NETHERLANDS - The mandatory merger of new and existing pensions benefits - as proposed in the recently negotiated Dutch Pensions Agreement - will be almost impossible to effect legally, according to law firm Houthoff Buruma.

Mark Heemskerk, an employment and pensions lawyer at the firm, said: "Because the Pensions Agreement entitles pension-fund participants the right to veto value transfers, they can block mandatory benefit mergers."

In a study on the sustainability of the Pensions Agreement published by Amsterdam's Free University, Heemskerk predicted that many participants will appeal against the proposed conversion of guaranteed nominal pension benefits into real but 'soft' benefits. These 'soft' benefits would be linked both to longevity and the performance of financial markets.

Because pension arrangements within a given scheme must constitute a single entity, the investment returns of the new conditional benefits would necessarily have to subsidise the so-called 'hard' benefits, Heemskerk said.

In other words, because funds are invested collectively, and ring-fencing is prohibited, two separate arrangements could not be supported within a single scheme without the conditional one subsidising the guaranteed one.

"Because older participants in particular will have more guaranteed pension rights, a fight between the generations about age discrimination and a change of pension arrangements is likely," Heemskerk added.

The pensions law expert recommended removing the right to veto value transfers from the Pensions Agreement, or amending the current ban on changing accrued benefits following a change of pension plan.

Heemskerk also claimed that the current legislation did not allow for making existing pension benefits conditional, as their level must be specified on the retirement date.

However, he said this legal hurdle could be cleared by changing the definition of 'old age pension' in the Pensions Agreement.

The social partners of employers and employees hammered out the Pensions Agreement in late September after protracted and heated negotiations.

They must now decide what they can and must change in the additional pension arrangements for each company or industry.

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