Peter van Meel Foresees Problems With the New Pension Plan
For Peter van Meel, the new pension law still has many open ends. Van Meel is the director of what is known as a ‘closed’ pension fund: The ING Pension Fund, which is the former company pension fund of ING banking group and insurance company Nationale-Nederlanden. Once one company, now the groups have disentangled and they have both had their own pension fund since 2014. Van Meel is concerned with the pension rights (and billions deposited) of the former employees. It is not entirely clear what place the closed funds will have in the new plan. Van Meel explains to Rajish Sagoenie, partner and actuary at Milliman Pensions consultancy, what implications the new plan has for his fund. ‘We have to be prepared for all scenarios.’
The new pension plan is increasingly taking shape. The bill for the new plan has been introduced in the Dutch House of Representatives. Generally speaking, what do you see as the key advantage of the new plan for the labor market?
‘The biggest advantage is the clarity that it will eventually create for both employers and employees. Employers will have more clarity about the amount they will spend on their pensions in the future. For employees, there will be more transparency about the amount of accrued pension and expected pension.
Nevertheless, we need to guard against too much pension euphoria once the new plan has been introduced. The pension will soon be an important employment condition, but I cannot imagine people taking a job for its attractive pension. People take jobs for the interesting work activities, for the career opportunities, or the attractive salary. I do not think that will change once the new plan is introduced.’
Yet the new pension is also considered one of the weapons employers can deploy in their war for talent. Pension is a crucial aspect of the employee benefits package, the employer value proposition. Do you believe in that?
‘It is certainly possible. But in order to get there, we first have to get a number of things right – especially in terms of communication. Communication is an essential aspect of the new plan. You will need to explain the options to people more than you do now. Soon, more will be possible in terms of the life cycle. You can make appropriate decisions in every phase of life, but that involves talking to members to find out which decisions are appropriate at the time. And that varies for everyone.
That conversation is going to be essential. It is fundamentally different from the current situation. We are still sending out too many messages about pensions – we need to move towards a permanent dialogue, at the start of, during and at the end of someone's career. Employers have a duty of care in this respect, which involves being honest and realistic. It would be increasingly rare for someone to be employed for 40 years and be with the same pension fund for 40 years as well. It has to become easier for employees to manage their pension assets and transfer them to a new job.’
Soon, everyone will have individual pension assets, with clear information about the actual amount. Is that a good development, in your opinion?
‘I think it could be interesting for every member to have information readily available about how their pension is doing. At the same time, I am a little wary of apps that show you how your pension is progressing minute by minute. I hope our sector will avoid encouraging those kinds of apps. Ultimately, what is important is what a pension does in the longer term – not how it is developing from minute to minute.’
You can work with different scenarios in that kind of app: “Good weather”, “bad weather” and “moderate”...
‘Yes, but our general experience tells us that people only look at the “good weather” expectations. If there is an option somewhere that your pension will increase by 15%, I am sure that is something members will remember – even if there is a -10% scenario next to it. As I said, communication will be essential in the future. There are so many factors that affect a pension’s ultimate value. What if inflation remains as high as it is now? What if the interest rate rises sharply? These are all important factors.
Nobody knows how the situation will be in 20 years' time. You will have to explain all of this to the members. The current mood is often one of indexing earlier in the new plan, giving the members more say and distributing the money sooner. If that is the prevailing mood, I honestly hold my breath. After all, no additional money will be printed any time soon. I do see a risk there.’
Is that the biggest risk, in your opinion?
‘No, but it is one of the risks. Haste is another risk. We are now 10 or 15 years into getting to where we are. The legislation has just been submitted for approval and now the law has to take effect in less than a year, as of January 1, 2023, while many of the details have not even been arranged yet. A lot of things have yet to be finalized and ironed out, and so I do predict problems there.
Another concern I have is about the political aspect of the decision-making: The legislation is now with the Dutch House of Representatives, which is hugely fragmented with lots of small parties. I do not know if they can all fathom this complex issue. There is also the chance that pension legislation will end up in a political force field and become part of a political trade-off with other sensitive dossiers. One party might get something in the field of nitrogen legislation and another might get something to do with pensions. I do have my concerns about that.’
Let us zoom in for a moment on your expertise regarding closed pension funds. What is a key component that you feel the legislation lacks?
