New Dutch pensions contract 'overly complicated', experts say

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  • New Dutch pensions contract 'overly complicated', experts say

NETHERLANDS - The Dutch Pension Agreement's new contract is too complicated, and its aim could be achieved by simply adjusting key points of the current contract, experts have argued.

Speaking at a conference on the reorientation of pension funds, Flip Klopper, former director at supervisor De Nederlandsche Bank, said the current pension contract could easily be adjusted for rising life expectancy, volatile markets and the effect of International Financial Reporting Standards on company schemes.

Philip Menco, director of pension fund De Eendracht, said the challenge of building a new pension contract was akin to "modernising a coal-fired stove".

Fieke van der Lecq, professor of pension markets at the Erasmus School of Economics, underlined the necessity of a simple pension contract, if only to avoid high implementation costs.

"What needs managing is the expectation of pension funds' participants about their future pension needs," she said.

Nicolette Opdam of law firm Holland van Gijzen recommended adjusting the current pension contract by decreasing the yearly accrual rate from 2.25% to 2%.

Earlier at the conference, she predicted that pension fund boards would find the new pension contract's implementation very complicated.

Pension funds are expected to make a balanced decision between the chances of indexation and risks, and they must also develop a mechanism for adjusting both new and existing pension benefits to life expectancy, she said.

What is more, schemes must come up with a buffer mechanism for financial shocks and decide whether they will opt for a nominal or a real coverage ratio, with a matching financial assessment framework (FTK), Opdam explained.

The pensions lawyer said a number of issues had created a general lack of clarity, including ongoing studies into merging existing pension benefits with future claims, a tighter FTK, financial buffer requirements and pension contracts for insured arrangements.

She predicted an increasing number of lawsuits filed by participants who "discover their pensions don't match their expectations".

"Therefore, fully transparent communication is paramount," she concluded, adding that pension funds should consider offering additional products for pension saving.

If merging existing and future pension benefits turns out to be impossible, the Pension Agreement should be changed to allow for separated pension benefits within pension funds, Opdam argued.

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