Minister acts on pension agreement

The pension agreement negotiated by the Netherlands’ Minister of Social Affairs, Henk Kamp, between employees and employers in June 2011 hinges on raising the retirement age to 67 by 2025, and reduced benefits for early retirement with exceptions for low-paid strenuous occupations. Pension premiums and management of the sizeable assets of pension funds are also an issue, and the minister has said he believes control of them should be left to experts rather than the social partners.

Retirement raised to 67 in 2025

As outlined in the third European Demography Report 2010, life expectancy is increasing in Europe and the proportion of workers to pensioners will alter significantly over the next few decades. To help cope with the pressures this will place on the Netherlands’ pension system, the pension agreement brokered in June 2011 by Henk Kamp, the Netherlands’ Minister of Social Affairs, between employees and employers hinges on raising the retirement age to 66 in 2020 and 67 in 2025. Early retirement would still be possible but, from 2020, this will cost employees 6.5% of their pension for each year before retirement age that they stop work, for the rest of their lives. From 2025 this will go up to 10%. However, low-paid employees doing particularly strenuous jobs will still be able to retire at 65 thanks to a savings system for these employees.

Agreement with social partners and House of Representatives

The pension reform agreement is expected to remain intact despite differences of opinion within the Dutch Trade Union Federation (FNV). It was rubber stamped by FNV Chair Agnes Jongerius on behalf of the federation and is supported by a majority of its affiliated unions. Tensions arose because the two biggest FNV-affiliated unions, Bondgenoten and the General Union of Public Servants (Abvakabo), voted against the agreement. Although they represent the most members, they do not form a voting majority in the federation’s decision-making council (NL1112019I). The two other important trade union organisations – the Christian Trade Union Federation (CNV), and the professionals’ and managers’ organisation De Unie – unanimously supported the agreement, and work is continuing on the basis of the outcome of the agreement.

Following agreement with the social partners, the Minister of Social Affairs made additional concessions to the Labour Party (PvdA) because he needed its support in the House of Representatives where the Party for Freedom (PVV) has government coalition influence and does not support the proposed pension reforms. The Cabinet and Labour Party representatives in the House of Representatives therefore agreed that employees with low-paid, strenuous occupations will still be able to retire at 65. A rise in the retirement age to 66 in 2020 would give these workers an average 1.5% loss in the spending power of their pension and, when the retirement age rises to 67 in 2025, an average 3% loss. To compensate, the minister has devised a system of continued-work bonuses based on a savings system accrued through taxation, a solution approved by employer representatives and trade unions.

Pension fund premiums

There were also talks on pension income and management systems, particularly for company pension schemes. However, there were big differences of opinion, especially over employers’ contributions towards the premiums, and the absorption of investment risks.

A strategy to protect pension investment is extremely urgent because falling stock markets have affected pension assets. The coverage ratios of numerous funds have dipped too low (below the agreed 105%), jeopardising their solvency. There were questions about who would carry these financial risks, whether employers or government should make contributions, or whether the shortfall should be carried entirely by employees. There was also the question of how much premiums should be raised, or pension benefits lowered to compensate.

It remains unclear what proportion of the shortfall will be carried by employees. Pension funds cannot offer any guarantees, say administrators, who foresee far-reaching pension reductions from 2013, when benefits from the larger funds could drop by 15%. Account is also being taken of much higher pension premiums for some company pension funds.

For this reason, Minister Kamp would like to see more pension funds independent of the social partners, and a higher level of management expertise. While a system with a defined benefit for employees may have been unchallenged by the social partners, potential solutions to the problems caused by the financial and economic recession has divided FNV (NL1112019I).

The country’s second largest trade union organisation, CNV, accompanied by De Unie, supported the pension plans and has proposed wage moderation in 2013 if employers significantly increase their contribution towards pension premiums. The union expects high wage demands from the steel industry, for example, because of an emerging labour shortage there. Demands for wage rises of 5% could be moderated if employers increase their financial contribution towards the pension funds. The CNV Youth branch is, however, calling for intervention, fearing future generations will have to pay if cutbacks are not made today.

Pension funds in crisis to provide their policy outline

Abvakabo wants the minister to prevent the pension funds from pushing through significant reductions in pension benefits in 2012. However, the majority in the pension sector believe reductions are inevitable and the minister feels pension funds should prepare participants for potential benefit reductions, because of inadequate coverage ratios. In 2011, the Federation of Dutch Pension Funds (Pensioenfederatie) concluded that pension benefit reductions would be unavoidable in 2013.

Abvakabo has pinned its hopes on the emergency plan to be drafted by the minister with the Dutch Central Bank (DNB), the highest supervisory body for the banking sector and pension funds. This will outline measures to be adopted by the funds if the coverage ratio dips below the agreed minimum of 105%. The supervisory body stresses that every crisis is different and that the funds must devise different measures for different scenarios. The DNB wants the pension funds to be prepared, to avoid surprises. Possible steps include raising pension premiums, pension scheme austerity measures through collective bargaining and, if necessary, lowering pension benefits. Measures to combat liquidity problems have also been addressed, along with potential adjustments to the investment mix. The respective funds must report on their plans in writing before mid-May 2012.

Marianne Grünell, University of Amsterdam

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