Klaas Knot, president at the Dutch financial regulator (DNB), has conceded that the country’s pensions funds can no longer guarantee younger participants their future pensions.
Speaking on the ‘Buitenhof’ TV programme over the weekend, Knot concluded that guarantees should be limited to older participants.
“Offering guarantees to a participant who has just started paying contributions is over the top,” he said.
“Due to the huge cost of providing certainty, [in light of] low interest rates and an ageing population, we simply can no longer afford this.”
During the interview, Knot suggested that offering fewer guarantees could “create space” for pension funds to increase investment risk.
“If they promised less certainty, pension funds could increase their investment risk and be more likely to deliver better returns,” he said.
He said pension funds should be given “leeway” for just such an investment policy, adding that a guarantee should be given only to older participants “who need to know what they can expect at retirement age”.
The regulator’s recognition of the problems facing the Dutch pension system echoed similar statements made recently by Gerard Riemen, head of the Dutch Pensions Federation.
Last week, Riemen advocated a new collective defined contribution (CDC) system and argued that an “indication” about a future pension level should replace the current defined benefit promise of a “certain” pension.
“We should tell a 55 year old how much his currently accrued pensions assets are likely to deliver in future benefits,” he said.
“However, the honest answer to a 35 year old should be that we can’t properly estimate the future pension yet.”