Dutch Council of State slams ballot proposal on DC pension conversion

Proposals by the Dutch parliamentarian and former actuary Agnes Joseph for mandatory scheme ballots on conversion to DC pensions have been “insufficiently thought-out”, according the highest advisory body to the Dutch government.

In January, the former actuary formally proposed mandatory member ballots for funds that want to convert DB accruals to DC. 

In a press release responding to the council’s advice, Joseph said she will “carefully study and weigh” the body’s objections.

But the representative of the centrist NSC party also said: ”Some practical objections in the council’s advice look astonishing.” She pointed to the council’s strong objection to giving members the right to object against the conversion to DC as an example.

Hitherto, pension fund members always had such a right when their pension arrangement was changed.

Unusually, Joseph made her proposal in the form of an amendment to a law that arranges the extension of the transition period to the new DC pension system beyond 31 December 2026.

This was seen as the fastest way to give individual members a say about the transition of their pensions.

Equally unusually, the government then asked the Council of State for formal advice about the amendment. Normally this happens only for new legislative proposals, not for amendments. 

Deterioration of pensions

The council’s main objection is that the amendment upturns the principal starting point of the pension transition, which is that pension funds will in principle convert DB accruals to DC. Its official advice to the government was published today. 

“Blocking the transition leads to a deterioration of pensions for groups of members. This brings into great jeopardy the solidarity that underpins the pension system,” the council wrote in its advice.

This is because stopping DC conversion means pension funds cannot use their existing buffers to compensate members disadvantaged by the transition or create a ‘rainy-day’ buffer. “This means pension contributions will have to rise to provide for this,” according to the council. 

The council also questions whether “such complex issues” are best addressed in a binary vote. “It is not clear why individual members are better served to weigh and safeguard collective interests than social partners,” it adds. In the Dutch institutional context, social partners historically decide on pension arrangements, with no role for individual members.

Finally, the council is of the opinion that the amendment “will not lead to fewer legal complications and conflicts,” as Joseph had argued. The most obvious would be the apportionment of the buffer to those who decide to keep their accruals in DB, should pension funds agree an opt-out to individuals rather than calling off the whole transition.