Dutch pension law needs flexibility – consultant

Netherlands - The funding ratio standard in the new Dutch FTK pension fund framework (nFTK) should be reduced in line with the EU occupational pensions directive, according to pension consultant Pierre Akkermans.

This would prevent pension funds leaving the Netherlands, Akkermans told the financial daily Het Financieele Dagblad.

He said pension providers should be allowed to follow the lower funding ratio requirements of the directive so they can develop more attractive and cheaper pension products.

"Make only the scheme itself mandatory within the respective industries, but allow employers to choose the provider. And allow industry-wide pension funds to offer more pension products, also outside their sector," Akkermans added.

According to the consultant, the previous social affairs minister Aart Jan de Geus wanted to combine the impossible by keeping mandatory participation in industry-wide pension funds while also grabbing opportunities within the European pensions market. Before De Geus left office, he has asked two experts for advice.

While the EU directive requires a coverage ratio of 100%, the nFTK requires an average funding ratio of 130%. Moreover, Dutch law does not allow pension in kind, or for pension funds to sell the new early retirement ‘levensloop' pension product, Akkermans indicated.

The restrictions make Dutch pensions approximately 20% more expensive than necessary in the European context, and do not connect with the need for more integrated pension products, he added.

"A pension in combination with care is especially attractive because of ageing. The same goes for the option to (partly) pay off a mortgage with a capital pay-out."

The consultant, who is also a partner in PricewaterhouseCoopers, also pleads in favour of a low but uniform corporate tax for all pension providers, including foreign ones.

"At the moment, only life insurers pay this tax, which totals approximately €450m from pensions business. This means only 0.05 percent if it is apportioned over the total pensions market of €800bn of assets under management," Akkermans explained.

In Akkermans' opinion, De Geus' solution was highly complex and will seriously hamper competition. De Geus envisaged a new kind of pensions provider, making optimal use of the options in the directive.

In addition, mandatory industry-wide pension schemes should contract out their pensions provision to a separate pensions company, which could also be established by insurers.