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Pension Act error ‘might scupper indexation promises’

NETHERLANDS - A mistake discovered in the new Dutch Pensions Act could cause companies to forsake on future indexation promises, experts claim.

The Pensions Act currently requires companies set aside money to meet its promised future pension indexation, whenever a member of staff leaves the firm and becomes a deferred participant of the company scheme.

However, officials appear to have overlooked an error in the legislation which could now cost some employers more to meet indexation promises, depending on the type of scheme they provide access to.

"This is a serious mistake in the legislation," said Erik Lutjens, extraordinary professor pension law at Amsterdam's Vrije Universiteit. "If this isn't solved, companies won't be prepared to promise any indexation to future participants."

According to Lutjens, the problem applies mainly to company schemes that have been contracted out to insurers, and contain an unconditional indexation promise, usually following a conversion from final to average salary scheme.

"At least one-third of approximately 30,000 schemes provided by insurers include an unconditional indexation," professor Lutjes estimated.

Frans Prins, director of the Association of Company Pension Funds (OPF) acknowledges the problem, but notes it hardly applies to schemes which are still being managed by the companies.

"Almost all indexation promises of the pension schemes are conditional nowadays," he said. "The issue of conditional indexation has been thoroughly looked at last year, during the discussions on the mandatory matrix which must provide clarity on the consistency of the promises."

A debate on the indexation problem will soon be tabled during a parliamentary debate on proposed legislation which is designed to rectify other imperfections in the Pension Act.

"We need answers from Social Affairs' minister Piet Hein Donner on contradictory explanations on the matter," responded Christian Democrat MP Pieter Omtzigt.

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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