The Dutch pension deal, as such, is off the table. But despite all the political turmoil, a working group representing experts, government, supervisors and various stakeholders has continued to hammer out the details of the new system, resulting in the long-awaited outline presented on 30 May. The pension deal is dead. Long live the pension deal.
Pretty much anyone with a stake in the matter has been involved in the process. Despite (or perhaps because of) this, the outline has received mixed reviews. The pension industry in general is pleased that the new Pension Act will allow for real conditional schemes, in addition to traditional nominal arrangements, and that the proposed supervisory framework addresses the short-termism of the current financial framework without abandoning mark-to-market
philosophy. And most applaud the introduction of a mechanism to automatically adjust benefits and accrued rights in line with changes in life expectancy, the so-called ‘LAM’ methodology.
But several concerns remain. In particular, there is the worry that the option of a real conditional scheme is no more than a farce, existing only on paper. The outline fails to tackle the difficult issue of how to migrate past accrued rights into a new system, and passes the buck to the social partners.
Legal research shows that subjecting past accrued rights to the new regime violates participants’ property rights, according to minister Kamp. However, this violation is justified by a common good - the future sustainability of the pension system. “The government will therefore make the necessary legislative changes to allow the social partners to subordinate past accrued rights to a real pension arrangement,” says Kamp. But the government stops well short of shouldering the legal responsibility for migrating existing rights. It will merely facilitate such a move, and Kamp adds that it will be up to the social partners to decide whether or not they want to go this route.
The response from the industry has overwhelmingly been: “Thanks, but no thanks.”
Unless the government throws its weight behind a collective system change, switching to a real arrangement potentially opens up a world of hurt for individual pension funds, which fear being sued by angry participants and pensioners.
The general feeling is that most schemes will have little choice but to stick with the nominal set-up. Only now they will be nominal ‘pur sang’, as the new framework’s more stringent capital requirements will strip them of their real ambitions. In which case the pension deal may live, but the Dutch pension system will be dead.