Individual defined contribution (DC) pensions could be of interest to industry-wide pension funds in the Netherlands, provided DC arrangements were upgraded to include risk sharing, according to Peter Borgdorff, director at healthcare scheme PFZW.
Borgdorff said many within the pensions industry found it hard to consider individual pensions saving schemes, “as we are used to thinking in terms of a collective pot of money producing individual pension benefits”.
PFZW’s director – also a member of a working group looking into the feasibility of various improvements to the DC market – said DC pensions required a “different mindset” but also presented “undeniable advantages”.
He said these included clarity of ownership and the fact there was no transfer of capital between groups or generations, as trustee boards did not have discretionary authority over the content of individual savings.
The working group, led by the Dutch Ministry of Social Affairs and Labour, is working to improve the design of individual DC, including the possibility of remaining invested after retirement.
At present, participants are obliged to buy annuities – a restriction that has led to lower pension outcomes, some experts have argued.
In addition to PFZW, the working group consists of five undisclosed pension funds, including corporate schemes and industry-wide schemes.
Borgdorff said that, while the topic of the study was “interesting”, the working group had yet to produce any concrete results.
He also stressed that PFZW would not opt for individual DC going forward.
“To us, the pension outcome takes precedence over all else,” he said.
“We opt for the arrangement that yields the best pension outcome.”