NETHERLANDS - VB, the association of industry-wide pension funds yesterday told delegates at its annual member meeting there is a pressing need to restore confidence in the Dutch pensions system.

Benne van Popta, the VB chairman representing employers, said restoring confidence and regaining trust requires greater transparency and better communication of the risks involved, and has urged pension funds to reach out to plan participants in a renewed communication drive.

But transparency alone is not enough to restore trust, warned Paul Schnabel, director of the Social and Cultural Planning Bureau. He argued trust and confidence need to be shored up by various checks and controls, including sanctions in cases of infractions, to ensure accountability.

That said, adding more rules and regulations is not the answer, according to Alexander Rinnooy Kan, chairman of the Social Economic Council.

"Over-regulation increases predictability, but if one tries to monitor everything, nothing gets done," claimed Kan.

In his view, the best solution to regaining trust in pensions would be to raise risk awareness and understanding among scheme participants, while ensuring that risks are manageable and transparent.

Van Popta argued the pension industry must take an active role in promoting better communication with scheme participants, though other issues need attention as well, as he added: "Schemes must look at the balance they strike between risk and certainty. And they may need to evaluate their investment policy."

In that vein, Else Bos, chief executive of PGGM, admitted to have asked herself "often" why schemes did not take action sooner to adjust their investment policy when the markets went into a tailspin.

"As investors with a long horizon, we are accustomed not to react to short-term risk," she said, but noted on the other hand, "the events in the fourth quarter of last year happened so incredibly fast and had such an enormous impact, that we did not see or foresee what happened".

Bos defended the investment policy PGGM has implemented for the Dutch healthcare pension scheme, PFZW, because it dovetails with the scheme's ambition to deliver inflation-resistant pensions.

That said, she pointed out there is a rift between pension schemes' objectives to deliver ‘real' pensions, and the Dutch supervisory regime, which looks only at nominal solvability.

"We are being judged and measured based on a contract we do not carry out," she said. "The supervisory framework does not match the real ambition of pension funds."

Van Popta agreed that the supervisory framework (FTK) is in need of critical evaluation, "to determine whether the ‘measuring tools' are suited for the job".

Last but not least, the pension contract itself is up for critical evaluation, he added.

"We refuse to join in any political haggling over this issue, but neither will we shy away from a serious discussion of the pension contract," said Van Popta.

Structural changes to the pensions system may be needed to make the system sustainable in the long run, the speakers agreed. Exactly which changes those would be was a matter of fierce debate.

Consultant Roel Jansweijer proposed a more individually oriented DC-system to replace the collective organization of pensions, but his ideas garnered little support.

"Sharing collectively for old age and sharing risks is far superior to going it alone," stated Benne van Popta.

Wim Minnen, director of the umbrella organization of senior citizens CSO, and Jamila Aanzi, representative of young union members Jong FNV, both expressed strong support for generational solidarity and the current collective system - although Aanzi acknowledged that young participants may not feel as much solidarity if they'd be aware of the risks and costs. She also insisted that younger cohorts should not be expected to take more risks.

Else Bos also suggested the solidarity between young and old may need rethinking. The Dutch system of pension contributions may have been fair to all in times when scheme members participated in the scheme for 40 years, but those days are gone, she claimed.

"Younger participants in fact take more risk but do not reap the benefits on the upside. It would definitely be worth it to see if we can improve this situation."

Going forward, Bos said PGGM intends to be "explicit" about the uncertainties involved in the delivery of pensions - "something we have not been doing until now", she noted.

"Both trust and risk are important elements of the pension system," said Bos.

"We should be clear about what that means for plan participants. And we should ensure a ‘complete' pension contract, which means we must be clear about what we're doing both on the upside and the downside," she added.

Topics