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Why Sfn was condemned to a slow death

It is rare to hear of a pension scheme dying in the Netherlands. More than 90% of the population belong to saving schemes at work and the communal spirit means these arrangements are more likely to grow than dwindle. But this is not the case at Stichting Flexibel uittreden Nutsbedrijren (Sfn). Its membership number of 45,000, all workers in public utilities such as water, gas and waste management, will fall to zero over the next 10 years. By 2016 the scheme, which facilitates retirement at age 61 rather than 62, is likely to be no more. Its e500m of assets will have been distributed in benefits or transferred.

Sfn's fate is the consequence of the Dutch government's desire to reduce early retirements across the public and private sectors. It is a noble, truly European aim, in compliance with the Lisbon Summit principles for making Europe the world's most dynamic economy.

Since many other EU member states were doing little to tackle the ageing problem, Wim Kok, the former prime minister of the Netherlands, almost two years ago published a report exhorting them to adhere to the Lisbon principles. But as is often the case, the Dutch find themselves the obedient pupil in a class full of truants. The latter will throw Kok's report around the classroom while his countrymen and women have already abolished the fiscal incentives for pre-retirement pensions and so ensure that retirement in one's 50s a rarity of the future.

Of course the Dutch should expect to have the last laugh as the early retirement schemes will be replaced by a more flexible system which allows for career breaks, including sabbaticals and caring for young children. The Levensloop policy foresees Dutch workers in their 60s more refreshed and educated than their peers in France, or Germany. "Time out rather than burn out" is the mantra from the Hague.

But the change has not been entirely smooth and does introduce an element of individualism that is at odds with the Netherlands' successful model of collective savings. First up, many Dutch employees are not happy to have to work longer, especially those for whom ‘the end' was in sight. The government soothed some of their anger by making the new system applicable only to those under 56 years of age.

In the case of Sfn, this means about 33,000 employees, working at water and energy utilities such as NUON, ESSENT and ENECO; communications cable company, UPC and waste management operator, AVR Rotterdam.

These workers have the opportunity to switch from contributing 1.5% of salary to the early retirement arrangement into new individual accounts, in which they only invest 0.5%. Employers will only have to put in 1%, instead of the current 3%. Gerrit De Jong, non-executive board chairman of Sfn, describes this reduction in overall contributions from 4.5% to 1.5% as a success.

He explains that the fall in contributions, which leaves more money to go elsewhere in the economy, has been achieved by a number of means. First, Sfn had healthy reserves, about 140% of liabilities, and these have been distributed among all members in proportion to their contributions thus far. Younger members get less but they will of course have a greater period in which to fill their desired savings pot (as the new ethos regards life savings for events such as sabbaticals, it no longer is relevant to talk solely about early retirement).

Second, the windfall is in part due to the fund's liberation from its original goal, which was to be fully funded until 2017. Without this constraint, contributions do not need to be so high. On the other hand, with the unions' agreement, there is a policy to command an extra 0.9% of salary from workers for the next three years in order to give some impetus to the new arrangements.


o far, so good. But De Jong accepts that there is not the same certainty in the new benefits arrangements as in the old system. Younger workers may be able to use the new individual accounts to fund different activities at different points in their life, but like any personal account, there is not risk-sharing. If investments fare badly in the months before a planned break, individuals might think twice about taking time off, or they might have to put in some more salary.

On the other hand De Jong points out that if investments do well they do not have to save as much.

Early indications suggest another weakness with the new system. The contributions by workers are voluntary. They do not have to put in 0.5% at all if they do not wish to. De Jong sees a danger in this liberty but frankly admits that he does not know the solution. "We need more transparency and communication, so that people can make better informed choices," he says. "I'm not talking about two letters a year which plainly is not enough." Unlike traditional occupational pension schemes and pre-pension schemes, Dutch workers are now largely on their own when it comes to funding breaks from work. They may get information from their scheme and providers but the ultimate decisions, such as making a contribution at all, are theirs.

The status quo of collective pre-retirement schemes is ending. Around e340m of Sfn's e500m assets is to be transferred to Levensloop or ABP Keuzepensioen (the post-60 pension). The transfer sum represents the savings of the under-56s. The rest is now in bonds and deposits, reflecting the scheme's run-off mode. All equities were sold last year.

The easy switch, however, to Loyalis levensloop, the pensions subsidiary of ABP, is not uncontroversial. The Dutch insurers' association is unhappy with what it sees as a anti-competitive practices by ABP and Loyalis as well as their peers in the healthworkers' sector, PGGM and its insurance subsidiary, Careon. ABP is the major pension fund of Sfn members. If they retire at 61, Sfn pays their early pension for one year before they migrate to ABP.

Given this relationship, was Loyalis a free market choice? De Jong says he is content with the decision. It is worth noting that the 33,000 members involved have not all made a decision in the matter. This is in train and there has to be signed consent; the transfer of assets will not occur by default.

Looking ahead, just as they are free to not make any contribution at all, so utility workers can choose another provider than Loyalis. But prima facie, the money will be moving to the ABP subsidiary. The volume of any subsequent decisions, ie active choices to move to a local insurer such as Aegon or ABN-Amro, will finally give the world some indication of how savvy individual Dutch men and women are in financial matters.

Levensloop might yet be proof that outside the Eden of collective savings, there exists a lot of bad and painful choices to be made by workers with more knowledge of water pipes and fibre optics than Japanese stock prices and US interest rates.

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