PGGM actuary disagrees with ING pension proposal

NETHERLANDS – An actuary at 53 billion-euro Dutch health care pension fund PGGM says he does not agree with a proposed new type of pension system put forward by a top executive of ING.

PGGM’s Willem Eikelboom, in a newspaper article, has criticised the proposal of Diederik Laman Trip, chairman of the management committee of ING in the Netherlands.

Laman Trip had called for a new type of pension system, based on so-called defined benefit and defined contribution methods, largely for the salaries exceeding modal levels.

The aim was to make the Dutch pension system more robust against financial and stock market risks, by changing current employment time-related pensions to a pension system based on available premiums. According to Laman Trip this would not have any negative repercussions for pension levels and pension security in the future.

According to Eikelboom, a shift in risks would doubtless happen – with negative repercussions. In the current pension system short-term risks, such as inflation and return on investments, are being covered between employers and employees.

For Laman Trip’s vision it is justified to put the full burden of these risks for employees with above modal salaries on the shoulders of the individual contributors.

Eikelboom points out that currently within pension funds these risks are spread between all social partners. “Collective solidarity is one of the backbones of a pension fund to cover potential risks, especially if related to short-term risks.”

He said the Dutch Scientific Council for Government Policy assessed the defined benefit and defined contribution systems in 2000.

According to the council, the solidarity in pension build-up is more effective than individually based systems.

In 2004 this is still the council’s stance - especially in the defined benefit the indexation ambition is a part of the financing scheme. Financial buffers were still a part of the current pension law.

He added that individual pension systems lack this factor and that DC systems will not have a financial buffer at all - which results in a lower pension security.

To counter this possible risk an individual pension system will have to increase its contributions. The implementation of this system will definitely result in a lower robustness of the Dutch pension system according to Eikelboom.

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