Netherlands<\/a>\u2019 pension system sustainable for decades to come as its population ages.<\/p>\n\u201cIt\u2019s a unique and profound transition,\u201d said John Landman, chief executive of the country\u2019s second-largest scheme, the Pension Fund for the Healthcare and Welfare sector (PFZW), which switches to the new system on January 1.<\/p>\n
\u201cWe want the new pension plan to remain collective and include some level of solidarity, next to a more effective adaptation to volatility on the financial markets,\u201d he added.<\/p>\n
The transition comes as employers around the world have closed defined benefit pension schemes \u2014 where they bear the risk of making up shortfalls \u2014 in favour of defined contribution schemes, where individuals bear the brunt of the risk.<\/p>\n
The new system includes a form of collectivity for most schemes, so that an individual\u2019s pension assets are not automatically passed to beneficiaries when they die. The Dutch say this move allows for risk to be shared and lets the total pool of assets grow more and pay higher pensions.<\/p>\n
\u201cCollective investing helps to generate a high pension income for younger workers and a stable and predictable pension income for older generations and to create trust in the pension system,\u201d said Annette Mosman, chief executive of APG, which manages the assets for ABP, the Netherlands\u2019 largest pension fund.<\/p>\n
The transition comes at a time when most Dutch schemes have a large surplus, meaning they have more assets than the amount they need to pay pensions. This allows them to increase current pension payments under the new system, which assigns all assets to the scheme\u2019s members.\u00a0<\/p>\n
PFZW, for example, is projecting a potential increase in payments of up to 7 per cent after the change is made, although the final figure will depend on its financial position at the time.<\/p>\n
Other funds might expect to increase pensions by even more. According to consultancy Aon, the total funding level of the system was 128 per cent in October \u2014 meaning that assets were much higher than the amount needed to meet pension obligations.<\/p>\n
Not all of the surplus will be passed through in higher pensions, however, as they keep a buffer to smooth pension payments should markets fall sharply.\u00a0<\/p>\n
The transition is also expected to have a big impact on how Dutch pension funds invest, encouraging them to invest more in risky assets with higher expected returns, and less in debt, held to produce an income in line with pensions owed.<\/p>\n
APG estimates the transition could lead to the \u20ac1.8tn system boosting investment in private equity and credit investments by about 5 percentage points \u2014 or \u20ac90bn \u2014 over the next five years.\u00a0<\/p>\n
On the flip side, strategists at Dutch bank Rabobank expect \u20ac64bn of long-term sovereign debt will be sold over the course of the transition, which is expected to complete in 2028.\u00a0<\/p>\n
The Dutch pension system has been the envy of Europe and was rated top in Mercer\u2019s global pensions index this year, assessed across a range of measures including adequacy, sustainability and integrity.\u00a0<\/p>\n
By 2024, a quarter of the country\u2019s elderly population had a gross annual retirement income above \u20ac65,000. Just 4 per cent of pensioners are poor \u2014 mainly immigrants who have accrued fewer years of contributions, and the self-employed.<\/p>\n
However, some pension experts are concerned that the move to the new system has been too complicated and could lead to errors in the account value that funds show their members. Data quality going back many decades is poor \u2014 particularly in sectors with many small businesses that were slow to move to computerised salary systems, such as hospitality.<\/p>\n
\u201cThe chances of one or two or three of the funds experiencing a serious benefit calculation error are huge,\u201d said Roland van den Brink, former president of the Dutch actuarial society who held senior positions at several big Dutch pension funds.<\/p>\n
He added that the average employee and employer contribution into Dutch pension funds was about 25 per cent \u2014 much higher than comparable DC contribution rates in the UK or Australia.<\/p>\n
Reductions in the contribution rates were \u201cto be expected\u201d, van den Brink said, given the trend of industries to move to the global average, leaving future pensioners \u201chighly vulnerable to inflation\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"Stay informed with free updates Simply sign up to the Pensions industry myFT Digest — delivered directly to…\n","protected":false},"author":2,"featured_media":379482,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[28,147,530],"class_list":{"0":"post-379481","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-personal-finance","10":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/379481","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=379481"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/379481\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/379482"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=379481"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=379481"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=379481"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}