THE DUTCH PENSION SCHEME: Relevant Netspar Research in the 2020 Framework Memorandum

On July 4, 2020, the Dutch cabinet and the social partners reached an accord on the details for the new pension agreement. This constitutes an important step forward in reforming the Dutch pension system. The system is becoming more personalized and transparent. Also it will respond to economic developments more quickly. This will provide greater potential for indexation, but also for cuts… Many questions remain. How exactly will the system be further structured? What might the preferred choices for fund administrators be? How well does the new system accommodate today’s labor market? Will the new system make it easier for independent contractors to save for retirement? Is the new system less confusing? How do you communicate uncertainty? And how do you restore confidence in the system?

In this dossier, we rely on the findings from our existing (topical) research to provide insight and clarification on the main features of Minister Koolmees’s letter to the Dutch cabinet from June 2020 and the pension agreement. We zero in on three principal themes:

  1. The new Pension contract
  2. The transition
  3. Communication and trust
  
Pension Agreement Time Line

The past years there have been many steps towards the construction of the new pension agreement. Here we provide a short time line with mportant staps (and related Netspar-research) of the past year.

  • Listen to the podcast 15 years of pension agreement with Theo Nijman, Casper van Ewijk and interviewer Martine Wolzak (FD) (Dutch only).
  • June 2019: The Dutch cabinet and the social partners reached an accord on reforming the Dutch pension system. You can see a dossier containing related Netspar research here.
  • In September 2019, the trade publication for economic statistical reports, ESB, published a special issue on the pension agreement together with Netspar. Download the ESB Special Pensioenakkoord here (in Dutch.
  • June 2020: “Hoofdlijnennotitie door minister van sociale zaken” (Framework memorandum from the Minister of Social Affairs and Employment; in Dutch).
  • July 4, 2020: The Dutch cabinet and the social partners reached a subsequent accord
  • July 7, 2020: together with the Pension Federation and the Dutch Assiociation of Insurers, Netspar organized the online conference ‘Pension agreement… now what?’ for over 500 industry participants. Watch the video (only in Dutch) for an impression.

1. THE new pensioen contract

Will the new pension contract put an end to the generational conflicts related to pensions? Two contract variants have been proposed, with the definitive choice yet to be made. What are the new contract forms for pension funds? Will this help us move from perceived promised results to realistic expectations? What will it mean for the distribution of risks and returns across generations?

Bas Werker: Return allocation in the new pension contract
Bas Werker: Project efficiency in the new pension contract

2. Transition

The pension agreement specifies that pension contributions will not be age related. The more or less firm commitment to future life-long pension benefits is being abandoned and the system of uniform contributions will disappear. Accrual will occur through a defined contribution scheme with equal contributions for young and old. The transition to the new system raises many questions and costs. The guiding premise is to evenly distribute the costs and benefits of the transition across various generations. In addition, the survivors pension is being redesigned to be simpler and more uniform.

Casper van Ewijk: The transition from benefit agreement to the new contract
Casper van Ewijk: The transition from a benefit agreement to an improved contribution scheme (WVP)

3. Communication and Explainability

The pension system is often seen as vastly complex; it is based on convoluted processes. Who understands these? And how do you explain them? Another facet here is that the new system will move more in tandem with economic developments. There is a greater chance of indexation. Yet, if the economy does poorly, there is also a greater chance of cuts. What is the best way to communicate this “uncertainty,” and is there a way to still build confidence?

Marike Knoef: How do you explain the new pension contract to the participant?
Marike Knoef: How do you communicate about uncertainty in the new contract?

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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