Solidarity between generations

Communication between pension funds to their members is the best way of keeping the collective solidarity between the generations in an ageing population.
“Communication and information of the pension funds to their members is paramount,” stated social affairs’ minister Aart Jan de Geus speaking at the ABP Rendez-vous. “It will be the main issue of the pensions debate during the coming years,” he predicted.

“We must present material which offers everyone a choice,” summarised ABP chairman Elco Brinkman. He was referring to a survey, which revealed that more than two-thirds of ABP’s members consider solidarity as a matter of fact. But at the same time, a similar percentage wants to set limits to a joint liability. “Drawing the right line is the biggest challenge,” Brinkman concluded.

The flood of new legislation, like the change in fiscal treatment of Vut and pre-pension, the introduction of the ‘levensloop’, the new financial assessment framework FTK and the new Pensions Bill, offers new opportunities for individual choices, as financial director Dick Sluimers pointed out. “But we want to keep a solid collective framework as the foundation, because of the advantages for all participants, both young and old. This includes risks-sharing, from a point of well-understood personal interest.”

Sluimers mentioned ABP’s new ChoicePension scheme as an example of innovation. It allows members a flexible retirement between the age of 60 and 70, and it enables them to a partial swap between old-age pension and surviving relatives pension, and vice versa. The new ‘levensloop’, or live course, offers additional choices.

The financial director warned against a shift to individual schemes, often caused by the pressure of the new accounting rules of IFRS on company’s balance sheets. “Especially the American system, of defined contribution schemes, is heading for a real crisis. Many workers over there haven’t made sufficient provision for their pension, or they have taken the wrong investment decisions,” he said.

Sluimers recalled the enthusiasm for the Dutch mixed collective system of foreign contributors to NIB Capital’s pension congress, last spring. “It was surprising to hear how many foreign experts advised us to stick to our mixed collective system.” He added that ABP has been invited to the World Bank, to explain its pension deal. “The World Bank is also increasingly worried about the results of individual pension schemes.”

“Especially the communication on indexation needs to be improved,” said Coen Teulings, professor of economics of the public sector, and researcher at Amsterdam University. In his opinion, the information should be aimed at gradual changes and risks, instead of losses and shocks. He agreed with Sluimers that individual schemes ‘are causing misery’ and should be avoided.

Teulings reiterated his proposals for separate pools of pension money for different generations. “This will create more clarity for the next generation about which money is whose. And it will prevent political games at the expense of the younger employees. As a matter of solidarity, every generation should face the same deductions, in case of disappointing returns.”

The professor pointed at the expensive effect on pensions of the nominal guarantees of the new financial assessment framework, or FTK. “There is an urgent need for a reasonable guarantee, instead of a rigid one. Generation accounts are a way of dealing more flexibly with pension claims.

“Because the politicians don’t want to burn themselves on the issue of asset-splitting, the pension funds must take the initiative, and offer guarantees to the younger workers,” Teulings stated. “Otherwise they might leave the pension funds.”

Teulings drew a lot of flak from Social Affairs minister Aart Jan de Geus, who rounded on the proposals for its ‘oppressive shortsightedness’. “It doesn’t take into account the risks if people leave their pool in an untimely way,” he commented. “A joint pool, which covers a longer period, is a much better option. Because the collective schemes generate better returns and offer more security, we must keep the mandatory participation in pension funds.”

Asked by the audience, De Geus stressed, “unless in case of catastrophic circumstances”, not to be willing to touch the pension rights of the members of the baby-boom generation. “We must respect rights where it is deferred salary. Otherwise people might loose their faith in society.” The minister acknowledged that solidarity needs to be based on a balance between contribution and retribution. “Otherwise the system will be undermined.”

Illustrative for the need for proper communication, was the statement of young ABP member Roy Knez. “I don’t know my present position. I realise my pension is important, but I’m simply not interested in the issue. Communication could change this,” said the 26-year-old police officer.

“I think a lot of people still don’t know what kind of things enter into pensions,” Dick Sluimers admitted. He said ABP will seriously try to design a communication system which will inform its members of their situation and options at live events.

“We are already pro-active by informing members at the start of a career and at retirement. The communication at other life-events, like a career change, marriage and divorce, will start as of 2008. We are already working at a pro-active approach at a change of jobs,” ABP’s director advice and market communication Marjo Pluijmaekers said. “But all information is already available at request,” she added.

During the discussion, a majority of the audience supported the statement that the sharp divide at 55 years in the new bill on Vut, pre pension and levensloop (VPL), is putting pressure on solidarity between the generations. “I’d have preferred a more gradual transitional scheme,” commented Sluimers.