The UK should not replicate the pension system in the Netherlands but can learn lessons, according to the Pensions Policy Institute.

The recommendation was revealed in Briefing Note 71, Risk sharing pension plans: The Dutch experience and draws on the experience of running defined ambition style pension schemes.

Up until the financial crisis in 2008, the Dutch pension system had moved from DB final salary schemes to a career average structure, where indexation is subject to the levels of funding within the plan, and where benefits may be cut if necessary. However, more recently there has been debate around the long-term sustainability of collective plans.

PPI deputy director Mel Duffield stated there are some important differences between the “pensions landscape in the Netherlands and the UK”. These include mandatory participation in workplace pensions in the Netherlands and a highly unionised collective bargaining environment.

“The Dutch system has evolved from DB pensions and has been built on principles of collectivism and solidarity, while the UK system has been rapidly moving towards greater individualisation, particularly with the rising popularity of DC pensions and, more recently, with the Budget freedoms allowing access to pension savings from age 55 onwards” she added.

She explained the differences present a significant challenge for employers in the UK who would like to establish collective arrangements because of the strong emphasis on the principles of freedom of choice.

The Briefing Note offers some advice when setting up collective arrangements in the UK. For example, members’ expectations should be fully aligned with the contractual agreements that are in place from the outset, and there should be clear communications about the levels of risk within these plans. Additionally, members should have well-defined individual rights within the plans so that they have freedom to transfer in and out.

Duffield stated the ability to drive economies of scale in administration and investment, and the potential to pool longevity risk between retiring members at lower costs than could be achieved through the insurance market as lessons to learn from the Dutch system.

“Some of the more innovative solutions that are now being explored by employers and providers in the Netherlands as their system evolves may be of particular interest to the UK once the new legislation has been introduced” she added.

The report is intended to help inform debate around the government’s proposals in the Pension Schemes Bill 2014.

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