NETHERLANDS - Pension indexation has failed to keep up with inflation and pension funds are using it to improve their financial position, the Dutch central bank (De Nederlandsche Bank / DNB) has said.
In the Netherlands, the right to indexation is usually conditional and intended to protect participants’ purchasing power. In 2005, around 98% of both retired and active participants were subject to conditional indexation.
The DNB said its survey of 25 of the largest Dutch pension funds had shown in 2006, the pension rights of pensioners were indexed by an average of 0.75%, falling short of the 0.84% ambition set by the pension funds.
The pension entitlements of active participants were indexed by 0.70% in 2006, whereas the ambition was 0.85%, it added.
Commenting in its latest statistical bulletin, the DNB said this news meant pension funds were using indexation to improve their financial position.
It also commented on the Act on Early Retirement, Pre-pension and Life-Course Savings Arrangements, introduced on 1 January 2006, which revised the tax rules for pension schemes.
The DNB said the act had prompted the social partners to withdraw pre-pension schemes in stages, with a downward effect on pension contributions.
But it added that, in reaction to the act, most pension funds had made greater use of the fiscal scope to build up a higher old age pension by raising the accrual rates and lowering the public pension offset.
This extra pension could be exchanged by participants at any time for a lower pension to commence before they reached the age of 65, said the DNB.
This in turn was having an upward effect on pension contributions and on balance, the compensatory measures on pension contributions had accounted for the decrease (-0.8%) of pension contributions in 2006, the comment concluded.
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