The outgoing Dutch government wants to enable mandatory sector-wide pension funds to merge for benefits of scale even if their funding differs considerably.

The cabinet has approved a bill that allows merger partners to keep their assets separated for a period of no more than five years.

Jetta Klijnsma, state secretary for social affairs, said she wanted to remove the current ban on mandatory schemes merging if their coverage ratios differ too much at the time of the intended merger.

The ban was meant to protect the pensions of participants in schemes with the highest funding level.

Temporary ring-fencing assets would enable merging pension funds to gradually align their coverage ratios, Klijnsma explained.

Earlier, she had made clear that supervisor De Nederlandsche Bank had to approve a merger plan.

She also said the new pension fund resulting from a merger could not have a wider scope than the merger partners’, and that there must be coherence between the sectors in a new scheme.

In a first reponse, the Pensions Federations said it was positive that progress had been made with the bill.

In the opinion of René Maatman, pensions lawyer at De Brauw Blackstone Westbroek, the cabinet should also enable merged schemes to keep assets ring-fenced for an indefinite period in collective compartments, like in the new general pension fund (APF).

At the moment, mandatory sector schemes are not allowed to join an APF.

Maatman noted that there would be different rules for ring-fencing in an APF and in a merged scheme.

“Different regulation for separated assets for sector pension funds does not only damage these schemes, but also has the potential to negatively affect the reliability of ring-fenced assets in the APF,” he recently argued in an article – co-authored by Kees Groffen and Sander Steneker – in a local specialist magazine for pension issues.

The bill, which still has to be tabled in parliament, is scheduled to come into force as of 1 January.

The bill is not part of the list of controversial subjects that will only be discussed after a new cabinet has taken over from the outgoing one.