Nicole Beuken, executive director of ABP, the largest pension fund in the Netherlands
Nicole Beuken is worried about the continuing discussions on pensions reform. “Markets will always bounce back. But, we could lose much as a result of wrong decisions for the pension system,” she says.
“Many words, and hardly any news.” That is how she summarises the letter to parliament in which social affairs minister, Wouter Koolmees, outlines his views on pensions reform. The letter seems threatening, but it just reflects what the cabinet has already decided, she says. “It is clear that he wants to carry on with the coalition agreement. He indicated that the near-pensions accord between the social partners and the government is still on the table.”
The letter is part of an ongoing negotiating process. The trade unions can make their point with their “pensions action day”. And Koolmees needs time to sort out things. But Beuken expects that the negotiation ritual is about to conclude. “There should be an agreement before year-end. Otherwise, I don’t expect it to happen at all.”
Does the minister’s letter offer you anything to hold on to?
It contains the important issues. That the cabinet wants to keep the mandatory participation, the collective approach and sufficient fiscal leeway. And that the average pensions accrual is to disappear.
But how will lifecycle investments be shaped?
More fine-tuning for individual needs will come at the expense of the benefits of collectivity. And how do we implement the transition to a new pensions contract? This could cause practical problems, including difficulties in communication.
Koolmees has said that the abolition of average pensions accrual needs to be seen in the context of the individual scheme. How would this pan out for ABP?
Until we see the new pensions contract, we cannot make detailed calculations. But we can probably solve the issue of compensation for older participants who are to lose out from the introduction of degressive accrual. However, we would need more fiscal leeway for additional contributions.
To ease transition problems, you could opt for a slow adjustment to a new pensions contract.
The introduction of early retirement arrangements has taught us that a transition should not last too long, as people tend to forget the reason for a transitional scheme. I would advocate a shortish period for the entire transition.
A lifecycle approach could offer tailor-made arrangements for participant groups, and has been proposed by experts. What’s wrong with it?
Lifecycles are only used in defined contribution plans, not in an defined benefit environment. They have been suggested for DB [defined benefit] for 20 years, but have not been introduced anywhere. They would come to the detriment of the advantages of collectivity and risk-sharing, and would ultimately lead to lower pension results.
The collective approach is sacrosanct?
“Giving up part of the collective advantage would make sense if it meant increased transparency and clarity for the participants. Made-to-measure and flexibility are allowed to come at a price, in particular if it provides participants clues to act upon. But I am not convinced of the advantages of the lifecycle.”
A lump sum offers a clear perspective for taking action.
We should not expect too much from it. You can only come up with a limited amount to avoid that people spend it on the wrong things. With 10%, we are talking about approximately €15,000 on an average ABP pension. The smartest would probably be to let a lump sum generate money.
What about ABP’s ‘personal’ pensions pot, which is meant to offer participants a better insight into how much they have saved for their pension?
We have introduced the personal pensions pot to almost a million active participants who are enthousiastic about it, as it shows how much is in there for them. The amount is much bigger than they expected, as they did not know the returns on investments or the contributions paid in by the employer.
What is the importance of such an amount?
You can show people what is waiting for them. This offers confidence as well as a clue to act upon. Later this year, we will add how much pension there would be in different scenarios.
The discussions about pensions reform have been ongoing since you became director of ABP in 2008.
The problem is that our current pensions system is already very good. So with every proposed change, we need to figure out how we can maintain the good elements. We don’t want to lose a decent pension and proper schemes for surviving relatives and labour-disabled people. Every new suggestion requires careful calculations.
The problem in the second pillar had almost been solved by the cabinet and the social partners. But the issue is becoming much more complicated if other files are added, including the retirement age and the position of self-employed workers.
Could we leave everything as it is?
No, we need a more comprehensible and logical system. It is impossible to make clear that we cannot grant indexation and possibly have to cut pension rights in a period of solid economic growth and low unemployment. The link with the economy must become more direct.
However, the ultimate configuration of a new pensions contract is the least important, as it would not suddenly solve the financial problems. It would have to be about increased transparency, choice options, tailor-made arrangements and tuned to the labour market.
You were directly involved in the separation of pension fund ABP and its provider and asset manager APG. However, pension funds are taking back tasks, because they want to be in control. What was the result of the separation?
This was about a clear separation between policy and implementation, a better demarcated governance. Implementation and policy-making at the pension fund has improved. Our administrative bureau has grown, largely thanks to the addition of tasks and new legislation. But we are not duplicating the provider’s job. Reversing the separation would be unnecessary and bad.
If recovery from underfunding fails, the pension fund will have to cut pension rights on the eve of its 100th birthday. How bad would that be?
A rights discount would be a terrible thing anyway. In particular, since our pensions have not been raised for inflation for years. It is way from what we promise in the current pensions contract, and another reason to improve the system.