NETHERLANDS – Merging existing nominal pension rights into a new pensions contract under real terms is feasible, according to Peter Borgdorff, director of the €134bn healthcare scheme PFZW.

Speaking at a seminar held by IPE sister publication IPNederland on Thursday, Borgdorff acknowledged that dissatisfied participants would probably sue his pension fund, which is conducting a pilot project for a rights merger.

"But we actually hope there will be many cases, so as to get a court verdict soon," he said.

Borgdorff called the contract-under-development an "ambition contract", indicating that the pension fund was doing its utmost to compensate at least for price inflation.

Under the new real contract, both positive and negative financial shocks would be spread out over 10 years, but adjustments for increased longevity would be fully applied straightaway, he said.

According to the director, the ambition contract offers more certainty for nominal benefits than the current nominal pensions contract.

However, Borgdorff stressed that finding a proper discount rate for liabilities was still a stumbling block.

"A too low rate would make the pension target too expensive, but a too high one would increase volatility," he said, adding that neither the market rate nor the swap rate would suffice.

The PFZW director further underlined the importance of stable contributions, "as the number of participants is levelling out".

Therefore, the scheme's board has decided to keep the 2% recovery levy, he said.

Borgdorff added that the board had also assessed the feasibility of a new combination contract, with pensions accrual subject to investment risk on top of an unconditional base pension.

"However," he said, "the unconditional part would require too much assets, making our indexation target impossible."

Referring to the soon to be published consultation document for the new financial assessment framework, Borgdorff called on the pensions sector to respond with a single voice.

"We must keep politicians and the market from making too big of a mark on the new pensions contract," he said.

"If we don't come up with our own alternatives, we loose the initiative and provide employers with a reason to switch to defined contribution schemes."

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