Pension Advisor Jacintha van Bijnen-Den Haag (Aon): ‘Companies Face Significant Challenges’
This spring, after a long and challenging process, the Dutch Senate approved a new pension law. With this ‘the most fundamental change in the pension system to ever take place in the Netherlands’ became a reality: the Future Pensions Act (Wtp) came into effect on July 1. This means that everyone needs to get to work to meet all the new deadlines. Jacintha van Bijnen-Den Haag, strategic pension advisor at insurance broker Aon, anticipates many problems, especially for companies in the Netherlands. ‘The business world is facing a daunting climb.’
Van Bijnen-Den Haag had her moment of fame in the long, challenging journey to reach the Wtp last year when she was invited to the House of Representatives for a roundtable discussion on the pension law. She was introduced as one of the top actuaries in the Netherlands to the pension specialists of the parliamentary factions. Looking back, she recalls the experience with pleasure, she said to Joost de Visser, senior consultant at insurer elipsLife. ‘I really enjoyed it. I was, frankly, struck by how well-informed the Members of Parliament were.’
What did you achieve with your appearance in Parliament?
‘That is, of course, the big question. If you are cynical, you could say that most parties had already made up their minds, and all they wanted from me were arguments that confirmed their stance. I do not per se have the impression that I influenced the final outcome of the pension debate, but I am convinced that I influenced the process. I am still approached by Members of Parliament with substantive questions about the new system. Occasionally, I see my comments reflected in parliamentary questions. This feels good and is an honour.’
You did not exactly paint a rosy picture of the new pension law in The Hague. What is your objection to the Future Pensions Act (Wtp)?
‘I most certainly am not ‘anti-Wtp.’ But I would describe myself as ‘Wtp-critical.’ There are several flaws in the new pension law. My main objection was and is that the legislation is focused mainly on the standard situation: the industry pension fund. All other manifestations seem to be forgotten. And there are many of these: insured arrangements, DC arrangements (Defined Contribution: fixed premium, unknown benefit, ed.), closed pension funds, with or without a few participants left... Time and again, another aspect that had not been considered emerged. How do we handle a situation where someone cannot opt in? What do we do with the partner pensions? To all the questions raised, band-aids were stuck on. But by now, there are so many of these that the legislation is held together by them. I think the group of specialists who contributed to the preliminary phase was too one-sided. They were mostly from the world of industry pension funds.’
What are the positive aspects of the Wtp in your opinion?
‘An important point is that you no longer have those enormous buffers. It is of course absurd that when the last participant dies, a vast amount of money is left. The Wtp solved this. Another positive is that we will no longer have all the restrictions around indexing. And in general: if we were to start a pension scheme today, the Wtp is, in broad terms, a good law. The problem simply is that we do not start afresh. We have a whole history of regulations. Everyone will be looking back: this is what I used to have, and what is it that I will get now?’
One of the goals of the new pension law was to make pensions more transparent and simpler for participants. Have they succeeded in that?
‘No. I do not have the impression that participants are aware that this is the most fundamental change in the pension system that has ever happened in the Netherlands. Pensions can in future vary and fluctuate significantly. Not everyone is sufficiently aware of this. I worry about that. Somewhere in the middle of the process, we lost sight of the importance of the participants. The whole pension reform has become very complicated. It has been made so complex that the implementation costs escalated enormously. A solidarity premium scheme is already very complicated; you can hardly explain a premium scheme with a risk-sharing reserve to the average person. I think even in the pension fund world, the advisory world, and among actuaries, the consequences of that complexity are underestimated. We are going to face an avalanche. Employers will probably bounce back the ball to the participants. They will say: I will transfer 30 percent of the pensionable salary as a premium into the new pension, including implementation costs, and dear employees: you decide whether you want a solidarity or a flexible scheme. That is how it might often play out. And especially with ‘solidarity,’ you need money for the reserves and the implementation – a whole assortment of systems will be added.’
Most probably a choice will have to be made between flexible and solidarity. Do you have a preference for either solidarity or flexibility?
‘I am not saying that solidarity or flexibility is the better option. It has to be the right fit for the participants. You will have to examine their specific situation. I do think we need to be more honest in our communication about it. The unions may have taken a stand a bit too often and too soon. That stifled the process. If you want something different than what the unions are aiming for, and that invariably is the solidarity scheme, you will have to have a convincing business case. I think it is our task as an industry to tell the honest story. No solution is perfect. You will have to figure out in every situation which pension would be the best fit.’
How will the sector ensure this ‘honest story’?
‘Certainly not the way the sector is doing it now. The current communication might even be counterproductive. Participants do not benefit from a twelve-page pension overview full of numerical sequences: net/gross benefit calculations, ALM calculations, with all the different scenarios. Not one of the amounts mentioned corresponds to what you will ultimately receive. Nine out of ten participants will think: into the drawer it goes. During the hearing in Parliament, I said that a choice will have to be made between completeness and comprehensibility. And in my opinion, we should choose comprehensibility. We plan to hold physical sessions with some of our clients. We will go through everything step by step with these participants – and then see what people think. I notice that there are still many prejudices among the participants. There have been all sorts of demonstrations against opting in. I suspect most participants had no idea what they were demonstrating against. On the other hand, I also see pensioners’ associations that do want to opt in, while this does hold significant risks too. Insights are often not rational. They are shaped based on gut feelings, and that is very dangerous.’
