New FTK to increase Dutch contributions by 14% – Mercer
Pension contributions in the Netherlands will increase by 14% under the new financial assessment framework (FTK), despite the Dutch Cabinet’s proposal to lower tax-facilitated accrual to 1.75%, according to Mercer’s estimates.
The consultancy ran the numbers at the request of IPE sister publication IPNederlands, Erik van den Doel, principal at Mercer, and confirmed the previous contribution-increase estimates of civil service scheme ABP.
According to Van den Doel, a premium increase of 14% is a fair estimate of the total increase as a result of adopting a new pensions contract under real terms.
“The savings from a reduction of tax-friendly pensions accrual, as proposed by the Cabinet, is unlikely to be delivered by the pension funds,” he said.
Van den Doel said he based his calculations on “prudent” assumptions, such as the premise that pension funds would not change their ‘franchise’, or the amount of salary exempt from pensions accrual.
If pension funds do lower the franchise, contributions would need to increase even further, he said.
Van den Doel conceded, however, that his calculations were based on rough estimates and liable to change in either direction.
To date, the Dutch Cabinet has stuck with the savings estimates presented in the coalition agreement – €1.4bn in 2015, €2.4bn in 2016 and €2.9bn in 2016.
Earlier this month, Frans Weekers, state secretary for the Treasury, told the Senate the effects of the new FTK had been factored into the government’s savings estimates, citing data from the Bureau for Economic policy Analysis (CPB) and the regulator (DNB).
CPB researcher Marcel Lever declined to specify which elements of the FTK it included in its savings calculations, pointing out that no decision had been taken on the FTK, and that it was therefore “premature” to address the issue.
He claimed there was a risk that the files of the FTK and tax accrual were “getting mixed up”.
The DNB also declined to clarify its figures.
However, according to IPNederland, there is a significant discrepancy in its calculations.
In a bulletin in April, the regulator suggested the expected overall savings would come to €9bn, whereas prime minister Mark Rutte said in July that the DNB expected the new FTK to lead to a premium reduction of €6bn.
IPNederland’s estimates show the pension savings over 2015, 2016 and 2017 would be €3.5bn less than suggested.
Earlier, the Treasury conceded that the new FTK would increase costs.
However, the Finance Ministry, recently fielding questions in Parliament, largely attributed the difference to an income tax reduction following lower pension benefits.
It added that, “based on national statistics, the actual contributions and benefits during 2012 turned out to be different from the assumptions”.
The savings, as factored in by the Cabinet, remains intact, according to the Treasury.
In July, Jetta Klijnsma, state secretary at the Social Affairs Ministry, said the Cabinet would look “thoroughly” at the issue during the FTK consultation.
“Following the outcome of the consultation, the Cabinet will consider whether the premium system is necessary in the rough draft legislation,” she said.
“When the bill is tabled, the expected premium effects will be made clear.”
State secretary Weekers, in his answers to the Senate, suggested the effects had been factored in.