Dutch Pension Sector Cautiously Positive About Reform Agreement

The Dutch pensions sector has responded positively to the pensions agreement reached by employers, workers and the government.

The parties earlier this week agreed in principle that the planned official retirement age increases would be slowed down and that workers in physically demanding jobs would get the option of early retirement.

A new steering group has been tasked with fleshing out two new variants for a pensions contract as well as the transition from average to degressive pensions accrual.

The two large metal and engineering pension funds PMT and PME said that they were particularly pleased, as the agreement also included a cut in the minimum required funding level from 104.3% to 100%.

As their coverage ratio stood at 101.6% and 100.5% at April-end, respectively, they had been facing benefit cuts no later than next year, which would have affected 2m workers and pensioners.

However, both schemes highlighted that such discounts would not be entirely off the table, as funding levels could still be short of 100% at the end of this year.

Coverage ratios have decreased since April, following a fall in interest rates – causing pension funds’ liabilities to increase – combined with declining equity markets.

Peter Borgdorff, director of the €217bn healthcare scheme PFZW, also warned that the danger of pension cuts hadn’t disappeared yet, citing persistently low interest rates.

PFZW’s funding stood at 100.4% at April-end. However, the healthcare scheme has to meet the minimum funding level by December 2020, rather than 2019 as is the case for the metal sector schemes.

Borgdorff added that trade union members still had to approve the agreement, and that several elements of the accord, including the new pension contracts, still had to be fleshed out.

The €431bn civil service scheme ABP praised the “real steps” that had been made towards a better and mor sustainable pensions system that still included the valuable elements of the current system, such as the collective approach.

Corien Wortmann-Kool, ABP’s chair, offered the scheme’s expertise to the groups responsible for establishing new discount rules and the transition to a new pensions system.

ABP’s coverage ratio stood at 102.1% at the end of April.

The Pensions Federation described the result as a “breakthrough” after almost 10 years of negotiations for system reform, highlighting the importance of keeping the concepts of collectivity and risk sharing.

Shaktie Rambaran Mishre, chair of the industry organisation, urged social affairs minister Wouter Koolmees and the social partners to provide sufficient space for tailor-made solutions.

The association of Dutch insurers (VvV) described the agreement as “a good basis for pensions reform”.

The only negative response to the pensions agreement came from 50PLUS, the political party for the elderly.

It said that it was completely unclear who was going to pay for the costly transition from average to degressive pensions acrual.

The party feared that pension cuts would still be possible as long as the “artificially low” discount rate for liabilities remained unchanged, and made clear that the temporary freeze of the retirement age rise was insufficient.

Elsewhere, commenting on the agreement, Koolmees said that the work on the two future pensions contract options and the plan for the transition to a new pensions system was scheduled to be completed by the end of 2020.

He added that the cabinet aimed to complete the legal framework for system reform by the start of 2022.