Pension funds’ participants are better served with a tailor-made pension plan than with increased freedom of choice for pension arrangements, according to Fieke van der Lecq, professor of pension markets at Amsterdam’s Free University (VU).

Speaking during the annual congress of IPE’s sister publication Pensioen Pro, she argued that “if people knew what they wanted at all, freedom of choice could lead to a bad outcome”.

The discussion related to the ongoing debate about the future of the Netherlands’ pension system.

Van der Lecq said she always wondered what the purpose was of allowing individuals a choice of pension arrangement. “Would it be the comfortable feeling that there is something to choose from, or is it about ending up with arrangements that match your needs?” she said. In the latter case, Van der Lecq argued that “tailor-made” pension plans would be preferable.

In her opinion, the danger of people making wrong choices was likely to make them worse off than under the current Dutch pension system.

Joep Sonnemans, professor of behavioural economics at Amsterdam University (UvA), emphasised that real tailor-made solutions should also take people’s preferences into account, in addition to objective criteria such as age, accrual capital, and property ownership.

However, he said this would be very difficult to measure. “People’s answers differ if you put the question in a different way, as people often don’t know what they want themselves,” he said.

Sonnemans said that this would also likely be the case for questions about participants’ need for certainty regarding outcomes.

He cited a survey at the occupational scheme for medical consultants, which suggested that younger participants in particular sought much more certainty than expected.

“They would rather receive lower benefits with little chance of rights discounts than a considerable upward potential combined with a bigger change of cuts,” Sonnemans said.

The impact of robots

Also during the congress, futurist Richard van Hooijdonk predicted that robots would make many jobs in the pensions sector redundant.

He said that work with a predictive and repetititive nature would be taken over by robots, and suggested that up to 80% of current jobs could disappear within 20 years.

Van Hooijdonk predicted that technology would make half of all current processes and related jobs around benefits payments superfluous.

He further emphasised that technology would considerably reduce the costs of pensions.

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