Jert Bussemaker has said that both parties propose to use salary savings for life course options. The Labour Party also wants to increase the attractiveness of the life course arrangements for lower income groups. Until now, higher income groups have been the principal targets. Bussemaker says the self-employed should also have the option to participate in life course.
The CDA has already declared in its election programme that the salary savings scheme option is needed. Gerda Verburg, CDA vice chairman in parliament, says it is needed to improve the system. However, the exact implementation of this is still unclear, since life course payments are taxed while salary saving payments are tax exempt. Kees Vendrik, Green Party (Groen Links) MP, says his party has always maintained that taxation of the AOW is needed. However, the party strongly opposes an increase of the AOW age.
Vendrik says an increase of the AOW age would be unjust, since it would mean less educated employees would have to work longer than better educated employees. He says the Green Party has yet to take a position on the new Pension Law. However, the issue of flexibility will be crucial.
At the same time, the Green Party is proposing that the self-employed should participate in second pillar pension funds, something they have been unable to do up till now.
Surprisingly, the Green Party opposes the salary savings scheme and the new life course arrangement. It says that instead of the latter arrangements, a more flexible system of leave and child care should be put in place. This should provide support for increased participation in the labour market.