Can the Dutch pension system survive the government's second 'Trojan horse' of tax reform? Mercer's Tim Burggraaf wonders.

Last week, the Dutch government initiated legislation about reducing the fiscal legroom for retirement plans in the Netherlands.

As soon as the legislation is accepted - which is quite likely to happen, given earlier discussions - maximum retirement benefits will be lowered due to longevity trends.

This is partly 'bye bye' to social partners because the decision on tax efficiency is quite fundamental with regard to pensions, as we all know.

Sure, social partners can discuss structure and substance, but at the end of the day, limiting tax deductibility will break down part of the system, as we have seen in other countries.

Where will this end? Will the second-pillar system that was rated twice to be 'the best in the world' survive this second Trojan horse in one year?

Earlier this year, a new defined contribution (DC) vehicle saw daylight - the PPI - which is likely to cause an influx in DC plans, which already have terrible tax deductibility by the way.

Next to that, the Quest for the Holy Grail - in other words, a "sustainable" defined benefit plan for the future - is still on its way.

Remember Monty Python. Will there be a killer rabbit on their path (the PPI), and will they manage to avoid Scotland Yard (the government)?

Maybe - in which case, we will all live happily ever after. Anyway, the good news is that pensions are back on the agenda! Hoorah!

 

Tim Burggraaf is a consultant at Mercer