NETHERLANDS - Dutch pension contributions can remain at the same level for the short term for most funds following a decrease in the upper limits for forecast returns, according to social affairs minister Piet Hein Donner.

Pension funds' ability to grant indexation may also be unaffected, as their options for indexation will be determined by  achieved returns, Donner said in a written consultation with MPs about his proposals for lowering the parameters of the financial assessment framework FTK.

However, lower parameters could lead to a decrease in expected future indexation, he noted, adding that his proposals will require pension funds to raise their contributions by 8% on average, or lower their indexation ambitions by 10-20% for the longer term.

The minister previously wanted to decrease the upper limit on return assumptions for listed equity and indirect property by 0.8% to 6.8%, while also proposing parameters for fixed income investments at gross 4.5%, rather than without investment costs. In response, the pension bodies VB and OPF claimed the new parameters could require a 50% rise in contributions (see previous IPE article: FTK parameters could cost extra 50% in contributions - VB and OPF).

Donner said the new parameters would not affect recovery plans, as long as they were ahead of the mapped-out improvements. In addition, the consistency check (on the feasibility of indexation promises) for recovering pension funds would not require changes in contributions and indexation ambitions for five years either, he said.

The minister acknowledged the biggest impact of his proposals was that pension funds might have more difficulty in passing the consistency check. "This might force schemes to raise their contribution or lower their indexation ambition," he said.

According to Donner, lower parameters will affect a relatively small number of pension funds, as most schemes have based their forecast on lower yields than the maximum of the current parameters, and have higher than costs-covering premiums as well.

He indicated that pensions funds that have applied the maximum limits of the parameters, and charged relatively low contributions, represented no more than 1% of the combined yearly contributions of over €26bn.

"In the long term, the costs of necessary adjustments will be approximately €2bn for schemes, which need to be forced to scale down their forecasted returns, by 0.56% on average," the minister said.

Last week, the €210bn civil service scheme ABP indicated that the proposed parameters were a threat, "as they will lead to a premium increase of 20% while sticking to the current prudence margin". The parameters should be discussed as part of all other proposals for changes in the pension system, Xander den Uyl, ABP's vice-chairman stressed.

Although the lobbying organisations OPF and VB acknowledged that Donner has delivered a solid response to the questions and criticism from both the pension sector and Parliament, they said they needed some time for a proper response.

An extensive discussion about the issues has been scheduled in Parliament after the national elections on 9 June.

Topics