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Special Report

Impact investing


Pensions In The Netherlands: Sailing into rough waters

Few things are as expressive of a country’s culture and history as its popular sayings and expressions. Take the Dutch: when we believe somebody is crazy, we say ‘he has been hit by a windmill’. When something is obvious, we can ‘sense it on our wooden shoes’.

Mariska van der Westen

But when the going gets tough and windmills and wooden shoes just don’t cut it, we turn to our national trove of nautical expressions instead. For years now, we think of our pensions system as being ‘on the slipway’ – as a ship put up for repairs; absorbing accrued rights into a new regime requires ‘bringing them in by boat’ and the pensions supervisor is ‘keeping an eye in the sail’. 

Seafaring sayings seem particularly apt, as after a year of lacklustre returns Dutch pension funds once again find themselves in troubled waters. In just the first six weeks of 2016, many of the country’s largest schemes saw their funding rates plunge by as much as 10 percentage points to around 90% – dangerously close to the critical level where benefit cuts can no longer be avoided. The combined effects of sinking markets and falling interest rates are putting pressure on a defined benefit (DB)-based system already facing strong headwinds. 


Political support for DB pensions has been crumbling and pleas for the regulator to revise its ultra-low discount rate are falling on deaf ears – if only because low rates seem to have become a fact of life, here to stay for the duration. Towards the end of January, Jetta Klijnsma, the state secretary responsible for pensions, while promising to monitor the funding situation on a quarterly basis, suggested that pension funds shouldn’t hold their breath: “The situation this year and into next year does not look rosy, but neither does it warrant an intervention.” She explicitly stated that revising the discount rate upwards is not on the cards. 

With DB pensions becoming increasingly untenable, the pensions industry seems ready to ‘turn the tiller’ towards defined contribution (DC), albeit a version of DC that allows for risk sharing. In January, Gerard Riemen, director of the Pension Federation, surprised many by declaring that future pension schemes should no longer promise ‘defined’ benefits and should instead offer mere estimates. “Pension funds should be allowed to offer schemes in which plan participants accrue capital rather than rights. That would do away with the need for a discount rate, because no promises would be made as to the resulting benefit.” His words were generally well received. 

Klaas Knot, president of the pensions regulator DNB, recently appeared on a popular TV news show to say that pension funds can “no longer afford to offer guarantees to 25-year-olds about their future pension benefits”.

He argued that guarantees should only come into play for older plan participants, “when people are approaching their retirement age and they require more certainty regarding what they may expect after they stop working”.

By promising less certainty, pension funds will be able to take more investment risk, which in turn leads to higher expected returns: “We should give pension funds the space to implement such a strategy,” Knot said. Returns on risk-bearing assets deliver 50 cents of every euro of pension money.

Ostensibly the unions were not amused by Riemen’s views: “We fell out of our chairs when we heard this,” said FNV union leader Gijs van Dijk. But the obligatory protests have a hollow ring. According to Van Dijk, the system should still make pension promises, but the certainty these ‘promises’ carry could be scaled down.  

Given the rough waters pension funds have to navigate these days, Riemen hopes an agreement on a new pensions system may be reached in 2016, to be decided by the new cabinet in 2017 and implemented in 2018 or 2019. If history is anything to go by, the sailing will be anything but smooth. But sail we must, or else the Dutch pensions system may end up ‘lying off the isle of Pampus’ – hopelessly stranded, all energy spent. 

Mariska van der Westen, editor, Pensioen Pro, IPE’s Dutch-language sister publication

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