New Social Contract (NSC), the new political party that is currently leading the polls in the Netherlands ahead of parliamentary elections on 22 November, wants to only allow the conversion of defined benefit (DB) accruals to defined contribution (DC) if a majority of pension fund members consents to it. Pension funds believe the plan is costly and complicated to execute.
Agnes Joseph, an actuary for Achmea and a member of parliament (MP) candidate for the NSC party, is leading the proposal to make it easier to keep accruals in the current DB system – a plan that was unveiled last month when NSC published its election manifesto and discussed extensively on Monday during an election debate organised by IPE’s sister publication Pensioen Pro.
According to Joseph, who is the NSC spokesperson for pensions, DB pensions should only be converted to DC if pension funds can show this is the best option for all members and if a majority of members have cast a vote in favour of this.
This would require a change in the law on the future of pensions, which came into force on 1 July this year.
While Joseph gathered support from two fellow aspiring MPs, belonging to parties who voted against the new pension law last year, her proposal was met with resistance by the other debaters.
“I think it’s very unwise to strike down such a fundamental part of the pension agreement, also because the pension sector has already started to implement the new law,” said Bart Smals, an MP for the centre-right VVD of incumbent prime minister Mark Rutte.
Impossible to implement
Harmen van Wijnen, president of the Netherlands’ largest pension fund ABP, also proved critical of Joseph’s plan to turn the tables on the pension transition.
“It would be an ill-fated idea to reverse some of the agreements made in the pension law,” he told IPE.
“After all, one of the big advantages of the pension reform is that everyone makes the transition together,” he added.
Separating new accruals from existing pensions would also be “impossible to implement” at this stage, he said, and require pension funds and their administrators to keep running two parallel systems adding to costs.
Independent pension experts are also sceptical about NSC’s plans.
“If you don’t convert DB accruals to DC, you miss the advantages of the new system while keeping the disadvantages of the current arrangements [where it’s more difficult to increase pensions],” said Theo Nijman, research director at Netspar, an academic thinktank.
Many pension funds, including ABP, have already started implementing the new pension law and have invested several hundreds of millions of euros in the course of it.
Responding to a question from Rajesh Grobbe, director of the pension fund for shipping pilots Loodsen, Joseph said pension funds would not be compensated for the costs they had already made for the transition.
Grobbe estimated the €1bn Loodsen fund has already spent €2-3m on this.
While pension funds argue much of these investments would have been in vain if Joseph and NSC get their way, Joseph disagreed.
“Many of the investments in new admin systems and in improving data quality were necessary regardless of the pension transition,” she said.