If a vote was cast against a transition from defined benefit (DB) pensions to a defined contribution (DC) system, this would force social partners to go back to the drawing board, pensions minister Carola Schouten has warned in a letter to parliament.

Pension funds plan to use their buffers partly to finance a solidarity buffer to limit the chance that pensions will have to be cut in the new system, and to compensate for the abolition of the ‘doorsneesystematiek’ system, under which pension contributions rise progressively with age to maintain accruals stable, compensating for the shorter investment horizon of older workers.

If DB accruals are grandfathered as the result of a referendum, pension funds would need to find other sources of capital to finance this.

Higher contributions

As a result, it would then be necessary for pension funds to reconsider their transition plans and review their new DC pension arrangements. Social partners “may have to make other choices when it comes to the level of pension contributions,” said Schouten.

If making the transition from DB to DC is good for members, pension funds should be able to convince them of that, according to MP Agnes Joseph (NSC), a former pension actuary who has been the main driving force behind the idea of organising binding referendums on the pension transition.

In her letter, Schouten does not explicitly write that she is against organising referendums, but by warning of the consequences, she implicitly says so.

Schouten also noted that “the outcome of a referendum is not necessarily representative of the entire population of participants”. As a result, “groups of members may be dissatisfied and could seek justice elsewhere”, according to the minister.

In her letter, the minister also promised that members of parliament can confidentially inspect the legal advice that the government has obtained on inland navigation between 2011 and 2020.

Two weeks ago, Schouten made public parts of officials’ interpretation of the 2011 advice of the government’s own lawyer. It was then revealed that the advice of the lawyer led civil servants to advise against the transition to DC.

Social partners fear pension transition will come to a halt

Drastic adjustments to the new pension law that was adopted last summer are undesirable, representatives of Dutch trade unions and employers said in their own letter to parliament.

Such adjustments require a lot of time and risk causing the ongoing pension transition going off the rails. It could lead to a prolonged period of uncertainty and the complete stalling of the pension reform, according to the unions’ letter.

“Pensioners prospects of indexation would deteriorate as a result. Working people and employers will be stuck in an outdated pension system for longer,” they wrote.

An example of such a drastic adjustment would be the introduction of a participants’ referendum on the transition, as proposed by political party NSC.

Social partners stress that the transition of accruals from DB to DC is a “crucial building block” of the system review. This keeps pension assets together while risks will continue to be shared collectively with everyone benefiting from this, according to the letter.

The current set-up for the transition has been extensively legally examined and the necessary alternatives have already been considered, social partners argued. Hence, it’s not necessary to reconsider this approach, they believe.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra