NETHERLANDS – The International Monetary Fund says a strengthening of the Dutch pension system is needed to protect the solvency of occupational pension funds.

And it says that the planned merger of regulatory bodies will bolster the supervision of the big, dominant pensions conglomerates.

In a new report on the Netherlands, the IMF says that its staff felt “a strengthening of the pension system was needed to protect the solvency of ‘second pillar’ funds”.

The IMF says occupational pension funds had suffered from the collapse in stock markets, “but the supervisor the_PVK responded appropriately by requiring coverage ratios to be bolstered”.

The body also welcomed the authorities' decision to “codify and modernise” pension supervision.

Pensions and insurance regulator Pensioen-& Verzekeringskamer, or PVK, is in the process of merging with the banking regulator, having signed a covenant in April this year on closer cooperation. The IMF said the merger “would strengthen oversight, especially of the large conglomerates that dominate the Dutch market”.

The report also welcomed the planned elimination of the tax deductibility of early retirement schemes, saying it “should also help to increase the labour-force participation of older workers”.

The report noted a “sharp deterioration” in the Netherlands’ fiscal position. “In the absence of corrective measures, this development risked jeopardizing the long-term fiscal goal of reducing the national debt over time to help pay for pension and health-care costs associated with population aging,” it said.

In a supplementary report, the IMF has analysed the relationship between occupational pensions, stock market returns and labour demand. The conclusion is that large firms with individual pension plan losses on accrued liabilities do not affect the cost of labour. It says this is because these losses are recognised as “sunk costs” which are not affected by the current labour market behaviour of the firm.

But for a small firm in an industry-wide plan, the IMF says, losses that cause an increase in contributions do indeed raise labour costs and lower demand.

The IMF has created a benchmark mathematical model to explore the relationship between pension funds and labour demand.