‘There are still an awful lot of open ends. This is mainly because the entire process was launched from the top down and primarily targets active pension funds. Our fund does not fit into that straitjacket. The legislation is not illogical, certainly if you consider it in broad terms. A lot of things will soon be organized in a logical way. Most things will be well covered, but the problem goes deeper than that. On a detailed level, you encounter things that are structured slightly differently and regulations that require a little more attention. That is not illogical and certainly no reason not to go through with the entire process. It is just that those relatively minor details do require a little more attention. I miss the opportunity to open up the discussion. Things are still too black and white.
One of the biggest challenges I predict concerns converting pensions, where accrued pensions are brought under the new rules. In my opinion, the plans are still too rigid. Currently, pensions can only be converted if the entire fund is transferred, including the deferred members – members with old rights who have since joined another pension fund – and pensioners. I think that is a missed opportunity. It should be possible to make a distinction. For someone who is still active, converting would be the logical decision. But for deferred members and pensioners, that would quite possibly not be the logical decision at all. Other options may be better for them. In my opinion, it would be better to make a distinction between those groups.’
Do you expect the new plan to reduce the number of pension funds?
‘The number of pension funds is already declining. There are currently just under 200 in the Netherlands, and I think that number is set to fall drastically. Sectoral pension funds will always exist, if only to represent the interests of the sector. But I expect the number of corporate pension funds to fall in particular, as they will increasingly merge. For deferred members and pensioners, it is only logical that there will be mergers in the near future. The fun is over for them, as they have accrued their pensions and all that is left is for it to be paid out. To put it bluntly, you need a kind of benefits factory in order to do that. You can solve that collectively, for example by setting up a large, overarching “magnet” fund.’
Who do you think currently plays the most important role in the processes concerning the new pension plan? And for which stakeholders? Should the pension funds still be taking the reins?
‘That depends. I can imagine the pension funds being the facilitators of the debate and bringing things together. However, I think it would be dangerous to allow one party to bear the full responsibility for things like conversion. Social partners now play a major role, but they are mainly concerned with the current employees. There is also the matter of what to do with former and future employees. We need to focus on those questions more.’
Do you agree that the sector takes too much of a wait-and-see approach?
‘There is quite a bit of truth in that. It feels like we are too anxious to make any decisions at this stage and we are just introducing another round of information. We are still in the visualization phase. We need to progress to judgment and decision-making in good time so that we do not get stuck in the visualization stage...’
You are the director of a large closed fund. Does that make it extra complex?
‘I do not know if it makes things more difficult. It is just different. It has another dimension and specific challenges. Our fund contains both ING and NN rights. The two companies have grown further and further apart in recent years, which is entirely logical. They have each chosen their own path and have made it a success. The two parties are still connected through our pension fund. That can be complex when it comes to the conversion debate, for example. Any requests have to come from both parties jointly, and that requires a lot of consultation and coordination. Getting the two parties to agree at the same time is a difficult task.
As a fund, it means that we still do not know whether we are going to receive a conversion request. In turn, that means we have to be prepared for different scenarios. You have to follow the procedure, regardless of whether you participate or not. And that means you have to keep in touch with all the stakeholders about every possible step – employers, trade unions, deferred members, pensioners, the accountability body, the NN Steering Committee, the ING Steering Committee. The lines of communication are constantly open.’
How do you view the implementation of the entire process? Are the implementing bodies sufficiently prepared?
‘To be sure, the implementing agencies are working very hard on it. They are well aware that this operation takes time. But there are a lot of aspects involved, such as major investments in the IT field. I think that the administrators are well on schedule in terms of defined contribution schemes, i.e. with a fixed contribution that is invested without promises of the amount of the future pension.
I do predict major problems with the conversion process. I do not want to say it is impossible, but getting it ready on time will be a huge challenge. As I said, everyone is still preparing themselves and gathering information. Soon, everyone will want to organize their affairs at the same time. Then you get funnel formation, which is bound to cause problems. I am skeptical as to whether everyone will be ready by the proposed date of January 1, 2027. However, you cannot blame the implementing agencies, as they are also dependent on the preliminary process and on what the social partners are doing. You can start putting on pressure as an implementing agency, but if you do that, you run the risk of things breaking down. And then things will just take even longer.’
How do you envisage the role of advisors in the transition process?
‘I see it as an important one. Advisors can help interpret the legislative text and advise on implementation. They have the advantage of being involved in multiple projects. They know what is happening in other processes and can therefore contribute external knowledge. Advisors can point out the pitfalls and draw attention to the speed of the process. They always have a useful role in throwing the cat among the pigeons or mentioning the elephant in the room – the issues that everyone is avoiding. That is all useful information.’
This article was published in Management Scope 05 2022.
This article was last changed on 25-05-2022