NETHERLANDS - Dutch pension funds will face a legal cap on expected returns as a criterion for their liabilities in a new system based on real but market-dependent pension rights, social affairs minister Henk Kamp has announced.
During a debate in parliament about the new Pensions Agreement between the social partners and the cabinet, he said the measure would be introduced to prevent pension funds from "doing silly things".
Kamp was responding to widespread concerns among political parties that a system in which liabilities could be discounted against future returns would come at the expense of younger participants, as schemes might be tempted to grant indexation based on results that had not yet been achieved.
He added that he would increase the competence of pensions watchdog De Nederlandsche Bank for assessing the risks of pension funds' investments beforehand, rather than establishing a new supervisor for this purpose.
The minister recommended lowering the cap on assumptions for returns for the €800bn of existing pension assets to "take the interests of younger generations of workers into account".
However, he declined to confirm that existing pension rights would be left fully intact, as the planned merging of existing and new rights "must lead to a balance between all generations".
If collectively housing existing pension rights in a new pension contract is impossible, placing old rights into an API - a new cross-border pension vehicle for defined benefit plans that can deal with ring-fenced assets - would be an option, Kamp said.
The minister was reluctant to make an equalisation buffer mandatory in the envisaged new pension system.
"The assessment of the expected returns must already include a provision for indexation," he said.
The minister did not elaborate on a new standard for discounting liabilities and referred to a current survey.
The present discount criterion - the forward curve - has been widely criticised by pension funds, as long-term market rates are causing much volatility for schemes' funding.
However, Kamp tried to reassure politicians about a possible negative impact on pension funds' younger participants by pointing out that, in a new system, market movements would immediately affect the pension benefits of all generations, including pensioners.
"Moreover," he added, "the recovery period for under-funded schemes will be limited to 10 years."
According to the minister, individual pension funds are also allowed to stick to the current pension system - based on guaranteed but nominal pension rights.
Despite the agreed stabilised contributions in the Pensions Agreement, the social partners can still negotiate the premium level, he said.
"But because of the amount of combined pension assets, any adjustment of contributions will be insufficient to solve pension funds' financial problems," he said.
During the debate, only the right-wing freedom party PVV openly opposed a further increase of the retirement age for the state pension AOW, which is 66.
In contrast, the liberal democrats (D66) advocated a gradual but immediate increase to 66.
Under the Pensions Agreement, the AOW age will be increased from 65 to 66 in 2020 and to 67 in 2025.
Workers can still retire at 65, but they will be faced with a benefits discount of 6.5% for every year of early retirement from then on, whereas every active year after the AOW age will entitle a 6.5% benefits increase.
To encourage older employees - and workers in hard jobs in particular - to work longer, Kamp said he would introduce a "vitality scheme", which will make it more attractive to employers to hire over 62s and over 50s on benefits.
He also announced proposals to encourage older workers to follow additional education, as well as to increase labour mobility of over 55s.
A majority of parliament had called for measures against the effects of a rise of the AOW age for workers in hard jobs.