Under the present pension agreement 27% of company pension fund members bear investment risks, according to data from Dutch regulator De Nederlandsche Bank (DNB).

The regulator published the data based on the fact that in the public debate about making pension agreements more flexible two aspects are the main points of discussion: adjustment of the risk spread between member and pension fund, and adjustment of pension funds’ ambition levels.

For sectoral pension funds the risks of being able to fund the nominal pension entitlements rests almost entirely with the fund. More than 90% of all members fall under a conditional indexation policy, which means that wage or price compensation depends on the fund’s financial position.

Pension funds reported 834 schemes to DNB in 2010. For DB schemes the risks are primarily faced by the fund. However, members may run some risk because indexation can be conditional, and pension benefits may be curtailed, although for many schemes this is a solution of last resort.

For DC agreements, the risks run during the build-up phase are for the members, but for the fund in the benefit phase. In combination agreements, the risks are more or less shared between member and pension fund.

In this respect, there are considerable differences between sectoral and company pension funds. Sectoral funds mainly have DB agreements, with only 3% of employees in a DC arrangement, while 27% of employees in company funds build up pension rights via DC or combination agreements.

Pension funds' ambition level is partly determined by the indexation policy, the level of the accrual percentage and the value of the franchise, DNB said. Several years ago, pension funds adjusted their ambition level by switching from final pay to average pay schemes. In 2010, 90% of members had conditional indexation, although whether or not indexation takes place depends on the fund’s financial position. But, DNB said that in a system of conditional indexation the ambition level of a pension fund can be tempered.

The level of the accrual percentage may vary strongly per scheme. Over 4.6 million members have a scheme for which the accrual percentage lies between 2 and 2.25%. Recently, several pension funds reduced their accrual percentages, as they are anticipating new legislation which will set a lower accrual percentage.

However, the value of the accrual percentage must be regarded in combination with the value of the franchise - the part of the salary for which no additional pension is built up.

The level of the franchise is often linked to a pre-determined measure, such as the state pension (AOW) for singles or couples, or to a fixed amount. The most common combination is a franchise between €12,000 and €14,000 and an accrual percentage of 2% or more.

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