Elections loom large over Dutch pension reform

On 22 November the Netherlands goes to the polls to elect a new parliament. Parties opposing at least some elements of the ongoing Dutch pension reform are set to gain a majority of the 150 seats up for grabs. Will this bring the switch to a defined contribution (DC) system into jeopardy?

As things stand, parties that are opposed to the ongoing switch from defined benefit (DB) pensions to DC are set to win a narrow majority in the parliamentary elections. This is surprising, as a two-thirds majority voted in favour of the Law on the future of Pensions last December.

What has changed is that two political newcomers that voted against the pension reform last year – Farmers’ Party BBB and New Social Contract (NSC) – have since surged in the polls. BBB polls fifth with 11 anticipated seats while NSC is leading the pack with a projected 27 seats. Together, they could tip the balance in favour of the opponents as they held only two seats between them in the 150-seat Chamber at the time of last year’s vote.

While BBB, which is mostly focused on rural and agricultural issues, only devotes one sentence to pensions in its electoral manifesto – namely, that it wants to reverse the introduction of the new pension law, NSC is more nuanced. While the party is accepting the new DC system as “a political reality”, it wants to make some crucial changes to the law.

Referendum

Most importantly, NSC opposes the mandatory transition of DB accruals to DC. Instead, it wants to grandfather existing accruals and only transition these to the new pension system if a majority of members agree.

How they want to organise this is not clear, but this could happen via some kind of referendum. NSC also wants to reconsider the lump sum payment of 10% and aims to maximise the investment management costs, potentially limiting pension fund investments in “expensive” categories such as private equity.

The party’s first demand is a major one: much of the rationale behind the pension reform is based on the basis that pension funds will in principle transition DB accruals to DC.

Most pension funds are vehemently opposed to the idea of grandfathering accruals, as this would come with the requirement of having to run an expensive DB arrangement for decades to come.

The Dutch pension federation said at the start of this year it considers the transition of existing accruals to DC “essential” for the success of the pension reform.

NSC’s Agnes Joseph is leading voice for pension reform

The question is whether NSC stands a chance to get its way. Since the party is currently at pole-position in the polls, it may well be a necessary partner for either a centre-right or a centre-left coalition.

And in contrast to most of the other parties that are opposed to the pension reform, NSC will be taken seriously by the political establishment, since the renowned pension actuary Agnes Joseph, interviewed for IPE’s April issue, is an NSC candidate.

Seeded eighth and with NSC currently polling at 25-30 seats, she is all but certain to enter parliament. Joseph has been a leading voice in the debate around the pensions reform, speaking on the topic several times in parliament.

How much she will accomplish remains to be seen, but the least Joseph will want to achieve is to make it easier for pension funds and their members to choose to keep accruals in the current DB system if they wish to do so.

The reality is, however, that many pension funds, including the largest five funds, have already made a decision to move accruals to the new pension system and have started preparing for this scenario. They will not lightly revert course.