A lot has already been said and written about the new pension law that went into effect last year, yet misunderstandings persist. In the “Pension myths debunked” series, we will examine one myth at a time. We ask strategic policy officer Julia Adam about the first one: the Future Pensions Act will move us from a secure to an uncertain pension.
There is a perception among some that in the renewed system we will be moving from a secure pension to an uncertain one, in which benefits can fluctuate sharply. Incorrect, says Adam. First of all, because pension promises were never fully guaranteed even in the old system.
“In the old system, participants often perceived their accrued pension as a guaranteed promise. It is often said that the risks therein lay entirely with the pension funds, but that is not correct. Even in the renewed system, the risks are always ultimately borne by the participants. In the renewed system, participants also run the risk that their pension benefits will be reduced or that their accrued pension entitlements and benefits cannot be indexed, causing pensions to lose purchasing power and get ‘eroded’.”
A lot of things will stay the same
A lot of things will stay the same as in the old system. Adam: “Just as in the old system, pension contributions are also invested in the renewed system. And just as in the old system, the amount of the pension depends on the premiums paid in and the returns achieved from the investments. In the old pension system, there are several ways to keep benefits as stable as possible. The renewed system also strives to do this, but technically it is designed differently. Exactly how these instruments are used varies from fund to fund. In the renewed system, although financial results will be directly reflected in participants' personal pension assets and pension benefits, at the same time there will be effective instruments to achieve stable pension benefits.”
Windfalls distributed sooner
Under the renewed system, windfalls can be distributed sooner, Adam says. “And the likelihood that pension benefits will have to be adjusted downward will be minimized as much as possible. In addition, the good elements of the old system, such as collective risk sharing, will be retained. So, in the renewed system all the risks will not fall on the individual participant. They are still shared as much as possible, which contributes to a better pension result."
In the “Pension myths debunked” series, our starting point is the solidarity premium scheme (SPR), one of the two contract forms (Dutch) that funds can choose from in the renewed system. All the funds that APG works for have chosen the SPR