Fieke van der Lecq: Executives and Pensions, a Difficult Topic
As a professor specializing in pension markets at the Vrije Universiteit Amsterdam, she knows all the latest ins and outs. Professor Fieke van de Lecq is also a crown-appointed member of the Social and Economic Council of the Netherlands (Sociaal-Economische Raad, or SER) and she had a hand in the proposed changes to the pension system. Back in 2016, in her position as a SER member, she released “a prototype” of the new system. Two new plans are now in the works, but before the new plans take effect the planned implementation date has been pushed back to 2027 as much remains to be done. Naturally by politicians, pension funds, providers and the social partners. But also by CFOs, CHROs and HR managers.
Van der Lecq is already thinking a decade beyond 2027. Last summer, she led a group study on the Dutch pension landscape after 2036. She is enthusiastic about the new system: “I think it is great to have the choice. I see it as a plus to have two clearly recognizable flavors”. She offers an analogy with cars: “You can drive a gasoline car or an electric car. I hope to see something similar with pensions” .Van der Lecq sits down to chat with Rajish Sagoenie, partner and actuary at Milliman Pensioenen consulting firm, who recently issued another impassioned call in Management Scope for companies to take more control.
First take us through the history of the proposed change in the pensions world. As a crown-appointed member of the SER, you were closely involved. Can you go over the main reason for the change?
‘When I was a crown-appointed member of the SER, I did indeed have the opportunity to lead a working group that made a prototype for the new system. We did this based on input from the broad societal discussion sparked by then-State Secretary for Social Affairs Jetta Klijnsma. This quickly revealed a shift on the labor market. People used to work for one boss their whole lives, and that was changing. In addition, people were not only changing bosses , but careers more so.
Another trend was increasing individualization in society. On top of that you have the demographic transition, such as the graying of the population, and we saw dwindling returns on financial markets. These four or five major trends set the macro-economic stage. Pensions were drifting further out of line with these realities.’
This was accompanied by flagging trust in pensions...
‘Yes, trust had been damaged. Mainly because pensions ultimately did not deliver what people expected. Whether that was on the parties making the commitments, or on the recipients of those commitments, well... that could be a long discussion. But whatever the case was, there was a lot of disappointment and that shook people’s trust in the system. Of course that was a factor.’
Do you believe the new system can restore that trust?
‘I do. Pensions will soon be more transparent. Everyone will have a better idea of how their pensions will come out and what will happen with them. I think the new plans will help manage expectations. I often hear people complain that the new system is hard to explain, but I can assure you the current system is far more difficult to explain. It will soon be easier to explain, without having to immediately understand all the nuts and bolts.’
The new system will soon introduce two general flavors: The solidarity pension contract (SPC) and the flexible pension contract (FPC). One places more emphasis on solidarity, and the other more on individual choice. Should employers start looking at these now?
‘Of course. For the sector pension plans, it is up to the social partners – that is the employers and employees – to choose between the two types of plans together, but with the company pension plans, it is just the company management and Works Council or the unions who will make the choice and it is coming up quickly. In any case, it is a good idea for employers to at least prepare themselves now for the upcoming changes.’
How do you see the division of roles? I suspect that a major role has been reserved for the CHRO and their HR department. Are they prepared?
‘Well, I do not get the impression that ‘pensions’ are a major topic in HR training programs. In my experience, many HR directors mainly think of pensions as ‘difficult, difficult, difficult’. I see them grappling with it, and then they bring in a consultant. In itself, that is a good thing, but it would be nice if HR got a bit more comfortable with the topic. After all, HR needs to be able to answer the first couple of questions about pensions. You should only provide the phone number for the pension fund after the questions start getting into the weeds. I think HR will, or at least should, play a major role in financial planning and pension awareness among employees. Pension awareness comes down to three steps: Knowing what you get, knowing what you need and knowing how to bridge the gap. Often people do not even know what they get. HR could help in all of these steps.’
Earlier, in this magazine, I called on HR directors and CFOS to take more control. Many companies, CFOs and CHROs have no idea how to advocate around pensions... That is certainly a point of concern for me. Do you share this concern?
‘I read your call and I do share your concerns to a certain degree. Of course it does not hurt if CFOs and CHROs learn about pension funds, get informed and have a look at how their fellow competitors do things. I can definitely advise every CFO and CHRO to do this. At the same time, I do understand that they are taking a bit of a “wait-and-see” approach, thinking: I will hear about it when the time comes. After all, it falls to the pension funds and social partners first. That is their core business.’
Practically speaking, do Supervisory Boards actively discuss the pension file within the company?
