NETHERLANDS – Nearly 83% of pension delegates attending the annual summer conference of IPE’s Dutch sister publication IPNederland want the new Pension Act to facilitate a so-called ‘combination scheme’ or ‘combi-contract’.

A combi-contract consists of a guaranteed basic pension with a conditional top-up depending on investment returns.

This arrangement had originally been put forward as the scheme of choice when negotiations on the planned overhaul of the Dutch pension system started several years ago.

At the conference, which was attended by nearly 300 pension fund delegates and industry professionals, several speakers expressed surprise at the fact that the combi-contract had been removed from the programme.

According to risk manager Theo Kocken, such a scheme works well, as it adheres to an “under-promise, over-deliver” approach.

Johan Reesink, chair of the board at the general practitioners scheme, pointed out that such a scheme would keep intergenerational value transfers to a minimum.
Bas Werker, a professor of financial markets at Tilburg University, however, countered that the country’s first-pillar pensions already provided a guaranteed base pension, so a fully conditional second pillar would suffice to provide the desired top-up.

Regardless of which type of pension contract will eventually make the cut and be allowed under the new regime – which is to take effect in 2015 – any scheme should offer clear, explicitly stated ownership rights, said 85% of delegates at the conference.

According to Jean Frijns, former CIO at €292 civil servants scheme ABP, this would argue against a nominal arrangement employing capital buffers, as “buffers belong to no-one in particular and are thus the antithesis to clear ownership rights”.

He therefore favours a real, conditional arrangement.

Kocken countered that buffers can be allocated using a well-defined distribution ratio and reiterated his support for the ‘combi-contract’.

Economist Sweder van Wijnbergen added that an objective discount rate and mark-to-market valuation were essential to prevent manipulation – according to Van Wijnbergen, these requirements speak against a real conditional contract, “as there is no market”.

In a final debate, Frijns, Kocken and Van Wijnbergen concurred that the Dutch system seemed to be moving inexorably towards DC and expressed concerns over a “disorderly” transition to individual DC.

Van Wijnbergen argued that solidarity in the form of risk sharing needed to be retained as an essential feature of the new system to prevent a wholesale transition to individual DC leading to faulty investment choices.

“Although there are good, solid DC arrangements, we should try and prevent transitioning to DC too quickly, as would happen when people lose confidence in the existing system,” Kocken said.

“Because then things go wrong, and we will be left with terrible regret, as happened in the UK.”