Pre-pensions cut to the heart
The current crisis of confidence between the Dutch government, trade unions and employers organisations has caused a stalemate in ‘pension land’. Pre-pension issues, largely focusing on the change in precise date of pension, which has been widely accepted to be around 55-60 years, is causing furore in the Netherlands.
The ‘Poldermodel’, the way the Dutch social partners have been discussing together wages, social security and even government policies, has been put on ice. Trade unions have stated that the government should prepare for a ‘hot autumn’. The outcome for the different pension funds, which are currently eagerly waiting for a definite result in the pre-pension question, is still an open question. Big funds such as ABP or PGGM have been quick in their reactions and assessments. Most of the larger funds will follow suit as long as their ratios and yields do not come under pressure. The smaller pension funds however are currently feeling the crunch of continuous changes in pension matters.
Already, the first pension-related strikes have happened. In several cities in the Netherlands, the Dutch trade union FNV has instigated strikes of the local firemen. The latter are protesting the change in pre-pension age arrangements, proposed by their employers, the city councils. Current pension age of firemen is set at 55, due to age and work-related factors. The so called working-age related pension (FLO- functioneel leeftijdsontslag) scheme will now be cancelled by the city councils, who want them to work until 65. To compensate, councils have proposed that firemen can do lighter work after they are 55. This is totally unacceptable to trade unions and employees. Several other strikes around the country also have been pension-age related.
One of the first funds that needed to implement changes was the Pension Fund for Metalworking and Mechanical Engineering, or Pensioenfonds Metaal en Techniek (PMT). The latter had to riase its pre-pension age to 60 from 55 previously in a bid to save E2bn in extra costs. Trade unions involved agreed to the move, not by choice but forced by the current situation. The move represents the first casualty of the Dutch government’s proposal to cut the pre-pension arrangements. The decision will mean around 340,000 employees at 31,000 companies having to work longer, without having the choice to retire early at 55.
The move by PMT has resulted in a shock-wave in Dutch pensions. In recent weeks, more and more pension funds have come forward, stating that the plans of the government will mean a possible breakdown of the current system, not based on a sector specific assessment, but due to the fact that the measures are to be implemented nationally, without taking into consideration any sector related situations or reasons for the pre-pension arrangements.
The need to change established arrangements, most of them discussed and agreed upon in 2003, is causing funds such as PMT to take drastic measures. As stated by Bert van de Belt, director of PMT fund, the decision of the pension fund – which it blamed on the government - has been made due to the potentially disastrous effects of increased early retirement of their subscribers the coming months.
Nathalie Koopmans, spokeswoman of FNV Bondgenoten, the largest Dutch trade union, blamed the government plans for the decision, stating that the plans of the Balkenende government could have resulted in extreme high early pension subscriptions over the next months. “We could not do anything else,” she says. In principle, the trade unions are still against later retirement, but the government currently has the upper hand.
Bram van Els, spokesman of the pension fund Metalektro (PME), stated that the pre-pension issue has been causing distress. Van Els says that Metalektro, after implementing a new pension arrangement on January 1 2003, which was agreed upon by all social partners, is now again confronted by new and unexpected changes. The new pension arrangement, which not only allowed a flexible pension age between 55-70, which means people were able to choose to work even after they are 65, based on a middle wage agreement, was set in place after the government had asked for such changes the pension system. All parties had come to an agreement, which was implemented. Additionally, costs were incurred to increase overall communication and transparency of the fund to its subscribers, as was asked for by the government at that time.
The new policy of the government, van Els says, puts this all on ice. “Everything needs to be addressed again and our subscribers are again left in the dark.” As he says: “Being one of the first to implement changes, now has left us with the bitter fruits.” When asked about the problems as shown by their sister pension fund PMT, van Els said that their pension fund is different. “At present, our pension age for people born before 1953 is set at 61, with some possibilities to have pension starting at 58. The latter however means already lower overall pension levels. For this group, we already had not implemented a pre-pension age of 55, as was the case with PMT.”
Also, van Els says, “our subscribers already have been saving for this agreement since 1998, giving us a financial buffer to cope with demand”. If everyone would at present take the opportunity to have pension at 58, the financial consequences of the fund would be less harsh than is the case with other funds in the Netherlands. “To assess the current situation, several scenarios are currently being discussed to see where we stand,” he adds. Van Els seems not to be very favourably disposed when talking about the government plans, but he still thinks that there will be ample opportunity in the coming months to set up different arrangements between the social partners and government.
Taking into account the sector specific situation of his own pension fund, van Els is amazed that the government is currently stating that the pre-pension arrangements are no longer more financially sound. The social partners in the metal sector, especially his specific sub sector which largely consists of the middle and large metal sector companies, focusing on exports therefore and dealing with strong international competition, has agreed that with the introduction of the new pension scheme in 2003 it still is feasible.
PVF Achmea’s business unit Achmea Pensions, stated that “as we are currently working as the administrator of around 45 different business sector pension funds, we are currently have 18 pension funds which have pre-pension arrangements. As the administrator of all pension related issues, we of course are very interested in the continuation of the present situation. Pre-pension agreements are generating revenues for our company. According to our information, given to us by the boards of the respective pension funds, most members have not yet accepted the government proposals as binding.”
