I am looking again at Dutch pensions and in particular the non-guaranteed CDC plans which dominate private provision. This article draws on a comprehensive article by Aegon.

The Dutch SPR methodology, on the other hand, works with accrued pension pots (rather than accrued pensions) and makes the process for how returns are then distributed between members’ pots very explicit and transparent.

The collective investment portfolio should also be in line with the aggregate strategic exposure of the individual members’, leading to a consistent strategy.

One other key difference is that pension increases are not taken into account in the pension calculations and are therefore only payable if investment performance has been sufficient.

The manner in which the FPR has individual investments in the accumulation phase which can then convert to a Dutch Variable Pension at retirement also immediately brings to mind how the anticipated Decumulation-Only CDC model might work in the UK. The system of Dutch Variable Pensions therefore represents a good live international example which the UK could consider when looking at the possible methods of applying CDC in retirement.

I highlight the section in the third paragraph because it echoes words said by Paul Todd of Nest at a recent IFS webinar on pension decumulation.

Nest is a DC schemes that in Dutch terms allows members to call a fund to be in, this is FPR  (though 98% of members choose the default fund – the SPR model for the Dutch).

Either way members in employee chosen (FPR) funds or single choice (SPR) accumulation funds end up in a single decumulation fund  – a Dutch Variable Pension.

I suspect that a similar arrangement is what Nest has in mind. Paul told his webinar audience that Nest has it in mind to pay pensions with a degree of certainty but only pay inflation matching increases when Nest has money to do so. We in the UK call this “conditional indexation” and it is considered a type of CDC.

Whether Nest would go so far as to promise that income promised as pension could go down in real terms (a pay cut in retirement) has not been explained. My guess, since Paul used the words “type of CDC” is that there is not guarantee with what Nest are thinking about.

Take a look at the options open to Dutch Collective Pension schemes

The question that Nest may be asking itself is should it concert to DB style CDC and do away with individual choice in accumulation of stay as it is now , where 98% of money is managed in a default fund but other choices are available. Of course the question of “collective investments” is one we don’t think about in UK but another way of looking at it is as “whole of life” and “decumulation only” CDC with only whole of life CDC funds operating a single fund for everyone, an individual DC style CDC is one where members only collectivise in retirement through longevity risk sharing.

I hope that Paul Todd and Nest speak more on their plans, this sounds the sort of thing that a £50bn fund should be doing, especially at a time when our financials are so under threat from global economic strategy (or lack of them)!

Here are the Dutch timelines, are they right for the UK (not in dates but in principle)