Occupational pension fund issues still controversial

In 2001, high occupational pension fund yields have once again prompted discussions in the Netherlands on the allocation of reserves. Pensioners have voiced the loudest opposition to returning fund surpluses to companies at a time when their pensions are lagging behind wage growth. The pensioners also complain about their lack of influence in the management of pension funds, which are traditionally jointly managed by the social partners. In the future, higher pension contributions may exert pressure on collective bargaining and possibly lead to government intervention in pension schemes.

Debate on the allocation of the surplus reserves of occupational pension funds (NL9812111F and NL9808194F) has continued to rage in 2000 and 2001. It is estimated that approximately NLG 1.5 billion was funnelled back from their pension funds to a number of large companies in 1999. The pension fund at the Hagemeyer electrical materials concern provides a good example. Over a period of three years, NLG 175 million has been transferred from the occupational pension fund surplus to the company. At the same time, pensioners received payments totalling NLG 20 million and NLG 5 million was earmarked to adjust the pension scheme.

This situation has led to increasing dissatisfaction among pensioners. Between 1998 and 2000, no fewer than 12 new company-specific interest groups for pensioners were set up. Such pensioners' associations have been established at firms such as Rabo (banking), Océ (printer manufacture) and Hunter Douglas (window coverings). Dissatisfaction has been manifested not only in the formation of associations, but also in legal proceedings. In October 2000, the pension fund members' council for flight crew at the KLM airline filed a suit against their pension fund. The members' council - which comprises seven pensioners and eight current employees - rejected a proposal for the company's contribution to the pension fund to be reduced by NLG 100 million in 2000. A majority on the council ultimately voted in favour of a structural agreement between KLM and the flight crew trade unions on a reduction in the company's contribution accompanied by a pay increase for the employees, which included the company agreeing to stand surety for any possible pension fund shortfalls. This led to the retraction of the lawsuit. Within the members' council, however, the positions of the current employees and pensioners were opposed.

Legal proceedings were also pursued at Kemira (chemicals) where the occupational pension fund surpluses were used to give the company a holiday from paying pension contributions. Several pensioners won a case in the Supreme Court, requiring the company to compensate them for this move. The company subsequently refused to compensate all pensioners, as the court ruling obliged it to compensate only those who had filed the suit.

In July 2001, the Dutch Association for Pension Interests (Nederlandse Bond voor Pensioenbelangen, NBP) demanded that occupational pension levels be increased by at least 5% instead of the current average of 1.6%, due in part to the fact that gross pay increased by about 6% in 2000 and inflation in the Netherlands was about 5% on an annual basis.

Having a say in pension funds

According to a survey carried out by the Social and Economic Council (Sociaal-Economische Raad, SER), approximately 1 million Dutch employees and pensioners have no say whatsoever in the management of their occupational pension money, although they are required to pay a contribution. Occupational pension funds are traditionally jointly managed by the social partners. The SER commissioned a study to determine the degree to which agreements concluded in 1998 among trade unions, employers and senior citizens' associations on increasing the influence of employees and pensioners in the management of pension funds had actually had concrete results. The findings of the study were published on 18 July 2001 by the Labour Foundation (Stichting van de Arbeid), the bipartite consultative body of employers and employees.

The study found that two-thirds of sector-wide occupational pension funds and 43% of company funds had not succeeded in establishing any form of employee and pensioner participation whatsoever in the preceding three years. Because this absence of participation primarily concerns the smaller funds, the percentage of pensioners and employees that do have some say in their funds lies somewhere between 80% and 90%. Participation takes many forms, such as a members' council, or one or more reserved seats on the board of the pension fund.

In response to the survey, senior citizens' associations lobbied for supportive legislation. In early 2000, an initiative on this issue put forward by the social liberal Democraten 66 (D66), one of the parties in the coalition government, ran aground in the lower house of parliament. At the time, the State Secretary at the Ministry of Social Affairs and Employment, Hans Hoogervorst, did not support such legislation, partially due to a fear of increasing pension pay-outs. The largest coalition party, the social democratic Labour Party (Partij van de Arbeid, PvdA), and the opposition Christian Democrats (Christen Democratisch Appèl, CDA) did not wish to erode the power of the social partners in this area.

Pensions, pension funds and the role of the government

In 1997, the government and social partners signed an agreement in which the government pledged not to intervene in occupational pensions as long as the social partners ensured a moderate development of pension costs. The agreement resulted in the government not taking any fiscal measures in February 2001 to force occupational pension funds to cut back expenditure on pension schemes. Calculations from the Pension and Insurance Supervisory Board (Pensioen- en Verzekeringskamer) showed that pension costs had dropped by 0.24% over the previous three years to 14% of the paybill. The question now is whether the 1997 agreement between the government and social partners to stabilise pension costs can weather the storm if occupational pension funds are compelled to increase premia.

Pension funds have been investing in shares to an increasing degree. In 2000, the Civil Service Pension Fund (ABP), the largest pension fund in the Netherlands, invested 38% of its assets of NLG 331 billion in shares. At the PGGM healthcare sector pension fund, the second largest fund, this percentage was 55%. During years in which share prices surged, this led to high returns, but in 2000, various funds plunged into the red. An example is the Shell pension fund, which has 64% of its assets invested in shares and had negative return of 3.7% in 2000. During 2000, ABP booked a return of 3.2% and PGGM reached 3.4%. The meagre returns combined with high inflation in the Netherlands have created a very real possibility that contributions will have to be increased. The ABP states that the wage-price spiral that appears to be developing in the public sector will increase the funding requirements of the pension fund. In view of the fact that high share returns seem to be a thing of the past, at least for now, and because lowering pension benefits is not feasible, the only choice is to raise the contribiutions.

Commentary

With respect to the controversial allocation of surpluses back to firms, the question of why the employees representatives' on the boards of some company pension funds ever agreed to refunding companies arises. One of the reasons mentioned is that employees are in a hierarchical relation to their employer and are sometimes chastised for taking a critical stance. Another reason offered is a division within the employee representatives' ranks, which include managers along with individuals from the shopfloor. In such cases, the introduction of pensioners' participation can have a substantial impact: at the Nedlloyd (shipping and logistics) occupational pension fund,several employee representatives have been replaced by pensioners, in this case former company managers.

Ultimately, in a formal sense, it seems that the employer's right to veto, as stipulated in the articles of association of most pension funds, turns out to be the decisive factor. In a more material sense, much is explained by the fact that trade union representatives on fund boards primarily consider the interests of the current employees - in other words, the interests of their members more than the interests of former members. The money funnelled back to companies is often used to exempt employees from contributions (the so-called 'pension holiday') and to bolster redundancy schemes in the event of reorganisation.'

In the meantime, the chance of government intervention in the pensions sphere in the areas discussed above does not seem likely. There are undoubtedly many occupational pension funds lacking participation arrangements, but the number of pensioners who are excluded is small. In these cases, the government's approach is to encourage further self-regulation. Nor does government intervention with regard to occupational pension levels seem likely. Compared with most European countries, the Dutch pension system is relatively stable and not a hot topic in a social and political sense. As far as the government is concerned, there is no reason to challenge the social partners in this area - changes to the Disability Insurance Act (WAO) are in this respect already causing enough trouble. (Robbert van het Kaar, HSI)

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