This view is supported by the fact that most employers and employees are currently following the same line, which is largely opposing the government proposals. At present, the spokesman of PVF Achmea indicated, some pension funds are currently assessing the financial consequences of pre-pension changes. Possible measures to be taken can be to lower the pension age actuarially. Some financially healthy pension funds will be able to go this way.
PVF Achmea states that in their case, the total amount of people that will be affected by changes will be around 500,000. Altogether its pension funds currently have around 1m active participants, 1.5m sleepers and 300,000 pensioners. Still, much depends on current and future collective work agreements(CAOs). Bas van Veen, director of PVF Achmea, says “the abolition of the fiscal facilitation and the introduction of the ‘opting out’ possibility, will lead to a continuing crumbling of the pension system, which is the beginning of the end of the Dutch pension system”.
Ernest Nooy, pensions director at SPF Beheer, says that at this moment the discussion regarding the pre-pension arrangements are underway. As far as the fund has decided, no changes are imminent as long as the government and social partners are still discussing the outcome of the current crisis. Nooy expects that there still will be changes brought forward, particularly by the government and trade unions, largely aimed at getting out of the current stalemate. However, if the government puts their proposals into law, then all parties will need to implement them as required. The SPF Council of Participants (Deelnemersraad) will follow suit, as far as Nooy can see.
Currently, SPF has a pre-pension age of 61, which is much higher than in the cases of PMT or the PME. If there will be changes in pension age up to either 63 or 65 years, the situation still needs to be discussed. Positive results of a change will be largely financially, as the overall pension contributions could be lowered and it would have a possible positive result for overall indexation in the years ahead too. Even this is positive, taken from a financial point of view.
SPF, as Nooy reiterates, has no intention at present of implementing changes. The current financial situation is still very satisfactory, with a coverage ratio of 160%. SPF’s ratios are at the top end for pension funds in the Netherlands at present.
In a reaction by the spokesman of the pension fund of Architects, the comment is that the pension fund has been put in a very difficult position. All social partners involved in the pension fund have agreed in the mid-1990s that they would implement a pre-pension arrangement from January 1, 2005. This would have entailed that architects and employees in the architectural sector could have opted for pre-pension at age 62. The latter would have been the substitute for the existing VUT arrangements. The new government policy however has put this on ice. To compensate, all CAO parties involved have, after receiving a recommendation of the pension fund, agreed upon an extension of the current VUT arrangement until January 1, 2006.
At the same time, the pension fund and social partners are assessing how to find a potential way to still implement the possibility of opting for pension before age 65. For a full structural assessment, the pension fund stated “ we will need to wait for the final outcome of the current negotiations between government and social partners in September 2004”. Indications however were given by the Architects pension fund that the financial crash in 2000-2003 has also had its impact. The pension fund already indicated that the current financial situation of the fund would have prevented the implementation of pre-pension.
Most critical remarks were made by Rob Schippers, financial director of the pre-pension fund of the Utilities Sector, Stichting Flexibel Uittreden Nutsbedrijven (Sfn), who stated to IPE that the current developments regarding the VUT/Pre-pensions are not only constraining the development of the sector, but they also have increased feelings of insecurity of the subscribers and social partners involved. The latter has also forced the Sfn to put on hold its future plans for the pension fund. “We need to wait for the real facts, which will be clear after the government and social partners will have discussed the current crisis in September,” Schippers says. However, these are not the only issues currently to be discussed. According to Schippers, there will be a very hard nut to be cracked still regarding governance. In the current composition of the board of the pension fund, the members represent all parties involved. The latter means most members are also CAO negotiators. “You will have board members sitting there wearing two hats. This will complicate not only the normal performance of a pension fund but definitely will constrain the pre-pension issue discussions,” Schippers points out. The issue of governance needs to be addressed; otherwise there will be several issues of conflict of interest to be dealt with very soon.
The overall negative views of pension funds towards the government stance have been even supported by the large Dutch pension funds. In a reaction to IPE, Cor Brockhoven, spokesman of PGGM, said that PGGM is not at all positive. “As we are working for the healthcare and social work sector, our subscribers are working in very labour intensive jobs. There are not many nurses and caretakers which are able to work until they are 65. That is why PGGM acknowledges the necessity of and supports the pre-pension system.” Brockhoven also states one interesting fact, which has not at all been addressed by government, “when there is no pre-pension arrangement, you will see a very big rise in absence due to illnesses”. Brockhoven reiterates the standpoint of PGGM: “PGGM feels that the pre-pension plans of the Balkenende government is very bad for the whole sector. We are currently assessing alternatives to keep the pre-pension in tact. Our favourite solution would be a so-called ‘levensloopregeling’ in which the pre-pension part is being integrated. That will give our subscribers the opportunity to be flexible in their work.”
In 2003, more than 36,400 people in the healthcare and social sector opted for the OBU and FLEX-options allowed by the fund. PGGM currently has around 1,044,900 active members, 586,000 sleepers and 165,200 pensioners.