The latest agreements between stakeholders and a relaxation of rules bring pension reform closer

Key points

  • The Cabinet and the Dutch National Bank have approved a new method of calculating the ultimate forward rate
  • Pension funds with assets of more than €10bn are to be earmarked as organisations of public importance
  • Parliament is still to debate an initiative bill aimed at increasing members’ say in their pension fund’s responsible investment policy

As part of the Dutch pensions agreement, the cabinet has temporarily eased the rules for cuts of pension rights at underfunded pension schemes. It has reduced the minimum required coverage ratio from 104.3% to 100%. This means that during the transition to a new pensions system, only pension funds with a coverage of less than 100% for the past five consecutive years will have to apply unconditional cuts in order to improve their funding level to 100%.

Both the cabinet and the pensions supervisor De Nederlandsche Bank (DNB) have endorsed a proposal for a new method for calculating the ultimate forward rate (UFR) as part of the discount rate for liabilities. The UFR is being applied to resemble long-duration risk-free interest rates as closely as possible.

A committee chaired by Jeroen Dijsselbloem, the former Dutch finance minister and former chair of the Eurogroup of finance ministers, had recommended an extension of the UFR’s first smoothing point from 20 to 30 years. It also favoured the establishment of the UFR level as the 10-years progressive average of the 30-year forward rate. The current UFR is based on the 10-years average of the 20-year forward rate.

As a consequence, the UFR discount rate is to drop from 2.3% to 2.1%. The parameter changes also reduce pension funds’ ‘spread’ of liabilities relative to market rates from 2.7% to 0.3%. According to Wouter Koolmees, the minister for social affairs, the new UFR would cause pension funds’ coverage ratio to fall by 2.5 percentage points on average. 


The DNB pointed out that the new method would bring pension funds’ financial position “in line with economic reality”. The new UFR will be introduced in January 2021.

The Dijsselbloem committee had also recommended a reduction of the permissible assumption for return on listed equity by 1.2 percentage points to 5.8%, including costs of 0.2%. It decreased the parameter for other securities, including private equity, to 7.5%, including 1.9% costs.

Agreements take reform to next stages

Dutch employers, trade unions and the cabinet agreed on key elements of a pension system reform the June. 

They decided on a reduction in the rate of increase of the retirement age for the state pension (AOW) and on early retirement options for workers in physically demanding jobs.

The social partners also agreed on establishing a dedicated steering group to flesh out a new pensions contract. It will also prepare a smooth transition from the current average pensions accrual to an age-related and actuarially fairer degressive one.

Parliament had already approved proposals to slow the gradual rise of the AOW age by three years, to reach 67 in 2024. The current retirement age of 66 years and four months for the state pension is to be fixed for two years. In addition, the cabinet’s initial decision to raise the retirement by one year for every year of additional longevity beyond 2024, has been changed to eight months for every year of extra life expectancy.

The tax burden for employers allowing workers in physically demanding jobs to take early retirement is to be eased temporarily. However, the social partners must elaborate the definition of physically demanding jobs.

The steering group is to develop two options for a new pensions contract. One option is to focus on individual pensions accrual combined with a collective benefits phase. The other aims for a collective defined contribution accrual method without financial buffers or nominal guarantees.

As part of the pensions agreement, workers will be allowed to take out a lump sum of up to 10% at retirement.

The new advisory body must also ensure a smooth transition from average to degressive pensions accrual, and come up with advice on how older workers, who would be most affected by the move, will be compensated. 

As the government will not contribute to the transition costs, the redistribution issue must be solved by individual pension funds. Costs have been estimated to range from €25bn to €100bn, depending on the compensation.

The steering group is scheduled to meet from September. Details of the pensions accord must be completed by the end of 2020 and the legal framework must be in place in 2022. 

For non-listed equity and commodities, the committee proposed to limit return assumptions to 4.8% and 3.5%, respectively. It further advised to factoring in a 1.9% inflation drawn on the consumer index as well as a salary inflation of 2.3%.

