Big support for pension buffer

Published on: 20 July 2023

In the renewed pension system, pension assets and incomes move with the economy. Financial setbacks can be absorbed through the solidarity reserve, a shared buffer. There is great support for this buffer among both pensioners and people who are actively accruing a pension. There are differences as to what extent, but preferences for solidarity in general can explain that. This is evident from a survey APG conducted.


With the survey, APG wants to support its pension fund clients* with insights into participants’ support for the pension buffer. The purpose of this reserve is to share among participants windfalls and setbacks that occur as a result of, for example, investment risks and fluctuations in inflation or life expectancy. In this way, the buffer ensures more stable and more equal benefits and mitigates the differences between unlucky and lucky generations. The solidarity reserve must be no more than 15 percent of fund assets and must never go into the negative.


Broad support base

Pension funds get to partially decide how this solidarity reserve is filled and when it is used. “We therefore asked 2105 retired and active members of 38 industry pension funds to what extent they want to show solidarity with other pensioners and working people,” Evert Webers (researcher at APG) tells us. “The most important insight that the survey provided us with is that, among active members and retirees of the surveyed funds, there is great support to share windfalls and setbacks in solidarity with each other.”


This also constitutes an important conclusion in the context of the solidarity-based contribution scheme advocated by industry pension funds, Eduard Ponds (Senior Strategist Research & Analytics at APG and associate professor at Tilburg University) adds. “This is because the pension buffer was created to keep the mandatory nature of these funds intact. That is an executive decision, but our research shows that participants want to show solidarity with each other and as such support the buffer.”


Altruism, reciprocity and self-interest

Further key insights from the survey are that the more people value solidarity, the greater their support for specific ways to fill and spend the buffer. It also appears that the average working and retired person is willing to give more solidarity than they expect to receive in return. Webers: “That was very striking to us, although it fits in with the other insights.” Perhaps less surprising is that people most want solidarity with people who are like themselves.


The research, which has since been shared with APG’s pension fund clients and presented at a conference of knowledge network Netspar, confirms that there are three main groups when it comes to solidarity, something also found in academic literature. “There is a group of people who want to help others without question; that is altruism,” Ponds explained. “Then there’s a group that values reciprocity, or in other words, what goes around comes around. And the third group focuses primarily on self-interest. The degree of support for the pension buffer varies by group and corresponds to what you might expect: the greatest support exists among the altruistic group and the least among the group that values self-interest the most.” 

The study also shows that support for the buffer is significantly greater among participants in public sector pension funds compared to those in market sector funds.


To prevent surveyed participants from giving socially desirable answers, we explained as concretely as possible what solidarity can entail. Ponds: “For example, we made it clear that the buffer can be used to allow pensions to increase at the same rate as inflation. This does mean that there would then be less money available in case of setbacks for working people’s pension assets, increasing the likelihood that they will receive a somewhat lower pension income later in life.”


The study also focused on how participants view other forms of solidarity. That provided another striking insight, according to Ponds. “Among retirees, 80 percent think people should show solidarity in the case of health care. Among employed people, the figure is 71 percent. Solidarity in the case of unemployment scores the lowest, both among retirees (43 percent think solidarity is important there) and working people (44 percent).” The various forms of pension rank in the middle ground when it comes to solidarity.


Of the 2105 participants approached who received the questionnaire - making it a representative sample - 1753 completed the list in full.


*APG works for the pension funds ABP, bpfBOUW, SPW, Pension Fund Architectenbureaus, SPMS, PWRI, BPF Schoonmaak and PPF APG.