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Dutch pension fund coverage ratio talks underway

NETHERLANDS - Negotiations about the implementation of a new pension law in 2004 are reaching their final phase.

The Dutch government, Minister of Social Affairs Mark Rutte and Minister of Finance Gerrit Zalm, both of the Liberal Party (VVD), are currently in negotiations with the social partners, employers, employees and trade unions, regarding a possible coverage ratio for the pension funds in the coming years.

According to press reports, all parties involved have agreed on a 130% coverage ratio to permit full pension payments.

Evert-Jan Slootweg, secretary of the pensions working group at the CNV, the National Federation of Christian Trade Unions, told IPE that there are still some points of discussion to be tackled.

First of all, the Dutch government has proposed a 97.5% pension coverage, which means that once in 40 years coverage ratios could be under the 100% mark.

Social partners, including the trade unions and the Confederation of Netherlands Industry and Employers (VNO-NCW), have proposed a 95% coverage level, which allows under-coverage once in 20 years.

The government has still two possible scenarios on the table; the first one is the continuation of indexation based on inflation or wage-increase; the second one is to end indexation, which will result in lower premiums and puts individuals in the position to arrange their own pension plans.

The trade unions however are still pushing forward the idea of indexation, in combination with a possible 130% coverage ratio.

When asked about the issue, Rutte’s spokesman Peter van Meenen stated that the official position of the government has already been published on December 19 2003, where the government indicated that they are supporting a possible 97.5% security (zekerheidsmaat), allowing under coverage once in 40 years.

Implementation is up to the respective pension funds themselves, but if pension funds are stating they will continue with indexation; this should be based on real frameworks and implemented accordingly. Van Meenen, the 130% coverage ratio is not yet set, and is still under review by all parties.

Additionally, the official standpoint of the government is that if under coverage occurs, pension funds are given 15 years to restore this.

Gerard Verheij, pension specialist and economist of the VNO-NCW, said that the discussion is still going on. Three points are still on the table, of which the current coverage ratio is one of the most important. Currently a technical review is going on regarding the impact of the two scenarios, 130% coverage ratio or more than 130% (possibly 150%), will have on the economy and pension premiums.

Supported by other unions, the VNO-NCW is targeting a coverage ratio of around 130%. Already, financial consultancy ORTEC’s research has shown that the differences between the government proposal (97.5%) and social partners’ (95%) are not very significant.

If Rutte’s proposal will necessitate a coverage ratio above 130%, social partners will have to restart negotiations. Still, both proposals will result in an overall increase in pension premiums. The latter will be largely related to specific financial situation of the respective pension funds in the Netherlands. At present, future pensions are not yet covered by premiums paid. The latter situation can change significantly if financial markets improve; share price increases have a large impact.

The results of ongoing financial analysis of both plans will be presented at the end of next week.

Staf Depla, member of parliament of the Labour Party (PvdA), was more critical about the ongoing developments. He stated to IPE that the developments are leaning towards a decrease in indexation; with the tendency that indexation will become a luxury, only to implement when financial situation is more than positive. In his view, the negotiations should be done in the public sphere, to give all parties, including the pensioners, the opportunity to understand the possible changes.

If indexation was suspended, pensioners’ purchasing power will decline. In his view, the average employee or pensioner does not understand this. Still, he agrees that the pension funds need to deal with the old financial gap of their investments in the 1990s and increased salaries. A society wide discussion of these issues was a necessity.

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