On 22 November the Netherlands goes to the polls to elect a new parliament. Parties opposing at least some elements of the ongoing Dutch pension reform are set to gain a majority of the 150 seats up for grabs. Will this bring the switch to a defined contribution (DC) system into jeopardy?
As things stand, parties that are opposed to the ongoing switch from defined benefit (DB) pensions to DC are set to win a narrow majority in the parliamentary elections. This is surprising, as a two-thirds majority voted in favour of the Law on the future of Pensions last December.
What has changed is that two political newcomers that voted against the pension reform last year – Farmers’ Party BBB and New Social Contract (NSC) – have since surged in the polls. BBB polls fifth with 11 anticipated seats while NSC is leading the pack with a projected 27 seats. Together, they could tip the balance in favour of the opponents as they held only two seats between them in the 150-seat Chamber at the time of last year’s vote.
While BBB, which is mostly focused on rural and agricultural issues, only devotes one sentence to pensions in its electoral manifesto – namely, that it wants to reverse the introduction of the new pension law, NSC is more nuanced. While the party is accepting the new DC system as “a political reality”, it wants to make some crucial changes to the law.
Most importantly, NSC opposes the mandatory transition of DB accruals to DC. Instead, it wants to grandfather existing accruals and only transition these to the new pension system if a majority of members agree.
How they want to organise this is not clear, but this could happen via some kind of referendum. NSC also wants to reconsider the lump sum payment of 10% and aims to maximise the investment management costs, potentially limiting pension fund investments in “expensive” categories such as private equity.
The party’s first demand is a major one: much of the rationale behind the pension reform is based on the basis that pension funds will in principle transition DB accruals to DC.
Most pension funds are vehemently opposed to the idea of grandfathering accruals, as this would come with the requirement of having to run an expensive DB arrangement for decades to come.
The Dutch pension federation said at the start of this year it considers the transition of existing accruals to DC “essential” for the success of the pension reform.
NSC’s Agnes Joseph is leading voice for pension reform
The question is whether NSC stands a chance to get its way. Since the party is currently at pole-position in the polls, it may well be a necessary partner for either a centre-right or a centre-left coalition.
And in contrast to most of the other parties that are opposed to the pension reform, NSC will be taken seriously by the political establishment, since the renowned pension actuary Agnes Joseph, interviewed for IPE’s April issue, is an NSC candidate.
Seeded eighth and with NSC currently polling at 25-30 seats, she is all but certain to enter parliament. Joseph has been a leading voice in the debate around the pensions reform, speaking on the topic several times in parliament.
How much she will accomplish remains to be seen, but the least Joseph will want to achieve is to make it easier for pension funds and their members to choose to keep accruals in the current DB system if they wish to do so.
The reality is, however, that many pension funds, including the largest five funds, have already made a decision to move accruals to the new pension system and have started preparing for this scenario. They will not lightly revert course.
COVID Recovery Fund millions on the edge
If the Netherlands fails to move the pensions of at least 66% of all Dutch pension fund members to the new DC system by 2027, the country may lose up to several hundred million euros from the EU’s COVID Recovery Fund.
This is because the Dutch government listed a successful pension reform as one of several changes to be accomplished in the reform plans it submitted to the European Commission last year.
After the pension reform was delayed by a year earlier in 2023, the Commission has now decided that the Netherlands should meet an additional “milestone” to satisfy the requirements for a full payout of the funds, namely that the pensions of 66% of pension fund members must be ready to move to DC by the end of the second quarter of 2026.
The first set date for the transition would then be 1 January of the following year, 2027. Whether this deadline will be reached is uncertain.
If ABP, the country’s largest pension fund that recently delayed its transition plans from 2026 to 2027, fails to meet its new timeline, that could tip the balance.
If the Netherlands fails to meet the new milestone, it can lose up to €500m in EU funds, according to the Dutch government. It is not clear exactly how much money would be lost, as this is up to the European Commission.