NETHERLANDS - Pension contributions cannot be raised indefinitely in order to offset the effects of fluctuations in returns on assets, inflation and longevity, says Dutch finance minister Gerrit Zalm.
“The Central Planning Bureau has predicted that if pension assets take a hit in 2030, it might lead to an increase in contributions twice the size of what would have been needed after a similar hit a couple of years ago,” Zalm says. “Moreover, the risk of a sudden 3% rise in contributions might increase 15-fold.”
Zalm was speaking during a workshop at academic pensions network Netspar. The minister was posing the academics a series of problems facing the pensions industry, but did not offer any solutions.
Zalm made it clear that he does not support the theory that the new generation of pensioners will not be a financial burden, since they will yield extra tax revenues. “The added tax income will be far less than the extra expenditure by the state on old age pensions and health care,” he said.
Claims that the one-year recovery period for underfunded pension schemes -- as prescribed by the new financial assessment framework (nFTK) -- would have adverse macroeconomic effects were ‘exaggerated’, he said. He insisted that tailor-made solutions would still be possible.
“The minister of social affairs can even provide for a general extension of the recovery period,” he said. “And the supervisor has the powers to grant more leeway to individual funds.”
According to Zalm, it is much easier for the regulator to relax strict rules in specific cases, than tighten up a more liberal regime. “I’m glad to say that this rule is more and more understood,” he said.
“The nFTK is a big step forward,” the finance minister concluded. “It is a great compliment that the IMF recently noted that the Netherlands is really at the cutting edge of pension fund innovation.”