The four largest Dutch pension funds are enthusiastic about the outline for a new pensions system that was presented this week. However, there are concerns about the possibility of pension cuts in the years leading up to 2026, when the new system will be fully operational.

“The agreement that has now almost been concluded means pension funds can finally say goodbye to this nasty discount rate for liabilities,” director Peter Borgdorff of healthcare fund PFZW wrote in a blogpost.

“Because interest rates just kept going down, we haven’t been able to increase pensions for years, even though our assets under management have more than doubled in the past 10 years. We were even close to having to cut pensions. But with this agreement, interest rates are no longer relevant”, Borgdorff added.

The PFZW director added that expected pensions will now be higher for everyone because pensions will be able to move up and down with the economy.

He considers the introduction of personal pension pots a positive too. “If everybody can see how much pension is available for them, nobody will have to worry anymore about not having a pension upon retirement,” he said.

This is a concern widely shared among young people, Borgdorff noted.

ABP, PMT and PME

Other pension funds are also positive. The metal industry scheme PME voiced its “wholehearted support” for the plans. “It’s a good step in the direction of the changes that are badly needed,” a spokesperson said.

The other metal industry scheme, PMT, called the deal “good news”. “This is an improvement of the system because we are no longer dependent on discount rates for liabilities or coverage ratios,” a spokesperson said.

“This offers a perspective for pensions that can preserve purchasing power.”

Civil servants fund ABP said the new pensions system is “realistic” and hails the fact scheme members will profit more directly from investment returns.

The Dutch pension federation’s interim-president José Meijer said it’s “especially gratifying there now is a perspective for a future-proof pensions contract, one that can be executed in practice and shows participants more clearly how their pension is created.”

Pension funds are “looking forward to implement this contract,” she added.

Pension rights cuts

In a critical note, consultancy Aon said it expects the conversion of existing defined benefit (DB) pensions to defined contribution (DC) arrangements will lead to “painful measures” because of the current funding shortfalls of many pension funds.

In the years until 2026, funds will have to repair their deficits to avoid pension cuts.

“To avoid pension cuts younger people will have to carry the burden of deficits completely, pensioners’ allowances need to be adjusted,” the consultant said in a press release. “We believe there is too little attention for this in the current plans.”

ABP was the only pension fund to note in its reaction that there are no rules as of yet to govern possible pension cuts in the run-up to the introduction of the new pensions system.

The civil servants fund believes these yet-to-be-made rules should be designed “in the spirit of the new system”.

“This means we wouldn’t find it logical if we were to continue to cut pensions according to current rules, because they were designed for the old system,” a spokesperson said.

ABP had a coverage ratio of 84.5% at the end of May, the lowest such figure of all four large funds.

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