Having workers pay higher pension premiums for a lower pension is simply unacceptable, says Annemarie van Gaal. Pension funds should come clean about costs and ditch the frills.
Last week the Financieele Dagblad dropped a bomb: three-quarters of the Dutch pension funds have cut pensions while premiums remained the same or, in some cases, went up. According to Pension Federation boss Gerard Riemer, it’s impossible to lower the premiums. Riemer is sorry that workers ‘are paying a very high price for a relatively bad pension’.
But says Riemer: ‘Pension funds can’t just ask for any old premium payment. The coverage ratio has to be at a legal minimum. Pensions have become very expensive in the last few years because of low interest rates.’ Those low interest rates again.
MPs were quick to react and demanded answers from junior social affairs minister Jette Klijnsma. She said that five of the biggest pension funds, which manage over 50% of the Dutch pensions, did lower premiums. So that’s alright then. Never mind that almost a million hardworking people are getting less for the same, or more, money.
Workers can’t choose their pension funds. If premium rates go up it’s not a question of finding a better deal. No wonder people in the Netherlands are not paying attention to their pensions.
But what is the reason for the differences between the funds? Low interest rates hit all pension funds alike so why can one fund cut premiums and another find it impossible to do the same?
There are over 350 pension funds in the Netherlands. Of those a hundred account for less than 2% of the pension market. A small fund has relatively high overhead costs. If you bear in mind that every euro spent now equals a €30 pension cut later, the consequences are not difficult to imagine. Clients don’t want frills like webinars, fancy offices or glossy magazines. They want a proper pension.
A few years ago the Dutch National Bank asked small pension funds to ‘think about the future’. Why aren’t small and medium-sized pension funds required by law to look for economies of scale?
Higher pension premiums are unacceptable. I propose that every penny pension funds spend on administration, regulation, marketing and capital management in relation to the total of their invested capital is made public. Nothing wrong with a bit of pressure.
Annemarie van Gaal is an entrepreneur and investor
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