‘In all honesty, no, not really. It is hardly a topic of discussion. I once gave a lecture to incoming Supervisory Board members on pensions, and their prevailing attitude was ‘it is none of my concern’. Even though a key role is reserved for the Supervisory Board. They need to question the CFO and CHRO about the state of affairs. They must be able to quickly estimate what will change, what the consequences are for employees and whether preparatory measures are already underway. In any case, for now it falls to the pension sector first.’
What are the most striking features of the new system for members?
‘I think that members will first notice that the expected pension will fluctuate. You currently get a fairly stable picture of the guaranteed benefits over the years, but you also see drastic cuts from time to time. This will change in the future. For example, it will fluctuate more due to movements on the financial markets. Soon members will see the amount deposited, the returns and the costs that the fund has incurred. Everything will be a bit more transparent.’
Could that transparency also result in different economic behavior among members?
‘Yes, it certainly could. Members can engage more in financial planning. They may need another buffer somewhere, or they may consider paying off their mortgage sooner. This results in different behavior, for sure. On the other hand, we should also take into account people who are disappointed. People who only think it will come out awful, and who sit and complain. This is in fact the sticking point in the overall pension story. The government has also retreated on this matter – on all fronts. If some people initially have an adverse reaction to this, I can understand that. They feel left in the lurch.’
Will communication be more important?
‘Communication is always important. You cannot do enough to raise pension awareness. In my work at the university, I am currently talking with secondary school teachers to provide additional training, so they can make their students aware of the importance of pensions, or financial planning in general. It would be great if we could give young people a foundation in financial literacy. This would mitigate any mistrust or disappointment early on.
The sector itself also shares responsibility for communication. It should make pensions understandable for members. You can never have enough pension ambassadors, people who can enthusiastically explain how to get financially fit. Pensions should also be a kind of sport. How do I make sure I stay financially fit? How do I reach peak financial form? Literally as well, because every time you hit the gym, you invest in your earning power, and ultimately also in your pension.’
Should the government not facilitate and incentivize this more?
‘You could say: Facilitate a periodic financial inspection, just like a periodic vehicle inspection. Once every five years, tax deductible. I think that would be a great idea. My dream is that around birthdays, people will not just talk about their cars but about their pensions as well. What is it worth? How fast can it go? Just at that basic level, and a little bragging is OK.’
Things will change not only for members and employers, but also for pension providers. What will this mean for them?
‘This year, along with my colleague Professor René Maatman and several other pension experts, I conducted a study on pensions in 2036 – around a decade after the reform. We worked out three scenarios, depending on whether the pension remains mostly collective or becomes more individualized, and whether we mainly leave it to the market or to the government. This gives us four different future worlds. All scenarios feature a shift from fund to administrator. Afterall, administrators have the data. They can ensure people get truly personalized information, possibly using robotics and AI.’
The Dutch system is unique globally, mainly due to its solidarity principle. Soon it will all be somewhat more individualized. Do you not find that a shame?
‘I think it is good that people will soon have a choice over the degree of solidarity. You can look at what works best for you. Corporate cultures vary, as do motivations for solidarity. So one occupation will prefer a solidarity pension, while another will opt for the individual type, or flexible pension which is a good thing. At the same time, I am happy that the care option is available in both flavors by default. A duty of care does in fact apply. Even people who do not understand it, or do not want to understand it, will soon have to meet this duty. I see it as a plus to have two clearly recognizable flavors. Just as with cars, you can use a gasoline car or an electric car. We will have something like that with pensions. Incidentally, pension designers know you can tweak things so the two contracts are highly similar to one another. They are essentially variations on the same theme.’
The government has been in the process of forming a cabinet for some time now. What should the new cabinet immediately tackle in the area of pensions?
‘The main thing is not to lose momentum. So I would say: Follow through quickly and keep the momentum going. I have the utmost appreciation for what Minister Wouter Koolmees has achieved so far. He put the reform into law. The consultation yielded a lot of feedback, and I trust they will get to work on it soon. A new cabinet should resume the legislative process and move forward with it as soon as possible, so the sector knows where it stands and can get started with implementation.’
Is there still a chance that the new system could get set aside?
‘That is entirely up to the politicians and I am not a political expert. You never know. But let us be clear, all the arguments we had to change the system will still apply.’
If you had one wish for the pension sector, what would it be?
‘I still regret that the self-employed cannot join together in their own pension fund. That is a hobby of mine, and not just because I am self-employed myself. A self-employed pension fund faces obstacles at every turn, or is made unattractive from a tax perspective. In my view that constitutes unequal treatment of workers. I am a strong proponent of pensions that are neutral with regard to employment type. Whether you are a contract employee or self-employed, that should not matter for your pensions.’
This interview was published in Management Scope 01 2022.
This article was last changed on 16-12-2021