“We want to move to a system that gives participants confidence”

After years of talking and negotiating, the Dutch pension system is changing. An impactful and complex operation, with many parties involved. A great deal of expertise is therefore required, as well as in-depth insight into how the system works. By putting experts forward when needed, APG Head of Policy Peter Gortzak and his coworkers try to contribute to this feat. “As a team we have a brokerage function.”

A procession of Echternach. That's what you could call the negotiation process for the drastic change to the Dutch pension system. In a certain sense, it meant the end of a period of about ten years for social partners, politicians and the government. In a sense, because a lot still has to be accomplished before the actual switch can take place. There is a lot of work to be done to meet the deadline of January 1, 2026, and the agreement still has to be developed in more detail. In addition, APG and the pension funds it works for also have their work cut out for them. These are fundamental changes that will have far-reaching consequences for pension administration and the IT systems used for it. 

Complicated interplay

An agreement on a new system is the result of an interplay between “The Hague” (Ministry of Social Affairs and Employment, and political parties), social partners and De Nederlandsche Bank (DNB, supervisor). A complex game - not least because of the complexity of the Dutch pension system - which benefits from reliable information, specialist expertise and insight. And that is where APG's Policy Team comes into play.

Brokerage function

Team Policy sees the sharing of that information, expertise and insights as its main task. It shares this knowledge with all parties involved in the creation of the new system, and it supports official consultative bodies such as the SER and the Labor Foundation. Headed by Peter Gortzak, who describes the team and himself as a broker or intermediary: “Within APG there are many experts working in specialized departments. In the creation of the new system these people can definitely contribute to the process by giving their vision on a certain aspect or problem. And that also happens. They regularly shed light on the plans being developed by the Ministry of Social Affairs and Employment, political parties, social partners or DNB. As a team we have a brokerage function, where we try to help all parties by sharing the knowledge of all those APG specialists. A well-functioning system is in the interest of the participants and employers who are members of a pension fund. APG works for those funds, so when the machinery of that system is radically altered, we are happy to make a contribution where we can - for example, by putting forward a top actuary or an investment expert who can play an important supporting role. In a sense it is a serving role, in which we try to clarify the consequences of certain policy choices. In this way we have acquired the position of trusted party. We also see that role as APG's social duty.” 

Out of the trenches

Peter is moderately optimistic about the pension agreement in general: “Fortunately, an important step has been taken. We finally crawled out of the trenches. We had to, because everyone can see that the current pension contract is wrestling with the current interest rate. The existing financial assessment framework for pension funds (FTK, part of the Pensions Act that establishes the statutory financial requirements for pension funds, ed.) is no longer adequate and it is good that we have now found an alternative”.

Peace and reassurance

Gortzak continues: "We are now in a transition to a new system and that is an unsettling phase. We can take further steps forward but it is clear that a lot still needs to be done. In the end, what we want is a new system that gives the participants confidence, and some peace and reassurance.” 

An important milestone in the implementation of the pension agreement is December 18, 2020. On that day, the legislative proposal for the reform of the pension system will be presented to all parties involved, who will then be able to respond. This also applies to the parties that are not involved in the agreement. In many legislative processes, it has become good practice to give anyone who wishes to do so the opportunity to submit a response to the proposal. The Minister may or may not adjust the proposals on the basis of these reactions and will send the draft to the Council of State for advice. With the legislation for the new pension system, it is expected that many parties will submit a response. For example, funds, insurers, scientists and senior citizens’ associations. APG will most likely also submit a response. At its core, APG is an administrative organization, which is why the response will mainly focus on implementation issues. Team Policy will probably miss out on a quiet Christmas break this year, because it wants to have an analysis ready at the beginning of January. We probably have until mid-February to respond to the internet consultation. That seems longer than is actually the case: a response must be well coordinated with fund boards and pension federations.

Personal pension assets

How supportive is the new system, and does it offer funds enough room to act like long-term investors? These are the two things that Gortzak and his team will pay particular attention to.

Gortzak: “The Dutch pension system was created and developed because we felt the need to share risks among a very large group. On average, this is the best way for the individual participant to deal with uncertain events. Major setbacks in financial markets, disability, non-payment from your employer, a faster-than-expected increase in life expectancy: these are all examples of risks that can throw the individual participant financially out of the field. And that’s why these kinds of risks are not always easy to insure. But by sharing them with a large group, they do become ‘insurable’. It is important that there is sufficient room to share risks in the new system. You will have to be clear which risks are shared and why. After all, the basis of the new contracts will be the pension assets allocated to each individual.  But the scope for risk-sharing itself is really important and should not be restricted too much. The solidarity reserve (see box, ed.) is an essential part of the new pension contract.” 

What applies to the solidarity reserve also applies to the room that funds will or will not be given under the new system to operate as long-term investors. Gortzak: “All pension funds finance a substantial part of the pension benefits from the investment results. Sometimes as much as two thirds of the benefit. In that case, however, pension funds must be able to act like long-term investors. The basic premise in the new contract is that pension funds will continue to invest collectively. When distributing the returns, however, they must take into account the risk attitude of the participants. We must avoid such strict rules that they unnecessarily restrict funds in their investment policy. We need sufficient room to be able to obtain returns for participants as a long-term investor as well.”

Opposition on board

In March 2021 there will be elections to the House of Representatives again. Can they throw a spanner in the works of the agreement reached earlier this year? Gortzak considers the chances small. “For the pension contract, Minister Koolmees (Minister of Social Affairs and Employment, ed.) has a large majority in the House of Representatives, thanks to the support of the coalition and the two major opposition parties. That opposition is on board, because there is an agreement between Koolmees and employers and employees. It is important to maintain this support for the implementation of the contract. The consultation document of December 18 will therefore have to receive the stamp of approval from VNO-NCW and the trade unions.  If you look at the election programs, you can see broad support for the route taken by Koolmees and the social partners. They want to make this work.”

According to Gortzak, not enough progress has been made with regard to the accessibility of the new system. This mainly concerns the skewed growth resulting from an increasingly flexible labor market. “There has been a call to do something about the imbalance between people with a fixed employment contract and those working in a more flexible employment relationship, such as the self-employed. Pension rights also play a role in this development. Participation in a pension plan for self-employed people should therefore become more accessible. And the new pension contract could do that better too. Unfortunately, this has not happened yet. But in the Pension Contract it was agreed to increase participation in several sectors, through pilots. We hope that the consultation document will include proposals to give these pilots a serious chance of success.”

Very unfortunate

The interests of these self-employed people are all the more important because the radical changes in the labor market were one of the reasons why the pension system was overhauled, says Gortzak. “The far-reaching flexibilization of the labor market and the fact that you no longer work for one boss for forty years were important reasons to modernize the system considerably. I would consider it strange if you hadn't really tackled an important part of this changed labor market - the position of the self-employed - at the end of the discussion. So, we will assess the draft bill on 18 December 18 on that as well.”