CFO and CHRO: Start Developing Your New Pension Plan Now

CFO and CHRO: Start Developing Your New Pension Plan Now
As it currently stands, the new Dutch Pension Act will come into effect in 2023. Companies and organizations must have adapted their pension plans to the rules of the new system within four years. That seems far away, and there are still uncertainties. Nevertheless, there is every reason to take control at once. CFOs and CHROs are the right people to take on an initiating role together, argues Rajish Sagoenie, Partner and Actuary AG of consulting firm Milliman Pensioenen, Management Scope’s latest expert partner.

A general complaint in the pension field is that pension is an abstract concept and is for most people still far away, at least emotionally. Moreover, we see pensions as complicated and complex. We already get anxious about the idea we have to think about it. A pension is something you will look at tomorrow. And after every tomorrow, there is another tomorrow…
Unfortunately, we do not only detect this reflex among pensioners. In many cases, companies and administrators also cling to a cautious wait-and-see attitude and postpone the pension file. Especially now that changes are coming that have not yet fully crystallized. ‘It is still up to politicians.’ ‘Let’s wait and see what the social partners come up with.’ ‘There are still too many loose ends.’ ‘The new legislation will probably be postponed again.’ These are statements that we invariably hear in daily practice. Apparently, there are enough compelling reasons for responsible executives to not do anything for a while. They wait until tomorrow and put it off again until the day after tomorrow.

Identify Those Responsible
In short: The urgency is lacking. That is a shame, because in any case, something is going to change. We may get a few months’ delay, but the changes will not be abandoned. There is no way back and hence no reason for organizations to take a wait-and-see approach. In fact, there is every reason to proactively engage in pensions and to examine the potential consequences of the proposed changes in the pension field.
To prevent people pointing at one another and waiting even more, it is important to take initiative within the organization and to clearly transfer the pension file to someone. It stands to reason that within the management team, the CFO and the CHRO undertake these tasks. After all, the pension is a condition of employment that is established through the financial and human resource policies of the organization. These are precisely the responsibilities of the financial director and HR director. In order to conduct a pension strategy for the organization, they should work together with the employee organization(s) or works council involved and might consider consulting expert, external parties.

The New System as Source of Opportunity
The new pension will be more flexible than the current one. It will also be more individual, the participants will carry more of the risks. In the future, participants will no longer be able to see their promised benefits annually, but they will be able to view the personal accrued revenue. There will be plenty of opportunities to change gears, to finetune and to meet personal needs. Organizations are well advised to see the pension as an opportunity: A possibility to further maximize the employee benefits package and a way to strengthen their competitive position or at least to clearly position the company. Companies could offer employees to save extra for the pension or alternatively guide them constructively in their financial future. This makes them more attractive as an employer.

A Structured Approach
The CFO and CHRO will have to determine in close consultation what their company stands for and what kind of pension plan they support. To achieve this, the various options and the associated costs will first have to be listed through a structured approach. Various scenarios and multiple variants can be easily calculated.
Calculation programs provide insight into the possibilities and (financial) impact of the different choices. It will become apparent, for instance, that not all pension participants will benefit from the arrival of the new contract. On the contrary, in many cases the new system will especially be detrimental for older workers, so it is good to know what options there are, for example, to compensate for this decline. It is then a sign of good personnel policy if the employee in question is included in his or her personal pension story in a timely manner. He or she should gain insight into his or her financial course and the possibilities for making adjustments.

Initiate Stakeholder Conversations
Yes, the new system is still a long way off. Yes, a lot is still unclear. And yes, discussions about the details are still being held at various levels. Nevertheless, I call on all CFOs and CHROs to take control rather now than later, and to enter into discussions with all stakeholders as one of the social partners. All things considered, there is currently enough time to explore the different options with a structured approach, based on specific principles and goals of the organization. This is needed to arrive at the desired interpretation of the new pension plan and any transitional measures and then to substantiate the further implementation and requirements for the execution.
Otherwise, organizations might find themselves ‘at the back of the line’, when the pension agreement has crystallized further. Everyone will then suddenly resort to a small group of advisors and actuaries, administrators and insurers. So get started today and arrange your pension file. Think about the ideal situation for your business and draw up a roadmap to accomplish this. Do not wait until tomorrow. Commit yourself today and take the first step.

This essay was published in Management Scope 09 2021.