The new Pension Act in the Netherlands, which was agreed upon by the majority of the social partners two weeks ago, has come under fierce criticism from the opposition parties and one of the countries biggest unions, FNV Bondgenoten. Pension Funds Insider gives you the latest update on the negotiations.

The Dutch cabinet together with the social partners reached an agreement on the new Pensions Act two weeks ago. This act aims to ensure that pension schemes would be in a better position to deal with a volatile market and an increasingly ageing population. According to the signatories it would ensure ongoing pension provision for young and old and would increase the sustainability of the government's finances by reducing public spending by 0.7% GDP.

Reserves

One of the points in the agreement creating a lot of controversy is the potentially 'unfair' divide between young and old members. The Centraal Plan Bureau (CPB), the Netherlands' central research agency, last week released a report into the possible consequences of the proposed changes. It said that the agreements regarding schemes' reserves and investment policies were 'worrying'.

In the agreement, the social partners tried to find a model that would require schemes to hold smaller reserves. At the same time there are less guarantees regarding the height of pension payouts, which will be more dependent on the investment returns of the funds.

The CPB is not entirely clear on the possible consequences for pensioners but does warn that it is possible elderly people will benefit more than others and that it will be the young that eventually pay. Both the Minister, the social partners and some experts have disagreed, saying that without this agreement the system is not sustainable and young people today would not have any benefits in the future.

In the last two weeks the Dutch Central Bank, DNB, also issued concerns that pension schemes would be able to take bigger risks without consequences and asked the Minister to agree on stricter governance rules for schemes. In the debate yesterday this was one of the points the Minister agreed to.

However, both DNB and the CPB together with some of the opposition parties also believe high reserves still need to be held by schemes to ensure payouts would remain fairly consistent. The Minister said yesterday he could not force schemes to hold reserves.

Union and opposition concerns

Due to internal disagreements from within the trade union federation (FNV) on the spread of risk and the option of early retirement for manual workers, the act took four months longer to complete than was intended, Even after the agreement a fierce debate has arisen, however, and both political parties as well as the federation's biggest union oppose to the plans.

People who will work after turning 66 will receive 6.5% more state pension but mirroring that, people who retire early will receive 6.5% less. This would make it more attractive for people to keep working after they have reached the retirement age. Employers will receive a 'mobility bonus' for employing elderly workers.

FNV Bondgenoten, however, contend this point as it says it is unfair to workers carrying out hard manual labour and generally need to retire early. The Minister has now agreed to support plans for these workers to not be penalised if they retire before the age of 66 after 2020.

This year the pension age in the Netherlands will rise from 65 to 66, it will further increase to 67 in 2025.

This change has been opposed by one of the coalition partners, the PVV, making it even more necessary for the Minister to attract the goodwill of the opposition parties in parliament if the act is to gain majority approval.

Under the act the state pension will be guaranteed to rise in line with inflation until 2028 and will also see a 0.6% increase annually from 2013.

The premiums will also remain more stable than before and will not be decreased in economically prosperous times nor immediately increased in times of hardship. By ensuring the latter, the government aims to make sure that in difficult times the recovery will not be stalled by extra pension liabilities amongst employees. Currently the average Dutch person works one day a week to provide for his pension.

Support

Employers and unions sent a letter to parliament in the days leading up to the planned debate in which they reacted to the criticism of their plans. According to the social partners the plans do take into account the divide between young and old. "Young and old are treated equally because age discrimination and collective mandatory pensions do not go together," they write.

On the risks regarding second tier pensions they say that many of the factors which are now under scrutiny already existed in the current model and that these are nothing new. "We currently also run risks depending on investment results but apparently that is not a commonly known fact. The fairytale that in difficult times we can increase the premiums and close the financial gaps of our pension schemes now no longer exists."

Pension schemes in the Netherlands also reacted approvingly of the plans that were decided upon two weeks ago. ABP, the Netherlands' biggest scheme, issued a statement saying it supports the motion.

"With the new agreement steps are being taken which ensure the Dutch pension system has a future. Old and young should both be able to expect a good pension for a reasonable price: now and in the future. The pension agreement provides changes to realise this," said ABP.

First published 30/06/2011

azeevalkink@wilmington.co.uk