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Pension funds must alter ambitions and risk – Dutch experts

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  • Pension funds must alter ambitions and risk – Dutch experts

NETHERLANDS - A committee of Dutch pensions finance experts claims pension funds must scale down pensions benefit ambitions and adjust their risk approach in order to keep the present pension system affordable.

The committee, headed by Professor Kees Goudswaard, was asked by social affairs minister Piet Hein Donner to investigate the effects of the financial crisis and population ageing.

The Dutch pension system is under pressure from the financial effects of rising life expectancy as well as the increased volatility of pension funds' returns and falling contributions income, alongside the decreasing willingness of companies to carry pension risks.

The Netherlands Bureau for Economic Policy Analysis (CPB) has calculated pension contributions need to rise from 13% of gross salary to over 17% by 2025, simply to maintain the present level of pension provision.

The Goudswaard Committee has therefore suggested the social partners of employers and employees agree to a lower pension than the present norm of 70% of the final salary at the official retirement age, and fulfil the change by decreasing the percentage of the pension accrued.

The advisory body has proposed that alternative methods for controlling longevity risks could be a capped pensionable salary, or indexation linked to the consumer index rather than to the salary index.

The durability of the pension system could also be improved by incorporating the likely life expectancy of individuals in pension arrangements, thus removing a source of rising costs at a later date, it argued.

In the opinion of the committee, a lower pension ambition does not have to cause larges problems, "as [Dutch] pensions are high, and in an international context", the committee claimed.

At present, Dutch pensions contract are effectively unconditional agreements with the individual and do not require them to meet certain criteria in order to receive their pension at retirement. However, the committee argued that might need to be considered, albeit the move would require more detailed and transparent pensions contracts.

"The Pension Act should be adjusted to allow for increased conditional pension rights, through innovative pension contracts with more flexibility in risk-sharing," it said.

Although the advisory body acknowledged the importance of an average contribution for the mandatory participation in a pension fund, it also proposed more work should be done to look into the effects of age-dependent pensions accumulation.

Donner said he would discuss the outcome with the Cabinet, social partners as well as pension funds' representative bodies.

In a joint statement, the three lobbying organisation - VB, OPF and UvB - indicated their support for the committee's claim suggesting pension contracts must be improved on clarity and durability.

"We also think there is little margin for a further rise in contributions, and either the pension ambition or the security of the pension contract must therefore be lowered," they added.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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