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ABP calls for more individual products

NETHERLANDS – Pension funds are at risk of losing younger participants for their schemes unless they focus more on individual products, an executive at Dutch pension fund ABP has warned.

Tom Steenkamp, head of research at ABP Investments, said the traditional strong point of a pension fund – solidarity between different generations – is rapidly losing its shine. This is in large part due to Holland’s ageing population and a fall in coverage ratios, which means indexed pensions are no longer one of life’s certainties. Steenkamp was speaking in a personal capacity, ABP said.

Steenkamp made his remarks in an acceptance speech for a professorship at the Economics Department of the Free University of Amsterdam.

“A pension fund whose investment policy is increasingly focused on older participants…is not very attractive for youngsters,’ Steenkamp said. Nowadays, the most important reasons for investing in a pension fund are lower costs, expertise and correction of irrational individual investors’ behaviour, he argued.

“Pension funds need to realise they can benefit from offering more individual products on a collective basis,” Steenkamp said.

Next year, the Dutch government is to introduce a voluntary lifestyle savings scheme (or ‘levensloop’), in which Dutch workers will be allowed to save up to 2.1 times of their annual wages. The new scheme allows workers to retire three years before the official retirement age of 65. Some of the schemes are to be operated by the pension funds.

However, a recent poll by Nibud, the Netherlands Institute for Budget Communication, showed the new style scheme is not that popular. For example, only three out of ten people under the age of 35 said they would be willing to save five percent of their salary annually for a period of ten years in order to build up paid leave.

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