Reforms to the Dutch pension system are unlikely to materialise despite the effort spent devising the new financial assessment framework (FTK), according to Tjitsger Hulshoff, strategic adviser at ING Investment Management (ING IM).

Hulshoff said ING IM did not prefer one new pension contract to another, but said he personally believed the discussion was “being framed in a rather peculiar way”.

“What the industry calls a nominal contract is a real contract, and what the industry calls a real contract is a nominal contract,” he said.

“I don’t think either of them is actually going to happen. I don’t think the FTK that has been designed will actually happen. The industry itself is complaining and still proposing alternatives.”

Industry responses to the proposed FTK have been largely critical, with calls for a hybrid contract, while others have warned that the new arrangement could increase pension contributions while lowering outcomes.

“What they call the nominal one is far too stringent,” Hulshoff said.

“It implies pension funds will turn into insurance companies without the economies of scale of actual insurance companies. It’s going to be rather expensive.”

The real contract is “extremely complicated”, Hulshoff added, noting that he would be unable to predict his father’s pension income next year if the scheme applied the real contract.

“That’s actually a hurdle that is too big to take,” he said.

He said the market was slowly moving towards more individual pension arrangements, at least where new funds were being launched.

“We see it as corporates moving away from accounting risk, as well as actual cash risk,” he said.

Hulshoff added that, in reality, changes to the FTK framework were not required to usher in change.

“We can do any change we want – the real contract, the nominal contract – we can simply do it,” he said. “That is not a political decision, it is one between the employer and the social partners.”

Referencing the recent changes to oil company Shell’s Dutch pension arrangements, he said: “Frankly, that’s also what is happening. They can move to the PPI, which is very cheap and a lot easier governance-wise.”

Hulshoff was also dismissive of the concept of inter-generational solidarity, saying he “thoroughly” disagreed with the idea.

“I do believe in the value of collectivity, purely for the fact that you can have far lower costs.”

 

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