What does the Wtp mean concretely for Dutch businesses? Is it on schedule?
‘There is still a lot of work to be done. It will be a busy time. The business world is facing a daunting climb. Most employers have been very passive. The large corporates, for example, found it very difficult to prepare for legislation that was not yet final. They only really took action when the legislation was passed in the Senate in May. For some employers that still have their own pension fund, the situation is disastrous. Most funds want to know towards the middle of next year where they stand, what choices companies make regarding future pensions. This means there are only nine months left now. They still have to set up a whole process with management, the fund board, the participants, and social partners. How do you align all of that in nine months? This has the potential to be a disaster. With employers with insured schemes, I in many cases also see a very passive attitude. They waited too long. Very unwise. Just as it was very unwise to move the deadline for the new consultation legislation from October 2026 to October 2027. That gives even more reason to procrastinate. If you postpone this much, implementers will not be able to have everything ready by the implementation date of 2028. It just will not work.’
Do you foresee major problems on the implementer’s side?
‘I am afraid so. We see now that it is already squeaking and creaking on the pension fund side. On the insured side, we still have capacity. But all the work is in danger of piling up before the deadline. I worry about that. Also, because I foresee that there will be all kinds of advisors in the market who are not up to handling this transition. I am afraid, for example, that mortgage advisors will suddenly get involved in the pension transition. That does not seem like a good thing. It is an issue every boardroom needs to be aware of. Waiting for too long carries a risk.’
Let us zoom in on some substantive themes. Many companies seem to be resorting to the possibility of the so-called ‘grandfathering,’ where the new pension rules, especially regarding the ‘flat premium,’ apply only to new participants. What do you think of that?
‘I personally find that very unwise.’
From which perspective do you find that unwise?
‘Which perspective do you want to know about? Let us start with the efficiency perspective. It is not efficient. We have just helped different companies harmonize a patchwork of regulations. Are we going to start again with a new patchwork, with all different schemes for different groups of employees? And will implementers still execute all these different options in a few years? Or take the perspective of personnel policy: how do you want to bind young people when they get a 10 percent higher pension premium at the employer next door? For older people, the opposite applies: they will never choose another employer. Grandfathering is therefore extremely detrimental for your personnel policy. I would say: do not do it, just bite the bullet now.’
Under the new system, it is no longer possible to have the accumulated pension pot paid out to the survivors before the pensionable age to optimize the survivor pensions. What do you think of this as an advisor?
‘I think this is one of the significant flaws. This works counterproductively. I had many discussions about this with clients and works councils. What happens if I die with my saved capital? That is a frequently asked question. Suppose you just had a financial planning session, you saw there are three hundred thousand euros in your pot, and then you die. That three hundred thousand will be spread out to other policyholders. That does not feel entirely fair. It literally means that you might as well have saved some money in an old sock. I think some alternatives will be developed, especially by insurers, such as taking out a so-called collective third pillar product. Because that is inheritable, even in a broader sense: not only to your partner or children but to all possible heirs.’
Do you think all the changes will affect the number of pension providers in the Netherlands?
‘It is difficult to predict. I think implementing a flexible premium scheme for a pension fund is not always the optimal solution. It will be extremely difficult for a pension fund to be competitive in that area with the large premium pension institutions, or the PPIs. I sometimes talk to pension funds that want to start with a DC arrangement. But the investment and implementation costs are so much higher for them than for a PPI. You will have to correct that first. That really is very risky.’
What could pension funds learn from the PPIs?
‘Let us start with communication. With building decent portals and good tools. They are, on average, ten years behind in the field of communication.’
What would you immediately change about the Wtp if you were in charge?
‘Without a doubt, the opting-in without any form of consent or objection right. I have a principled objection to that. In the past, you had to jump through 12 burning hoops like a tiger in the circus to get that done at the Dutch Central Bank. It almost never worked because the nature of the commitment changes. Now we are opting in without consent. And suddenly we are changing a benefit agreement to a premium agreement retroactively. In my opinion, you cannot do that.’
Do you think the new Wtp will be a lasting solution? Or is there more to come?
‘I do not think this is the last change. I also do not think we will have both a solidarity and a flexible pension side by side for very long. Ultimately, we will move towards a flexible pension for everyone. Maybe we will add a risk-sharing reserve, but eventually, that will be the scheme for all of us. That is my firm belief. Within 20 years, I suspect.’
Interview by Joost de Vissr, Senior Sales Consultant at elipsLife. Published in Management Scope 09 2023.
This article was last changed on 24-10-2023