NETHERLANDS - Dutch building firm Koninklijke Volker Wessels Stevin says the new IFRS accounting rules are the main reason for moving its pension scheme to a defined contribution (DC) basis.
In addition, the scheme has also switched from a final to an average salary basis as of January 1, while the retirement age has been raised from 62 to 65. To compensate for these changes, arrangements have been made to pay a higher pension after the age of 65, which still allows employees to retire at 62. However, this will only be possible with the additional savings of the tax-friendly ‘levensloop’, or life course, scheme.
Under the new DC scheme, the risks will lie with the members, since the company will no longer fill any gaps in the funding. Instead, Volker Wessels Stevin will make an extra contribution of 4% of combined salaries per year for the next five years. The members’ premiums will remain unchanged at 6% during the same period, deputy director Jan de Snoo said.
Members’ council member Kees Warmerdam indicated that his organisation is not totally happy with the arrangements.
“But there wasn’t much choice,” a company’s publication quoted him as saying.
“In the employer’s opinion, continuing to carry the financial risks of the pension fund was no longer justified. The alternative would have been a shift to the industrywide pension fund for the building industry. But its members carry the risks as well, while the scheme itself is probably less attractive.”
According to the scheme’s director Rob Kragten, an independent actuary forecasts that the members’ income will keep pace with prices, but not with salary increases during the next 20 years.
The €717m-plus pension fund has 9,700 members. According to De Snoo, its present coverage ratio is approximately 118%.
Under IFRS, listed companies need to carry the liabilities and results of their pension funds on their balance sheet. Recently, the large railways scheme SPF changed to DC for the same reason.