Saturday 28 November 2020

Dutch pension system is ‘best in the world’, but biggest funds may have to make cuts

Photo: DutchNews.nl

The Dutch pension system has again been ranked as the best in the world in the Mercer global pension index, but the announcement coincides with news that some of the country’s biggest corporate pension schemes are likely to have to make payout cuts next year.

The Mercer ranking is based on the adequacy, sustainability and integrity of the pension fund system, and puts Denmark in second place and Israel in third. It tracks 39 retirement income systems against more than 50 indicators.

Also on Tuesday, it emerged that the two biggest Dutch funds, the giant civil service fund APB and the health service fund PFZW had failed to meet official targets in the third quarter of this year.

Both funds’ coverage ratios – the assets needed to meet their obligations – had fallen below 90% in the July to September period. If this is the case in the final quarter of the year, they will have to make cuts to pension payouts in 2021. The two big engineering funds are also in the danger zone.

Together the four funds cover some eight million pensioners and participants.

Three pillars

The Dutch pension system is currently based on three pillars – the state pension AOW, compulsory corporate pension schemes – either sector-wide or company based – and individual or private pension schemes.

The system is, however, currently being reformed, and the changes are due to be introduced in 2022.

Firstly, the state pension age will rise less quickly than originally planned, and there will be an early retirement option, aimed at people doing hard physical work.

Secondly, the reforms aim to spread the burden of paying for pensions more fairly across the generations. Corporate pensions will no longer be on based average (wage related) contributions but on everyone paying the same.

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