Last year, social affairs and labour ministry director general Maarten Camps hinted that the new FTK would take on a dual character. He talks to Miranda Schoutsen about the form the framework will take

"Partly in response to the reports of the Frijns and Goudswaard committees, we have concluded that the valuation of risk is not up to par," says Maarten Camps, director general of labour at the ministry of social affairs and labour (SZW) in The Hague, the Netherlands' senior public official for pensions policy.

"Or, to put it another way, the price of the risks that pension funds are running is assessed to be too low. Because of this, the buffers are too low under the current agreements and we are in a situation of coverage shortfalls. For current pension contracts, therefore, a new FTK will come into force that will be much stricter. The price for running risk will rise and the buffers must increase."

Camps explains that these stricter supervisory rules will form part of the FTK 1 denominator. "This new supervisory framework will mean that the pension will become more expensive," he adds.

Meanwhile, the social partners have reached an agreement on principles regarding a new pension contract, under which future rights must fight it out against life expectancy and financial market conditions. That sort of pension is more flexible and fits better in the kind of situation in which we currently find ourselves: the affordability of pensions is under pressure from uncertain returns and increased life expectancy.

"And that kind of pension contract fits with different supervisory demands: FTK 2," continues Camps. "Social partners will soon have to choose which of these contracts is preferable. And each choice has its corresponding FTK. Pension funds will also be able to choose to give part of their pension the same type of security as in the current contract while making a second part of the pension more conditional. So a combination of the two options is possible as well."

Camps also answered a number of questions:

Q: Is it the intention to convince members to swap accrued pension rights for new conditional rights, and if so, how will that work?
A: One of the questions that has yet to be answered is: how do we treat existing pension rights? If we wish to grant them the same security then they will have to fall under FTK 1. The possibility of bringing the old and new rights together under one regime is also being explored. Converting existing pension rights of course has legal and financial consequences. Apart from that, it is ultimately a decision that has to be made by the parties to the contract.

Q: Are there other factors at play in the discussion?
A: Good communication towards participants is important in any case. Separately from this debate there is a proposal in the Lower House of parliament on pension fund governance. Of course we also need to look at the treatment of aspects such as risk management.

Q: Is there a consultation with the DNB about the new supervisory framework? And also with the likes of the AFM and representatives of the pension sector?
A: There is a broad consultation; all the specialists are putting their heads together: supervisors, pension fund representatives and other experts in the pension sector. Each play their own role; the final responsibility lies with the social partners and the cabinet. The social partners are responsible for the contract and the ministry of social affairs must develop that into a supervisory framework. In short, it is a collective exercise.

Q: Earlier this year the AFM called for the standardisation of pension agreements. Too many different pension arrangements make implementation and communication too compex. Are simplicity and accessibility a factor in the discussion?
A: Communication is indeed becoming more important. But at heart the issue is more and less conditional rights.

Q: What's the timeline?
A: The thinking is that there will be clarity on the type of pension contract, and the corresponding supervisory framework, by the beginning of 2011. After that we at the ministry of social affairs and labour will draft regulation. The social partners should then start discussions about the contracts with pension funds at a decentralised level. We hope, and the planning is well advanced, that new contracts will be able to start on 1 January 2012. The parliamentary proposal on governance will go forward at its own pace but when the new contracts come in this will itself emphasise the need for good governance. The possibility to discuss a new discount rate will be included in the discussion about the assessment framework. In the end all this will also depend on the conditions that are included in the new pension contracts.