The Dutch government is scrambling to avert a crisis in the country’s €1.6tn pension industry, with millions of pensioners facing cuts in their retirement income for the first time next year.
Trade union and pension fund officials expect the Dutch government to intervene this week with measures to avoid significant cuts to many people’s retirement income by loosening the sector’s strict funding rules, at least temporarily.
The Netherlands is widely considered to have one of the world’s best-funded and most generous pension systems, so its problems may provide an early indication of a wider global pensions funding shortfall.
The Dutch cash crunch has been accentuated by the European Central Bank’s ultra loose monetary policy, which has driven bond yields into negative territory across the eurozone and pushed up the funding requirements of Dutch pension funds.
Wouter Koolmees, Dutch minister for social affairs and employment, will this week write to lawmakers to outline his response to the pension industry’s problems, ahead of a parliamentary debate on Thursday.
Shaktie Rambaran Mishre, chair of the Dutch pension federation, which represents 197 pension funds and their members, said that contributions might have to rise by up to 30 per cent over the next few years. “As things stand, around 2m people are facing cuts from next year,” she added.
Trade unions have already held protests and strikes this year over the potential cuts to pensions and they are threatening more action if the government does not step in. “We expect some relief next week and if not we will mobilise,” said Tuur Elzinga, lead pensions negotiator at FNV, the biggest Dutch union.
The debate reflects wider concerns about the impact of low interest rates, ageing populations and longer life expectancy on pension systems across the world. A report last week from the Group of Thirty, a club for current and former policymakers, warned of a $15.8tn shortfall in funding to support the ageing populations of the world’s 20 biggest countries.
The Netherlands has a basic pay-as-you-go state pension as well as employer-run pension schemes that together provide workers with about 80 per cent of their average lifetime wages when they retire. The US and UK have similar systems, but Dutch pension funds are more generous and must use a lower risk-free rate to value their liabilities, forcing them to hold more assets.
About 70 employer-run pension funds with 12.1m members had funding ratios below the statutory minimum at the end of September, according to the Dutch central bank. If funds have ratios below the legal minimum for five consecutive years or have no prospect of recovering to a more healthy level, they must cut their payouts. Interest rates have rebounded slightly in recent weeks, but many funds are still facing cuts.
A group of 10 academics wrote to parliament recently calling on the Dutch government not to raise the risk-free rate, arguing this would be at the expense of younger workers as “the assets pot will be a little bit more empty each year”.
Others, however, think the government will intervene. “I expect that politically the cuts will not happen,” said Lex Hoogduin a professor at the University of Groningen and a former board member of the Dutch central bank, who did not sign the letter.
“But this is just kicking the can down the road as eventually they won’t be able to afford the payouts that people expect,” said Mr Hoogduin.
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