Mercer has criticised the Dutch Treasury’s scheme for net pension arrangements on salaries of more than €100,000, describing the proposals as unattractive and overly complex. 

Speaking at a recent Mercer seminar in the Netherlands, Tim Burggraaf, a partner at the consultancy responsible for business development, said: “The rules are unattractive for participants and too complicated to implement for providers.”

The Treasury issued the rules for net pensions saving as a means of offsetting Parliament’s earlier decision to cap tax-friendly pensions accrual on a salary of €100,000.

“A very negative part of the scheme is that the net saved pension rights expire if a participant has no partner and dies before retirement age,” Burggraaf said.

“This problem doesn’t exist in the case of a net annuity plan or if somebody saves for a pension privately.

“In addition, under the Treasury’s scheme, the purchase of an annuity at the retirement date is mandatory. However, the interest rates are very low, and could remain low for a long period.

“Because employees can only save 10% of their income of more than €100,000 in a DC scheme, a surplus income of €20,000 would generate an annual tax advantage of no more than €24.

“This amount will also be reduced by costs of the product that needs to be purchased, ultimately.”

He concluded that people who invest their surplus income themselves can achieve better returns, as they can keep saving after the retirement date, nor are they bound by lifecycle arrangements.

“This usually generates extra returns of 1.2%,” he said. 

Burggraaf further noted that pension funds would have to set up separate and extensive administration for net schemes, which would be needed for only a limited number of participants. 

“Moreover, it is still unclear whether pension funds will be exempt from VAT for their administration costs,” he said.

He estimated that approximately 350,000 workers were liable for net pensions saving, but said the market would be no larger than €3.5m.

 “As far as we know, only a couple of insurers, including Aegon, offer arrangements for net pension saving, probably because of the limited cashflow that is expected,” he said.

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