Pension funds must take the parameters into account for establishing costs-covering contributions if they are spread out over several years.

The committee said it expected that the new parameters would lead to a rise of pension contributions of at least 3%. The parameters – updated every five years – come into force in January 2020.

“The cabinet has temporarily eased the rules for cuts of pension rights at underfunded schemes”

Parliament has approved an implementation order (Algemene Maatregel van Bestuur, or AMvB) to earmark pension funds with assets of more than €10bn as organisations of public importance (Organisaties van Openbaar Belang, or OOB). The measure is meant to reinforce the schemes’ audit regime. 

rotterdam new market hall

Rotterdam New Market Hall

However, as the implementation of the IORP II directive already prescribed an improvement of pension funds’ audit function, schemes have been exempt from establishing a fully independent audit committee under the OOB rules. The measure is to come into force in January 2020.

A Dutch Stewardship Code for pension funds, insurers and asset managers was introduced in January. The code, developed by the Dutch Pensions Federation and corporate governance platform Eumedion, highlights the increasing importance of engaged and responsible share ownership, as well as institutional investors’ role in promoting long-term value creation at Dutch listed companies. It offers the players the opportunity to show their beneficiaries and clients how they have used their shareholder rights.

Parliament is still to debate an initiative bill – tabled by coalition partner D66 last year – aimed at increasing participants’ say in their pension fund’s responsible investment policy. 

The initiative legislation is to provide a right of advice for responsible investment as well as a right of approval for exclusion from investment. 

This would mean that pension funds can only exclude companies with the approval of their accountability body (VO).

