NETHERLANDS – The head of Dutch asset manager Schootse Poort has warned that regulatory requirements on pension fund solvency could “destroy” the Dutch pension fund industry.
The ultimate worry was that the requirement by the Netherlands’ Pensioen- & Verzekeringskamer insurance and pension regulator that pension funds have a solvency ratio of at least 105% could “destroy the system”, said Jan Snippe, chief executive of Schootse Poort Pensioen-en Vermogensbeheer.
Schootse Poort is an independent asset manager which runs the assets of Stichting Pensioenfonds Philips, the 14 billion euro pension fund of electronics group Philips.
The head of pensions at UK-based chemicals firm ICI also slammed the PVK’s requirements. “Our business is hurting,” because of the costs, said ICI’s international benefits director David Birtwistle. He said that despite the PVK’s good intentions, the requirements may turn out to be an “own goal”.
The PVK’s requirement has come in for widespread criticism, with Dutch pension industry groups calling it “unnecessary and bad for the economy”.
Speaking at a conference in London, Snippe also cast doubt over the rationale of replacing traditional defined benefit schemes with defined contribution schemes. “In the long-term it is not clear that DC is cheaper than a DB system.”
“In fact the DC system may backfire,” Snippe said. He explained that when labour becomes scare due to demographic ageing and thus more expensive, workers will seek higher wages as compensation for taking on higher pension risk.
His view was endorsed by Chris Lewin, head of UK pensions at consumer products firm Unilever. Speaking on the same panel, Lewin said it was a “fallacy” to say that DC lowers risk. “It probably increases it in the long term,” he said.
Snippe also said that Philips is currently in talks with the unions over removing pension indexation, raising the retirement age and the introduction of a career-average – as opposed to final salary – system.
Such discussions were part of a move to redistribute pension risk. “The company is no longer willing to accept that risk,” Snippe said. “Pension schemes have become a major source of volatility for companies,” he said.
Snippe, who is also senior vice president of Philips International, said companies need to make a trade-off between risk reduction and cost reduction. He saw four main challenges: a rise in costs due to increasing longevity, solvency requirements, accounting standards and a short-term approach overruling long-term needs.
Snippe took over as CEO at Schootse Poort from Dick Snijders last month. Schootse Poort manages around 16 billion euros.