New rules could see the burden of risk swing from employer to employee. Chris Panteli discovers that while this might be the norm elsewhere in the world today, the Dutch are not so keen to follow suit
The Dutch regulator has a fight on its hands over proposals which would see the burden of investment risk overwhelmingly shift from employers to employees.
The Dutch government, national unions and employer representatives first signed up to the new Pension Agreement (Pensioenakkoord) in June 2010, before firming up the proposals in June this year. But while proposals to increase the retirement age for both occupational and state pensions from 65 to 67 by 2025 have been accepted without difficulty, the move to a pension model closer to defined contribution than defined benefit has not been well received.
The deal sets out to spread the risk more evenly between the two parties, but workers claim the changes rely too heavily on the stock market and will lead to a “casino retirement”.
Unlike most other parts of the world, DB pension provision remains the norm in the Netherlands. Some 5.8 million employees are members of pension funds, equating to around 78% of the workforce. Five million of these belong to industry pension funds and almost all have a DB arrangement. The remaining 800,000 or so employees belong to company schemes, 73% of which are DB, 11% DC only and 16% a combination of the two.
So while most other countries have already moved to a model where most if not all of the risk lies with the member, the Dutch are reluctant to follow suit.
Their concern is based upon one particular aspect of the deal which states that employer contributions cannot rise any further. This means any shortfall created by rising life expectancy or lower-than-expected investment returns must be met through alternative means.
The solution for this has been the inevitable transfer of risk to the employee. The pension agreement attempts to set out “the basic principles for a new, more transparent pension contract that takes into account developments in life expectancy and the financial markets”.
The agreement set out two alternatives to the current arrangement. The first is a hybrid contract composed of two layers, one layer of lower accrual but with a large degree of nominal security and a second layer that is fully performance-dependent (profit-sharing), while the second is a completely flexible contract.
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The Pensions Regulator (TPR) has exercised its production order power under the Proceeds of Crime Act 2002 for the very first time as part of a fraud investigation.
The ITN Limited Pension Scheme has named Trafalgar House as its administrator for an initial term of five years.