The Dutch pension sector is confronted not only by increased regulatory pressures, new legal and fiscal frameworks and a new Pension Law and supervisory structure, but also by growing wariness of younger employees about the financial sustainability of the pension system.
Dutch newspapers and other media have been increasingly preoccupied with the so-called intergenerational solidarity issue. Opinion polls have shown that younger generations feel that they are paying into a system that substantially favours the elderly, and that younger generations will not be reaping the benefits of the system.
Some new parties in the conflict, such as the Alternative for Trade Unions (AVV), say there should be a new arrangement for the current payment structure of pensions.
Several major media campaigns have been set up to meet the challenges posed by groups like the AVV in particular and the limited interest in and knowledge of pensions shown by people under 35.
Project ‘Check It’, which was set up by the youth organisation of Christian Trade Union CNV (CNV Jongeren) has tried to increase the interest of young people in pensions. In cooperation with Dutch pension funds ABP, PGGM, PME, PMT, SPF and SPOV, the youth organisation has targeted the different approach of young people in general and pensions in particular.
The outcome of the project has been interesting. At ABP, Check It research found that the young want to be addressed as a different group within society. They want to be addressed in their own language, group culture and media. ABP has set up a pilot which will be implemented this spring, in which several pension days will be organised.
At PGGM, the outcome has been slightly different. PGGM split the target audience into two age categories, younger than 24 and 24 to 35. Both groups will have their own specific target communication. A specific youth orientated website will be set up and will be online by June 2006.
At PME, the research showed that communications was the main problem, and PME is now targeting a poster campaign at their young subscribers. SPF and SPOV are doing something similar. An attractive message, put into language of the current youth culture, should do the rest.
ABP is taking a leading part in the discussion about intergenerational solidarity. Jaap Maassen, director pensions at ABP and chairman of the European Federation for Retirement Provision (EFRP) says that “intergenerational solidarity pays itself”. He says that “taking part in a pension fund is not meant to express solidarity with the elderly. In reality it means reaping the highest rewards for your own personal arrangement.”
At the same time, ABP is focusing on issues related to younger employees, says Maassen. “ABP has put into action a four point action plan, based on an increase of the build up percentage for young employees to 2.05% per year. We have lowered the franchise, and, by taking into account available room according to the tax arrangements, purchased extra pension years for the respective employees.
“Additionally, for the older employees, born before 1950, we have put in place a system whereby they will pay a premium to the pension fund over the total portion of their salary based on the lowered franchise formula, but at the same time they will get a pension based on the former, higher franchise formula.”
The role of pension funds in pensions policy making is necessarily limited, says Marcel Thijssen, head of actuary, product research and development with ABP’s directorate finance. He points out that ABP is not the policy maker, but merely the executor of policies set by government and social partners.
An inequality in the pension system existed until 1996, when ABP was privatised, Thijssen says. "You could argue at that time that possible solidarity was not equal. Based on the fact that there was an end-salary arrangement, people with a very successful career had more positive results than other people.”
The need to spread the financial risks of the system and position of the pension fund persuaded the social partners to move towards a career-average system in 2004. At ABP employees are paying a so-called average contribution. Thijssen says it could be argued that a career average arrangement eases the burden of solidarity imposed on younger employees in relation to older employees.
Thijssen also suggests that the young should not blame the pension funds for the new VUT and prepension changes, implemented in January this year. In the new system, the PAYG basis of the VUT will end, as will the tax exemptions of contributions. The social partners have said that it will not be possible to end the current system without a transitional system in its place.
Thijssen says the new 56 plus arrangement - the transitional VUT – is merely a continuation of existing arrangements. It should be clear, he says, that the current eligible 56 pluses are even getting less out of the VUT arrangements than before, since they now have to work longer than before.
PME, the industry wide pension fund for the Metalektro, the mechanical and electrical engineering industries, has addressed solidarity in a different way. Intergenerational solidarity has already been implemented through a totally paid for VUT arrangement for people older than 55. PME employees will no longer have to pay into this. From 2007, the contribution for the VUT-scheme is being covered by the employers.
At the same time, PME has taken an important step towards the total integration of younger people in the existing pension schemes. In 2003 PME introduced the rule that whenever a new employee starts at a company which is a member of PME pension fund, they will pay into the fund.
PME members start to pay for their pensions irrespective of their age. This not only increases total pension payments to the fund, and directly, supports a high payment structure for the respective subscriber in the end, but it also familiarises employees with full subscription to the pension fund.
As PME’s director of pensions Gerard van Dalen says, intergenerational solidarity is nothing new and has always existed. The young need to understand that the current issues surrounding VUT and prepension arose at a time that there was a high level of unemployment among young people.
The VUT should be seen as one of the first real intergenerational solidarity schemes, since pensioners were giving up a part of their own payments to support young people entering the labour market.
The message for pension funds is that they must make an increasing effort to target young people. The biggest challenge they will face is persuading future generations that collectivity pays.