NETHERLANDS - New proposals, which give Dutch pension funds a clear option to offer conditional indexation on pensions through the introduction of a disclaimer clause, have been cleared by cabinet.
Experts said that plans are likely to hit pensioners as conditional indexation would mean that the inflation protection on pension liabilities was no longer guaranteed and would be a function of financial situations.
According to the proposal agreed to by employers, unions, social partners and the government, pension funds will have to make it clear if indexation is conditional through a disclaimer. And if they offer full indexation, they will then have to create reserves for it.
Marko van Bergen, head of Benelux institutional business said: “Effectively this means that if the pension fund is under pressure, it still has the ability to stop the indexation going forward i.e. to stop the automatic inflation correction, which is obviously at the expense of pensioners but which will keep the pension fund healthy. Such a measure could potentially negatively impact pensioners because their pension is no longer indexed.”
A chief executive of one top pension fund agreed. “Holland has moved from an implicit pension deal with indexation towards an explicit pension deal on the nominal part. This also implies less overall pensions in the long run,” he said. However, Jeroen Steenvoorden, director, Dutch association of pension funds said: “Pension funds have always had an option to offer conditional indexation. However, this has not always been very clear. I think pension funds will continue with their ambition of providing fully-indexed pensions, only now they have an explicit option of conditional indexation if the financial situation does not permit it.”
The cabinet has also approved plans whereby pension funds can only apply for premium holidays or discounts on their pension premiums or give premiums back to the corporate sponsor if they can match all their conditional and unconditional liabilities for that year and for the longer term.
The Dutch parliament is expected to debate the new measures on February 19 and if approved they could be introduced by January 1, 2006.
Other measures agreed include a security level of 97.5% and a recovery period of 15 years. Pension funds with 50% equities and 50% bonds will have to achieve a coverage ratio of 130%.
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.