NETHERLANDS – Some 40% of Dutch companies want to change their pension arrangements from a defined benefit to a collective defined contribution scheme within five years, according to a KPMG survey.
The companies want to make their pension payouts dependent on members’ contributions, the returns on investments of the premiums and of the insurers’ tariffs on the pension date, KPMG added.
According to the consultant, more than 30% of respondents referred to the costs as the main reason for a shift to a DC scheme.
KPMG found that 10% of companies gave the introduction of the International Financial Reporting Standards (IFRS) accountancy rules as for the reason for their desire to switch. Under IFRS, listed companies need to carry their, often fluctuating, pension liabilities on their balance sheet.
“The IFRS rules have contributed to an acceleration in the discussions for a change,” KMPG’s Edward Snieder said. “Because of population ageing, the new FTK financial assessment framework, low interest rates and disappointing returns on investment in recent years, the affordability of pensions has come under intense pressure.”
He added: “The FTK will make any shortfall visible much earlier and will cause unpredictable moves of the coverage ratio. This will lead to a too-expensive pension scheme, which could affect a company’s competitiveness.”
Noting that some pension funds had very large assets compared with their sponsor, Snieder said that keeping the DB scheme could be very risky.
But he cautioned: “Pension funds, which are considering a change to DC, need to be sure that the employer’s contribution is realistic, and there is no direct decrease of the expected pension claims by their members.
“Moreover, the scheme must have sufficient assets and members for real added value by spreading risks. Because falling results will be directly felt by the individual members, the board must follow a very conscious investment and indexation policy”.