Dutch pension assets

Dutch pension assets
 Pension fund/entityAssets (€’000s)
1 ABP 442,000,000
2 Pensioenfonds Zorg en Welzijn (PFZW) 225,200,000
3 Pensioenfonds Metaal en Techniek (PMT) 78,369,054
4 BPF Bouwnijverheid (bpfBOUW) 61,801,809
5 Pensioenfonds van de Metalektro (PME) 50,307,528
6 ABN AMRO Bank 28,882,997
7 Shell 28,487,620
8 ING 28,203,578
9 Beroepsvervoer over de Weg 28,004,276
10 Stichting Pensioenfonds PGB 27,783,375
11 Rabobankorganisatie 26,381,534
12 Pensioenfonds Detailhandel 24,070,657
13 KLM Royal Dutch Airlines 21,581,634
14 Philips 19,749,573
15 BPL (Landbouw) 18,734,760
16 Spoorwegpensioenfonds 17,401,568
17 SPW (Stichting Pensioenfonds voor de Woningcorporaties) 13,743,149
18 Akzo Nobel NV 13,654,000
19 Medische Specialisten 11,067,426
20 Huisartsen 10,938,250
21 Horecabedrijf 10,827,992
22 KPN 10,189,016
23 Pensioenfonds Werk en (re)Integratie (PWRI) 9,070,549
24 Stichting Pensioenfonds Hoogovens 8,927,399
25 PostNL 8,828,270
26 Achmea 7,957,003
27 UWV 7,903,200
28 Schilders-, Afwerkings- en Glaszetbedrijf 7,414,807
29 DSM Nederland 7,121,834
30 Media PNO 6,315,686
31 Levensmiddelenbedrijf 6,274,577
32 Zorgverzekeraars 5,810,617
33 Schoonmaak- en Glazenwassersbedrijf 5,434,903
34 APF 5,315,196
35 Progress Unilever 5,178,272
36 Ahold 5,038,907
37 IBM Nederland 4,947,000
38 Architectenbureaus 4,556,387
39 Bakkersbedrijfs BPF 4,186,106
40 Openbaar Vervoer 4,143,954
41 Koopvaardij 4,116,063
42 Fysiotherapeuten 3,902,614
43 Heineken 3,694,965
44 Wonen 3,673,244
45 SNS Reaal Groep 3,662,893
46 Mode-, Interieur-, Tapijt- en Textielindustrie 3,490,429
47 TNO 3,487,703
48 Delta Lloyd 3,461,709
49 Meubelindustrie en Meubileringsbedrijven 3,375,781
50 Medewerkers Apotheken 3,221,535
51 Notariaat 2,950,366
52 Vlees- en Vleeswarenindustrie en de Gemaksvoedingindustrie 2,947,363
53 MSD 2,798,191
54 Zoetwarenindustrie 2,680,512
55 Dow 2,679,849
56 SABIC 2,659,127
57 Samenwerking / Slagersbedrijf 2,474,780
58 Atos Origin 2,272,936
59 Bibliotheken Openbare 2,253,778
60 Nederlandsche Bank 2,049,776
61 Hewlett-Packard 2,014,456
62 Tandartsen en Tandarts-Specialisten 1,922,736
63 Douwe Egberts 1,821,526
64 ING Bank CDC Fonds 1,781,404
65 Apothekers 1,761,782
66 Particuliere Beveiliging 1,757,528
67 Holland Casino 1,699,413
68 Gasunie 1,646,658
69 ANWB 1,577,808
70 Dierenartsen 1,564,396
71 Mars 1,530,555
72 Agrarische en Voedselvoorzieningshandel 1,523,673
73 Thales 1,462,906
74 BPF Foodservice 1,457,967
75 Campina 1,456,950
76 Houthandel 1,402,025
77 Nedlloyd 1,368,222
78 Waterbouw BPF 1,364,189
79 Personeelspensioenfonds APG 1,264,770
80 Telegraafpensioenfonds 1959 1,233,866
81 ARCADIS Nederland 1,182,163
82 Transport 1,182,149
83 Cargill 1,151,664
84 Randstad 1,146,372
85 Wolters Kluwer Nederland 1,133,437
86 Vopak 1,112,034
87 Provisum 1,100,000
88 Chemours Nederland 1,092,972
89 Betonproductenindustrie 1,052,336
90 Lanschot 1,033,648
91 HaskoningDHV 1,016,737
92 Loodsen 1,014,341
93 Grontmij 1,006,991
94 Cosun 1,001,598
95 Ballast Nedam 998,000
96 Bouwmaterialen 974,492
97 Rijn- en Binnenvaart 970,774
98 Kappersbedrijf 940,640
99 OWASE 923,220
100 Xerox 904,785
101 Vlakglas, Verf, het Glasbewerkings- en het Glazeniersbedrijf 888,476
102 Staples 860,160
103 Kring RBS (Achmea) 836,821
104 CRH 830,988
105 Recreatie (SPR) 822,474
106 TNT Express 821,190
107 Aon Groep Nederland 787,878
108 Banden- en Wielenbranche 734,843
109 Drankindustrie 733,000
110 Smurfit Kappa Nederland 706,818
111 Allianz Nederland 702,395
112 Equens 702,394
113 Robeco 694,109
114 Stichting Pensioenfonds Capgemini Nederland 663,452
115 Kring SVG (Stap) 655,762
116 Alliance 647,806
117 British American Tobacco 641,302
118 Pensioenkring 2 (Stap) 626,196
119 Honeywell 622,356
120 Metro 606,753
121 Pensioenhoutindustrie en Jachtbouw 600,000
122 NN CDC fonds 589,054
123 YARA Nederland 580,977
124 Houtverwerkende industrie 578,087
125 Huntsman Rozenburg 576,092
126 TDV 558,845
127 Fluor Nederland 553,947
128 Hagee 549,146
129 Bisdommen 540,768
130 TOTAL 508,908
131 NLR 497,000
132 SCA Hygiene (Essity) 412,732
133 Stichting Pensioenfonds VNU 180,000