ABP, the €356bn pension fund for Dutch civil servants, should be closed to new entrants and relaunched as a defined contribution scheme rather than divided into smaller schemes for civil-service sub-groups, according to Jean Frijns.
Frijns, who served as CIO at ABP, was responding to a recent government survey that suggested civil service pensions should be de-centralised to cut costs.
Frijns dismissed government recommendations within the report as “opportunistic”, arguing that they were at odds with legislation aimed to protect pension funds from cost-cutting sponsor companies.
He added that carving up ABP would create conflict among various participants, as it would be “very difficult” to define certain sectors.
“Teachers, for example, would argue that their plans have grown too expensive, as their life expectancy is longer than that of most ABP participants,” he said.
He also disagreed with ABP’s argument that it was too big to hedge the interest risk on its liabilities without distorting financial markets.
“The markets for these kinds of financial products are big enough,” he said.
Frijns conceded ABP’s current size did have its advantages, such as allowing it to invest in less liquid asset classes such as infrastructure and non-listed companies.
But he warned that all groups under the ABP umbrella were currently unhappy, with younger generations complaining of increasing contributions and older ones lamenting the lack of indexation.
“I no longer believe it’s possible to improve the current system, as the inability to differentiate investment policies for groups with an individual risk profile would remain,” he said.
“In a new scheme under DC arrangements, participants could see what they accrued – that is what they want.’’
Frijns said closing current schemes and starting new pension funds would generally be much easier than converting existing funds.
“Transition would be extremely complicated, as pension rights must be divided,” he said. “This is likely to cause problems.”