Of the pension funds transitioning to the solidarity contribution scheme in the first wave, in 2025, PPF APG is the first to have published and submitted all the legally required plans to the regulator. Tinka den Arend, employer president and board member of PPF APG, looks back on that journey, looks ahead and expresses her views on the Wtp (Future of Pensions Act). “Thanks to the renewed system, we can really do what we are here for.”
In a nutshell:
- The implementation plan for PPF APG is under review by the Dutch Central Bank (DNB). Within six months, the fund will hear whether any adjustments will need to be made.
- PPF APG expects the renewed pension system to lead to a better and more stable pension for pensioners.
- The social partners have decided that everyone should benefit equally from the system change. To this end, a compensation has been agreed on.
Milestone upon milestone for PPF APG. The fund’s Accountability Body issued a positive opinion on the balance of the transition, and the Supervisory Board also gave its approval. And in December, the auditor (the so-called agreed upon procedure) and the Board of Trustees issued a positive preliminary opinion on the data quality. A crucial step in the transition to the renewed system, and something that occupies a prominent place in the implementation plan that was sent to DNB for evaluation on December 20 (also a highlight).
What happens next?
“Now we wait for DNB’s evaluation. In the next 6 months they will let us know if we need to make any changes.”
So, the DNB may approve it, or it may impose changes to be made to the implementation plan this year. Would that jeopardize the January 1, 2025 transition date?
“If we have to reconsider principal choices, that would take time. We would have to make new decisions, which we would then again need to fine-tune in a solid and thorough way. But we don’t expect that to happen. We have submitted a comprehensive plan with tens of thousands of scenarios that have been computed, describing in very concrete terms how the participants will be affected by the Wtp. The balance of the transition and the road towards it is becoming very clear.”
And how will the participants be affected?
“Specifically, the renewed pension system is expected to lead to better and more stable pensions. At the current funding level of approximately 120 percent, pensions could rise an average of 5 percent at the time of the transition. On top of that, where applicable, there will be a 2.8 percent catch-up indexation. The risk that pensions will have to be reduced is also cut in half under the new system. Because what is sometimes underexposed: the current system squeaks and creaks. In the preliminary phase, we had many consultations with the social partners. Together we actually quickly came to the conclusion that we could not achieve our indexation ambition under the old system and that this would be possible under the renewed system. In the old system, you have to build up very high buffers before you are allowed to increase pensions. In the new system, the buffer requirement is less stringent, so you can increase pensions more quickly and participants have better prospects of a bigger pension. As soon as that became clear we said: we want to switch to the WTP as soon as possible, because then we can do what we are here to do, which is to provide the best pension for our participants.”
Does a smaller buffer also mean more risk for PPF APG participants?
“In the renewed system, the buffer can be used in a very targeted way to avoid having to reduce benefits. Plus, in the current system you are very dependent on the interest rate, something that leads to great risks for pensioners. That works differently in the renewed system. Also, good and bad returns can be spread among retirees, so benefits will be more stable. On the other hand, young people will have personal pension assets over which they will earn their own returns. Those returns will move with the economy, causing more fluctuations than we are currently used to.”
Mostly positivism, but within political The Hague, the debate is actually flaring up again about whether the transition to the Wtp is wise. What do you think about that?
“It is confusing for the participants. After all, the discussion leads to misunderstandings. For example, people think their pensions are at risk because of the Wtp, but that’s not true at all. Pensions are for life, and at PPF APG everyone will at least keep what they have now.”
What questions are particularly prevalent among your participants?
“Everyone relates it to themselves: how is the Wtp going to affect me? Our answer: we expect everyone to benefit, in part because of the lower buffer requirement. Returns on investments will go straight into the pension pot.”
Will everyone at PPF APG benefit equally from the transition to the revamped system?
“Currently, young people pay relatively high premiums for the pensions they accrue; in the second half of their careers, they earn it back. In the revamped system, that is balanced and it becomes fairer; everyone ‘pays’ the premium into their personal pension assets. But because the system is being changed, there is a group that has already paid in, and they won’t be getting that back. The social partners decided that that group should benefit from the system change as much as the other groups. Compensation has been agreed on for that. This is a very tricky aspect in our transition, and has mainly been on the table with the social partners. It was agreed in our case that if the funding ratio is higher than 110 percent, this compensation will be paid in one lump sum from the buffer. But if the funding ratio is between 105 percent and 110 percent, the employer will take responsibility for that compensation and it will be spread out over time.”
How big is the group that needs to be compensated?
“Big. The biggest compensation is for participants between 45 and 55 years of age.”
Are you proud that PPF APG will be the first one to transition, or it is mainly stressful?
“It is definitely stressful. What does the regulator think of our implementation plan and will we still have to make fundamental changes? But most of all I am proud that we, together with APG as the administrator and the social partners, are moving carefully towards the moment of transition. We have worked extremely hard and the result is fantastic: we are right on schedule.”