Tensions are rising in the Dutch pensions sector. Every day that details for the new financial assessment framework (FTK) fail to appear – let alone pass Parliament – pension funds, providers, advisers and asset managers must anxiously weigh their options. The clock is ticking, as the official introduction date for the new FTK is still 1 January 2015.
Only after parliamentary approval, unlikely to occur before the summer recess, can Dutch schemes make decisions about their new pension arrangements.
Even as far back as January 2013, the €143bn healthcare scheme PFZW and the €309bn civil service scheme ABP were describing the FTK’s proposed six-month implementation period as unrealistic. ABP argued it would put Dutch schemes under too much pressure. Despite that, PFZW said the introduction of the new rules on 1 January 2015 was still desirable. In recent years, both pension funds have urged the government to speed up the much-needed reforms to maintain the system’s sustainability.
The current pressure on the pensions sector comes after five years of debate about an overhaul of the system, with a new FTK as the leitmotif. With each new proposal, the introduction date of a new FTK recedes further.
Meanwhile, the regulator De Nederlandsche Bank (DNB) and the Financial Markets Authority (AFM) have called on pension funds repeatedly to prepare for the changes at full tilt – even though details for the new framework have yet to be established. As a result, pension funds have incurred considerable costs.
Toine van der Stee, chief executive at the €15bn pensions provider and asset manager Blue Sky Group, estimates that 75% of costs spent on preparations for the FTK have been wasted. He laments the division and lack of leadership among politicians and social partners – and also within the pension sector itself – with regard to the review of the system.
The continual delays have also affected asset managers. If pension funds are expected to adjust their investment policies and risk management to comply with new rules, it would be very helpful for managers to know how, notes Robert Leenes, director of services and new business at the €19bn TKP Investments. “Do we need to aim for a higher average funding with increased investment risk for the short term, or do we need to focus on a higher minimal coverage for the short term?” he asks. If the need for immediate rights cuts disappears, fewer derivatives will be necessary for hedging purposes, freeing up assets for investment, he adds.
Peter Gortzak, head of policy at ABP, former vice-chairman of union federation FNV and one of the architects of the Pensions Agreement, claims the four years spent wrangling over the FTK “haven’t been worth the effort”. He points out that the decision to conclude the accord in 2010 had simply been to prevent the introduction of higher financial buffers and so avoid a decade without indexation. Ironically, the latest proposals are likely to do just that, he says.
Hardly any progress seems to have been made since the start of the reform debate in 2010. The main reason is that the government wanted to solve too many issues at once, leading to far too complicated proposals, which had to be adjusted time and again in the wake of opposition from the pensions sector.
The government wanted to address, for example, the retirement age, the discount rate, tax-friendly pensions accrual, rights cuts, financial buffers, the level of pension contributions, limits for expected returns and merging existing nominal rights into a real pensions contract. Even the so-called experts have begun to lose sight of what is really going on.
State secretary Jetta Klijnsma recently said she was considering introducing only “parts” of the new FTK on 1 January 2015 but this would only create more uncertainty and spark debate on which measures should come first and how. To prevent serious problems following a hasty introduction of the FTK – the very backbone of the pensions system – postponing it by another year may not be such a bad idea after all.