Netherlands: Transition path to a new system

Related Categories

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)
2Pensioenfonds Zorg en Welzijn (PFZW)225,200,000
3Pensioenfonds Metaal en Techniek (PMT)78,369,054
4BPF Bouwnijverheid (bpfBOUW)61,801,809
5Pensioenfonds van de Metalektro (PME)50,307,528
6ABN AMRO Bank28,882,997
9Beroepsvervoer over de Weg28,004,276
10Stichting Pensioenfonds PGB27,783,375
12Pensioenfonds Detailhandel24,070,657
13KLM Royal Dutch Airlines21,581,634
15BPL (Landbouw)18,734,760
17SPW (Stichting Pensioenfonds voor de Woningcorporaties)13,743,149
18Akzo Nobel NV13,654,000
19Medische Specialisten11,067,426
23Pensioenfonds Werk en (re)Integratie (PWRI)9,070,549
24Stichting Pensioenfonds Hoogovens8,927,399
28Schilders-, Afwerkings- en Glaszetbedrijf7,414,807
29DSM Nederland7,121,834
30Media PNO6,315,686
33Schoonmaak- en Glazenwassersbedrijf5,434,903
35Progress Unilever5,178,272
37IBM Nederland4,947,000
39Bakkersbedrijfs BPF4,186,106
40Openbaar Vervoer4,143,954
45SNS Reaal Groep3,662,893
46Mode-, Interieur-, Tapijt- en Textielindustrie3,490,429
48Delta Lloyd3,461,709
49Meubelindustrie en Meubileringsbedrijven3,375,781
50Medewerkers Apotheken3,221,535
52Vlees- en Vleeswarenindustrie en de Gemaksvoedingindustrie2,947,363
57Samenwerking / Slagersbedrijf2,474,780
58Atos Origin2,272,936
59Bibliotheken Openbare2,253,778
60Nederlandsche Bank2,049,776
62Tandartsen en Tandarts-Specialisten1,922,736
63Douwe Egberts1,821,526
64ING Bank CDC Fonds1,781,404
66Particuliere Beveiliging1,757,528
67Holland Casino1,699,413
72Agrarische en Voedselvoorzieningshandel1,523,673
74BPF Foodservice1,457,967
78Waterbouw BPF1,364,189
79Personeelspensioenfonds APG1,264,770
80Telegraafpensioenfonds 19591,233,866
81ARCADIS Nederland1,182,163
85Wolters Kluwer Nederland1,133,437
88Chemours Nederland1,092,972
95Ballast Nedam998,000
97Rijn- en Binnenvaart970,774
101Vlakglas, Verf, het Glasbewerkings- en het Glazeniersbedrijf888,476
103Kring RBS (Achmea)836,821
105Recreatie (SPR)822,474
106TNT Express821,190
107Aon Groep Nederland787,878
108Banden- en Wielenbranche734,843
110Smurfit Kappa Nederland706,818
111Allianz Nederland702,395
114Stichting Pensioenfonds Capgemini Nederland663,452
115Kring SVG (Stap)655,762
117British American Tobacco641,302
118Pensioenkring 2 (Stap)626,196
121Pensioenhoutindustrie en Jachtbouw600,000
122NN CDC fonds589,054
123YARA Nederland580,977
124Houtverwerkende industrie578,087
125Huntsman Rozenburg576,092
127Fluor Nederland553,947
132SCA Hygiene (Essity)412,732
133Stichting Pensioenfonds VNU180,000

Have your say

You must sign in to make a comment


Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2570

    Asset class: Direct Real Estate.
    Asset region: Europe excluding Switzerland.
    Size: 150m.
    Closing date: 2019-10-30.

Begin Your Search Here