The trade unions, in particular FNV and CNV, in cooperation with the employer’s organisations, such as the VNO-NCW and MKB, have stopped the current Dutch liberal-Christian Democrat government from totally overhauling the pension sector. Nonetheless, further changes are due to come in the coming months.
The Museumplein-agreement between social partners and the government has not brought the necessary stability sought by most parties involved. Already, after an agreement was signed between the government and the trade unions, in which most of the proposed prepension changes were annulled, the employers’ organisation
VNO-NCW, supported by MKB stated that they were advising their members not to agree to restoration of prepension issues within the coming collective labour agreements (CAO) negotiations with the trade unions.
In a message to all its members, VNO-NCW stated that its members should not agree to a restoration of prepension arrangements. According to the employers, employees should be working longer, without direct increase of salary. This has the potential to disrupt the forthcoming CAO rounds of negotiations, with almost all industry and sector-wide CAOs being discussed in the next few months.
The employers’ organisations do not want the current prepension arrangements, which have been ended by the government, to become a part of the normal old-age pension. VNO-NCW is set to come into conflict with the largest Dutch trade unions; the FNV has already stated that it will try to take most of the current prepension provision into new pension arrangements. So it will become an integral part of the current salary negotiations.
According to the employers, this could be a threat to the financial position of the companies involved, due to higher inflation, low interest rates, ageing and increased pension liabilities. However, Dutch trade unions will be insisting on having the old prepension arrangements restored one way or the other. In a statement made by FNV chairman Lodewijk de Waal, he warned that members have given the green light for hard CAO negotiations, of which the prepension and ‘levensloop’ (VUT), arrangements will be a part. He expects that the next months could become very difficult for all parties involved.
At the same time, the ongoing fluctuations in the Dutch pension sector have also hit the usual players hard, largely the pension funds and pension insurers. The ongoing changes, new legislation, growing threats of European regulations, and an ageing Dutch society are confronting the whole pension fund sector with challenges that have be coped with in a very short period of time.
Staf Depla, Labour Party MP, told IPE that the sector is set for a new conflict. The picture painted above of a conflict between the social partners with regards to the coming CAO arrangements is just a sign of the already very unstable pension sector in the Netherlands at present. In his view this is not a very shrewd move by the employers’ organisation to threaten not to include prepension restoration when they have also seen the immense willingness of the Dutch to fight for their pension rights. “I find it not very smart to ignore the will of the population; more than 300,000 people have shown that they don’t agree.”
He acknowledges that employees need to work longer in future to counter ageing issues and to increase labour participation. According to Depla, the real threat in the coming 12 months will be the fact that pension funds, insurers and even the Dutch tax office will not be able to implement the necessary instruments for the new pension arrangements and the end to prepensions. These arrangements are still not being implemented by a large part of the parties involved due to the fact that no legislation has been agreed upon.
On February 15, the Dutch Senate (Eerste Kamer) needs to discuss the prepension proposals of the government. Most analysts expect that the Senate will put a large package of changes to be implemented before it will agree. This means that there will be only some months left, until the deadline of January 1 2006, for parties to put all necessary changes into action. Depla has already put forward a request in parliament to have the introduction date of the new regulations changed to January 1 2008. He expects that the government will refuse this, based on his view that the current government officials, such as Minister of Social Affairs De Geus, are not interested in specific problems related to implementation issues, but only focus on the overall ‘grand’ political impact.
Depla said: “De Geus does not find implementation issues interesting… these are a problem of the respective pension funds, not of the government”. He also stated that “De Geus has no vision, just a political programme”. The current changes of the pension arrangements, based on the last package agreed between social partners and government, is not very controversial anymore. “It has no real additional value,” Depla said, “and it already has shown to be full of mistakes. Implementation has not been constructively discussed, just ordered by the government.’
Ton Zimmerman, managing director of the Nedloyd Pension Fund, agrees partly with this scenario. According to him, the fact that the Dutch Senate will discuss the new pension rules in February does present the sector with a time constraint. Currently this means that the necessary implementation regulations still have not been put into place. The overall pension
sector, including social partners, has not yet been able to assess
the full impact of the new regulations, basically because they are
not yet available.
Zimmerman agrees with other pension funds that it would be better to have a new deadline set for the implementation of the new arrangements. In his view, it would be more feasible to set it around January 1 2007. The major issue that will confront pension funds during 2005 is the fact that they will be the last party in the whole constellation to be presented with the facts to be implemented. The pension funds will feel the real effects of change only after the social partners have agreed upon the new CAO, in which pension and prepension restoration will be a major issue. Even though many pension funds have been working on several possible scenarios to speed up implementation, the time constraint could be a real issue.
Zimmerman reiterated his view that the current pension sector changes are mainly threatening the smaller funds. According to him, the implementation of the ‘levensloop’ arrangements could become too large an issue to cope with. The overall size of the pension fund, combined with the
management structure and capabilities, will have a direct impact on performance. Still, Zimmerman said that the Nedloyd Pension
Fund will not become a part of an industry-wide pension fund. He indicated that due to the fact the financial position of the fund is strong, combined with a defined contribution system, no real threats are seen to force an end to the
current situation.
