More sector-wide pension schemes in the Netherlands have upped their contributions as a percentage of pensionable salaries for 2021 than in any other given year. Many funds have combined contribution hikes with reductions in the accumulation of pension rights.
Twenty eight funds that have a combined membership of 4.1 million have announced contribution hikes for 2021, according to an overview compiled by trade publication Pensioen Pro. Another 19 funds have reduced accumulation.
For 18 sector schemes with a total of 1.4 million members, contributions have been increased while rights accumulation has been reduced.
The contribution hikes and pension cuts are not just symbolic, in most cases. The average contribution hike is three percentage points, and the average reduction in rights accumulation is 0.2 percentage points.
The main cause for the drastic measures is not the upcoming transition to a new, defined contribution (DC)-based pension system, but the reduction in expected returns that are the main determinant for pension contributions. This happens once every five years, and most funds are now at the end of such a five-year period.
Materially lower interest rates are the main cause for the lower return expectations, with the 20-year swap rate moving from 1.1% in 2015 to virtually zero now. The lower risk premiums for equities and other risk assets also contribute. Expected returns for equities have been reduced by 1.2 percentage points.
Some funds have decided to spread the contribution hikes over a period of several years, rather than taking it in one go. Among others, the country’s largest funds ABP and PFZW have chosen this option.
In some other sectors, particularly those that have been hit by the coronavirus crisis, employers are short of cash.
“At this moment we can’t ask additional contributions from either employers or employees,” the trade union for the hospitality industry FNV Horeca wrote on its website.
As a consequence, the pension fund for the sector has to reduce accumulation from 1.7% to 1.5% of pensionable salary.
The pension fund for the food service industry, bpf Foodservice, has similar issues. As a consequence, accumulation for members of this fund has dropped even further, to 1.2%.
‘Stimulus to speed up pension transition’
Vandena van der Meer of consultancy Montae & Partners believes the accumulation cuts can speed up pension funds’ transition to the new, DC-based system.
“If accumulation falls to close to 1%, the pension ambition of 75% of average wages will no longer be achievable,” she said.
“So I think pension funds and social partners in the affected sectors will want to transition to the new system faster. They won’t wait until 2026,” she added.
Pension funds need to have made the transition to one of two types of a DC-based pension contract by 1 January 2026.