THE HAGUE, Netherlands - Dutch pension executives and unions have blasted a cabinet proposal to overhaul the corporate pension system as ill-considered and unnecessary.
"The government should not be dealing with pensions at the moment. It hasn't got the expertise to do it," said Lou ten Cate, a consultant with Wilshire Associates, Amsterdam.
The cabinet proposal, presented in the form of a broad discussion paper, or green paper, alongside the government's Sept. 17 budget, would shift occupational pensions to a system based on average wages over a worker's lifetime employment, capping eligible annual earnings at 75,000 guilders ($44,250).
That would mark a dramatic shift from the current system, in which benefits are based on 70% of the last year's earnings. The Centrale Plan Bureau, a quasi-governmental body based in The Hague, believes the career-average method would reduce pension costs about 20%. Dutch pension funds have about 550 billion guilders ($325 million) in assets.
No action is anticipated in the immediate future; the green paper has been forwarded to a senior government advisory group that will report back the government in the spring. If endorsed by the advisory group, which consists of union, employer and general public representatives, the proposal probably will become a central issue in the 1998 Dutch election campaign.
Government officials have criticized the current pension system as being too expensive and ill-suited for changing work patterns. Social Affairs Minister Ad Melkert and junior minister Frank de Grave said they are worried the current system is not geared toward current work practices, particularly for single people and double-income households.
"The affordability of supplementary pensions will put increasing pressure on labor costs," they wrote in their green paper. "Ultimately this could be at the expense of employment growth."
Unemployment is around 7%, but the real concern is that there are 81 people of working age not now employed for every 100 active workers.
The ministers suggest that better-paid employees could top up their pensions with annuities, although it is unclear how generous the government would be in extending tax benefits to annuity holders.
Mr. de Grave, a minister for the free-market liberal party Volkspartij voor Vrijheid en Democratie, believes the change would shift part of the burden of retirement savings onto individuals. "Why should the government put even more responsibility on the shoulders of both workers and employers," he said at a recent press conference.
Both unions and employers roundly condemned the proposal and urged the government not to interfere in the issue.
"It is a matter for the social partners," (unions and employers) Johan Stekelenburg, chairman of the Federatie Nederlanse Vakbeweging, Amsterdam, the country's biggest trade union federation, said in a statement.
The government's motivation for proposing the changes remains unclear, although the concept clearly would reduce tax losses by shrinking pension contributions.
Ministry spokesman Jeroen Rugtern, while declining to provide figures on revenue savings, denied the issue was a cost-cutting measure.
"We have also agreed to index-link the state pension . . . without putting up premiums this year, and that will only cost us money," he said. The Algemen Ouderdoms Wet is the basic state pension.
In connection with adding cost-of-living adjustments, the government will shift funds to the AOW from the treasury, a move that is regarded by many as a trick to cut the government debt and bring the country nearer to European economic and monetary union targets.
The shift should lower total government debt by one percentage point. The debt to gross domestic product ratio is projected to fall to 76.5% next year from 79%, enabling Holland to move closer to the Maastricht Treaty criterion of 60%.
Tax tricks aside, cutting benefits ultimately will save the government money. "The government is one of the country's biggest employers. They are the ones to benefit most from this kind of policy," said one pension consultant, who asked not to be named.
Officials at the company pension scheme trade association Vereniging van Bedrijkspensionfondsen and its corporate sector equivalent Stichting voor Ondernemingspensioenfondsen, The Hague, said in a release they are disappointed and surprised by the government proposal.
"There are all sorts of cost-saving measures thinkable in the current diverse system," the organization said, "but the cabinet is wrongly going for a total change in the system."
The VB has urged the cabinet to first obtain a cost-analysis study, and pay particular attention to the effect on long-term workers whose salaries build up toward the end of their working life. Final pay-based pensions are received by about 90% of the working population, although many do not qualify for full retirement benefits: in practice, the average employee only works 28 of the 40 years needed to qualify for the full 70% of final pay.
So far, pension fund executives think the proposal would not have any effect on investment policies. Henk Bonder, a spokesman for the Shell Pensioenfonds Beheer, Rotterdam, does not see any direct implications for investment policy. Neither does Mr. ten Cate, who said Dutch pension funds will continue moving toward a 50/50 split between equities and bonds from about 30% equities and 70% fixed-income now.
Another pension consultant, who asked not to be identified, said adopting a career-average pension would lead to more definable pension costs and risk, but that still shouldn't affect investment policy.
The VB is investigating if any shift in investment policy would be necessary under the proposal. It also is exploring a separate trial balloon from Economic Affairs Minister Hans Wijers to permit workers to opt out of their occupational schemes if they believe the fund is not properly run.
