Download 210115 The Dutch Pension System Chris Driessen

The Dutch Pension System
Chris Driessen
FNV
London, January 21, 2015
Some basic statistics
Premium
1th pillar
2th pillar
(pay-as-you-go)
(funded)
9% gross wages
15% gross wages
--
135% GDP
100% population
90% employees
€ 9.500
Wage related: € 10.000
(single)
(on average)
Assets
Coverage
Benefit
equal:
Second pillar extremely large
in EU perspective
Dutch pension income
2
Average 5 big EU MS
Important features second pillar
• Compulsory participation
– social partners at industry level can request the
government tot extend the negotiated pension
scheme to all employers in the industry
• Solidarity between generations
• Governance
– about 350 pension funds
– about 80 Industry wide and more than 250 compagny
funds
– governed by social partners
Outcomes
• Adequacy:relative high replacement rates and
relative low poverty rate elderly
• Diversification:
– better able to cope with demographic shocks
– ...but vulnerable to financial market shocks
• 2th (and 3th) pillar forward looking:
– longevity manifests itself as current challenge
Challenges
Rising life expectancy
Ageing of population
Decrease in interest rate means increase in
pensioen liabilities
Falling return on government bonds
Financial crisis
1
2
3
Falling funding ratio 2th pillar
%
minimum funding requirement
Dramatic fall in interest rate
have boosted pension liabilities...
...and forced funds to seek a
more risky asset mix...
To avoid the risk of a pure nominal
pension.
Short term
Loans
Bonds
Equity
Real estate
...with higher but volatile return
Can premium absorb risk?
• Premium already at
high level
• Premium rise ineffective:
pension liabilities dwarf
wage earnings
"The end of certainty"
"In a mature funded pension system against the
background of the current macro-economic
environment, employers nor financial markets are
able to provide certainty for participants against
reasonable costs"
(that's why the IORP-directive with its focus on
providing certainty is a mayor threat to the Dutch
pension system and the Dutch economy)
The FNV wants
 A good pension in relation to the last wage
 With a affordable premium
 With a risk sharing and collectivity
 With a fare pension for all generations
 With strong large funds and low costs
Problems in our pension contracts
[1]
•
•
•
•
•
The benefit side
Nominal benefit guarantee with risk free
discount rate
Too large interest volatility [1% interest
is 16% coverage degree]
Makes indexation of pension rights
impossible
Nominal and indexation ambition are not
longer compatible
We need a new type of security in our
risk sharing
Problems in our pension contract
[2]
•
•
•
•
•
The pension premium side
Demography makes the premium weapon on
the short term blunt
Pension premium also too volatile in relation
with the interest
Pension premiums are very high [15-20% of the
wage sum]
Development in the direction of a stable
premium on the long term
Is a development in the direction of CDC
Pension system
1
2
3
Key questions
 Which system gives the best results
 Defined ambition or CDC with life cycle
 We are now studying on this question
 The Social Economic Council
(unions, employers, independent members)
will give an advice
Participants as group are owner of residual risk
Ageing: from 7 to 2 workers for
each retiree
1950
2010
2040
Longevity is rising...
Life expectancy at age 65
...at a faster rate than expected
Life expectancy at 65
women
forecast 2010
forecast 2004
men
"Second pillar blues"
• On the one hand: more risky asset mix necesarry
to finance liabilities
• On the other hand: lower risk absorbing capacity
Recent reform
Reform
Higher pension age
In small steps from 65
in 2012 to 67 in 2021
Beyond 2021: tied to
growth life expectancy
Higher pension age
Lower acrual rate
(Lower tax subsidy)
Benefit cuts
New Prudency rules
communication
about risk
Smoothing of shocks
More explicit steering
rules
1
2
3
Retirement age: proces of reform
• Original proposal 2009
– first step to 66 in 2020
– second step to 67 in 2025
• Agreement with social partners june 2010
– retirement age tied to life-expectancy
• Government agreement 2012 (codified in law)
– start 2013 with 1 month
– in progressively small steps
– to 67 in 2021
– retirement age tied to life expectancy
Additional measures
• Specific scheme for low income people who
were already retired on 1th of january 2013 (to
bridge the gap)
• Incentive scheme for low-income workers
between 61 and 65 to work longer (which
enables them to retire at 65,5)
Second pillar: proces of reform
•
•
•
•
•
•
•
•
Start crisis: oktober 2008
Recovery plans: april 2009
Report reform committees: january 2010
Agreement with social partners: juni 2010
2th agreement with social partners: juni 2011
Strategic report: may 2012
Concept proposal: summer 2013
New pension act: january 2015
Reform second pillar: dealing with
increasing costs and risk
• Stick to current rules to protect pensions of future
generations (restoring funding ratio)
– no indexation
– pension cuts (on average 2%)
• Higher pension age (in line with 1th pillar)
• Lower accrual rates
• New prudency rules
– Better communication about risk
– Better smoothing mechanisms
– Explicit steering rules
Thank you for your attention!