News from across the North Sea of the demise of the Dutch collective DC system appears to have been sourced from the same agency that gave us the Dutch lad with his finger in the dyke.
The cuts in pensions – averaging 1.9 per cent – were necessary for the funds to achieve minimum funding ratios enforced by DNB of 105 per cent by April 1. The reduction applies to both pensioners and the rights accumulated by active members, which are also reduced.
Two funds that initially were expected to apply cuts were bailed out by sponsor contributions.
According to DNB, 37 funds expect to be forced to curtail pensions further to achieve their recovery targets, with an average cut of 1.7 per cent (weighted by the pension liabilities held by each pension curtailing fund).
The final figure will depend on funding ratios at the end of 2013.
In all, two million active members face cuts to meet funding ratio requirements, as well as 1.1 million pensioners and 2.5 million “sleepers”(members who have changed jobs without taking their pension rights with them to the new employer’s pension fund and who may be counted twice in the statistics). Further curtailment would affect 1.3 million active members, 0.7 million pensioners and 1.1 million sleepers.
Total pension liabilities of the 66 funds curtailing amount to €410bn.
DNB’s figures follow confirmation earlier this month from civil service scheme ABP that, despite a recent recovery in its funding ratio, it would cut pensions by 0.5 per cent from April. (European Pension News)
Here is a little perspective. The Dutch system works rather like the with profits system. The current levels of pension being paid to Dutch pensioners have been shown by David Pitt-Watson and others to be producing approximately 39% more than our “guaranteed pensions” in the UK which we might regard as “not for profit” but fully guaranteed.
So what Jan Dutchman is getting is a reduction in his advantage from 39 to 36.4% (my maths stands corrected) over his British counterpart. It is true that Jan does not enjoy total security over his advantage (except for the payments he’s already had) but I do not see rioting on the streets of Amsterdam and Leyden over the iniquity of this pension cut.
Which begs the question “crisis what crisis?”.
If we are looking for a pension system that defers pay then would we not (still) chose a system with 36.4% better outcomes? Couldn’t we live with the odd cut in our with-profits bonus?
What price the guarantees of the British system – a pay cut of 36.4%?
I’m feeling jolly underwhelmed by these cuts and if is the worst news Jan Dutchman hears this year- lucky old Jan!
- “What’s expensive for a pension these days?” (henrytapper.com)
- Pension funds warned over fees – Confused.com (confused.com)