The larger pension funds are not as stressed by the ongoing prepension and ‘levensloop’ arrangements. Cor Brockhoven, spokesman of PGGM, said that the pension fund is ready to implement all necessary changes. No real issues have emerged as yet to suggeste that the deadline of January 2006 will not be met. But even for the larger funds it is impossible to assess the current situation as long as the DNB (Dutch Central Bank) and the Dutch Tax Office have not been able to set up the necessary instruments themselves.
All parties are eagerly waiting for the results of the Senate meeting in February. It could still be a major issue if the Senate refuses outright or has a large amount of amendments to the proposal presented by the government. If there is just a slight hiccup, all time-schemes that have been agreed at present will be delayed. Even for PGGM, which has one of the largest administrative back-up of the Dutch pension sector, the current situation is giving it a headache. As Brockhoven, says “we already have a lot on our plate… not only the prepension related issues, but a new overall pension law, new financial legislation, accountancy rulings, etc. This combination of uncertainty, fast changes and potential social conflict, is not the best way of setting smooth operations”.
Potential threats could also be coming from overall higher salaries, based on restoration issues. The latter could have a negative impact on pension premiums and liabilities. At ABP, the latter already has resulted in a premium increase of 2.6% for 2005. The total pension and widow(er) pension contribution rates will then be around 21%. The largest Dutch pension fund also has stated that indexation of sector-based salary increases will only be 79%. PGGM already stated that it will increase premiums by 2.5 to 15.5%.
Eric Uijen, director of the pension fund of Pensioenfonds Horeca & Catering, told IPE that the fund is already assessing the situation in full. In his sector, the current VUT arrangements will still be effective for five years. Still, the discussion on the impact of prepension, AOW and other issues have to start.
At present, all social partners are not able to come to conclusion due to the uncertainty relating to the government proposals. A possible timeframe for the start of negotiations is set for the first half of 2005. Uijen expects that first results will be known around the summer of 2005, even that some preliminary work is already is being done. For his sector, most problems are related to the sleepers or deferred pensioners. The latter make up a large part of current subscriptions, but overall administration constraints are of great concern. He expects that most of the current prepension payments will be put into a new old age pension agreement. From what is known at present, Uijen expects overall prepension payments to be E400m-E450m. If the government decides that this could be taken out by individual subscribers, this would become a major issue of which the effects are still unknown for the pension fund.
As has been stated by most other pension funds too, the payment of these prepension subscriptions will not be supported by the fund. The overall financial costs of the repayment would be a very large threat to the fund. It will also be difficult to implement and would influence the overall coverage ratios of the fund, which at present stands at around 113-114%, Uijen states. He expects that there will be no indexation, but mid-2005 the board will discuss a possible re-assessment of the whole issue.
Not only pension funds have to cope with the ongoing changes, insurers and advisers are also directly affected. Peter van Meeuwen, chairman, employee benefits Continental Europe, at consultants Aon, based in Rotterdam, says that the proposed changes present the whole sector with a very difficult timeframe. Van Meeuwen said that as advisers, the firm has had to prepare itself for the new situation. “Not only does a new system needs to be in place, but additionally we needed to advise our customer base on the effects of the proposals.”
But the effect of the ‘levensloop’ arrangements is still unclear. “Success will depend on the possibility of employers subsidising the overall system.” Still, most employees will opt for an early retirement option. To cope with the latter, most employees will need to use the available options within the old-age pension arrangements.
When asked for a reaction to the ‘confrontational approach’ of the employer organisations regarding the CAO negotiations, van Meeuwen stated that it is a normal reactions from employers or companies. Still, most employers have still some leeway to assess potential changes. He also expects that there will be a growing group of employees changing from pension fund subscriptions to individual pension arrangements with insurers.
As to what degree this will be as large as the government expects, he cannot say. Most emphasis however, van Meeuwen says, should be that those that increased labour participation should be targeted. The threat of an ageing society can partly be countered by a work force that works until a higher age.
He reiterates that it will be necessary for the Dutch government to understand that it is very necessary that it remains “a feasible and reliable partners for all social partners”. The current ongoing, and sometimes ad-hoc, changes in the pension sector have brought instability and unrest. This should not become a normal feature of daily life. As van Meeuwen says: “it seems to be a very good time to return to the drawing board…. maybe to set up a new, but very stable system”.

Snapshot: early retirement arrangements
VUT: An early retirement system, which has been superseded by the prepension approach, with most VUT arrangements being converted. Current VUT are only available for those with 10 years with same employer. New arrangements are only available to those over 55. VUT is being phased out under government regulations.
Prepensions: Employees have to build up own early retirement entitlement and are more flexible than the VUT approach. But these have been stopped from January. However, employees aged 55 and older can use existing arrangements.
Levensloop: Replacing VUT and prepensions, it enables employees under individual arrangements which they pay for themselves to take care or sabbatical leave, as well as early pension, for example, at age 63 for 100% of the levels at age 65.