NETHERLANDS - The OECD has said that Dutch pension funds should improve the level of level of transparency on issues such as pension replacement rates and accrued entitlements.
In its economic survey on the Netherlands, the OECD also said that the new solvency requirements for Dutch pension funds should keep the Dutch pension system sustainable.
“Transparency on issues such as rates and entitlements should be improved as members need to be able to appreciate their significance and to make supplementary arrangements if necessary,” the organisation said.
The OECD said that one of the casualties of the solvency crisis has been indexation of accrued entitlements and pensions.
“Pension fund boards, which are governed by employers and employees, have judged that the contribution rate increases required to maintain full wage indexation would be unduly harmful to labour market performance.
“Accordingly, they prefer only to commit to nominal pension liabilities, with price or wage indexation usually conditional on fund performance. In addition, they have agreed to a major shift from final salary to average salary schemes in recent years,” the organisation added.
It said that this had markedly increased trustees’ discretion to reduce pension replacement rates if fund returns were poor as not only pensions, but also accrued entitlements may end up being only partially indexed.
The OECD also warned of “considerable uncertainties” surrounding estimates of structural balance needed for public finances to be on a sustainable path.
“One the one hand, a higher surplus could be required as the net fiscal costs of second-pillar pension schemes may have been underestimated by assuming unrealistically high real rates of return.
“On the other hands, the level of disability beneficiaries in the projections does not take into account the effect of the recent reforms, resulting in an overestimate of the balance required for fiscal sustainability,” the report added.
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