Pension funds’ returns could suffer if, in a new Dutch pensions system, their financial buffers were not allowed to temporarily turn negative during times of economic stress, Gerard van Olphen, chief executive of the €453bn asset manager APG, has warned.

The Dutch government has said that pension funds’ financial buffers must remain positive at all times as part of a new system currently being negotiated. APG’s CEO said this meant schemes would have to implement rights discounts earlier.

“The risk would be that pension funds would want to increase their focus on certainty, which would limit their investment options,” he said.

In an interview in IPE’s Dutch sister publication Pensioen Pro, Van Olphen said that a new pensions system with less concrete promises and less fixation on schemes’ funding ratios would in principle offer more freedom for investment, as well as potential for improved returns.

He said this would depend on pension funds’ future choices, such as their pensions target and the desired level of risk.

“Smaller financial buffers would create more potential for better investment results, but would also increase risks,” the CEO said.

Van Olphen indicated that APG’s preparations for the introduction of a new pensions system included a focus on simplification of pension arrangements.

“During the past 40 years, collective labour agreements and transitional measures have created an accumulation of well-meant schemes and exceptions, which have caused complexity, costs and risks,” he said.

“Together with our pension fund clients, we are now trying to push back the multitude of arrangements.”

APG carries out the pensions administration for nine pension funds in total, including the €403bn civil service scheme ABP.

In October, ABP agreed with workers and employers at the Ministry of Defence that it would replace the final salary scheme for defence workers with pension benefits linked to employees’ average salary, from 2019.

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