Dutch Pension Federation dismisses calls to scrap system changes amid high interest rates

Dutch Pension Federation chairman, Ger Jaarsma, has urged the industry and government to “keep going” with upcoming changes to the pension system in the Netherlands amid suggestions to scrap the plans due to high interest rates.

Jaarsma noted that now that interest rates are rising again after 10 years, there had been calls for the whole system change to be thrown out.

While he acknowledged this would “save a lot of hassle”, he warned that if interest rates fell back down, the sector would be in trouble again.

“Putting a wet finger in the air and determining a kind of actuarial interest yourself - say 2 per cent - is also suggested,” Jaarsma said.

“There was even a bill introduced, which was rejected. There was no political support for this, as there is for the new system.”

Furthermore, while pensions can increase as interest rates rise, pension capital can fall.

“The amount of money that pension funds must keep in cash for future retirees is calculated using the interest rate,” Jaarsma continued. “And if that interest rises, that amount goes down and can be distributed earlier.

“At the same time, assets fall because bonds lose value as interest rates rise. And according to legislation, pension funds must invest a significant part in this. That has a strange effect: being able to distribute more pension while the pension pot is smaller.

“Why am I telling all this? Because I hope we get rid of this soon. In the new pension system we are less dependent on interest. Return on investments can be distributed sooner rather than being hoarded at low interest rates. There is a lot of misunderstanding about the current rules.”

Jaarsma therefore urged the industry and government to keep going with the new rules, arguing that the sector can begin indexing earlier and will eventually be rid of the dependence on interest rates.

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