The Dutch are enjoying the last day of their old system and from tomorrow will be transitioning to a new pension system. The new pension system will define the contributions workers will get at a rate agreed to buy pension in the future, the amount of pension payable will depend on the markets and increases in payment will depend not just on markets but on how long pensions need to be paid. Increases in pensions will be be based on collective experience, if the Dutch live longer than expected that will decrease rates of increase and vice versa.

So while the system will be “DC”, the benefits will feel like pensions and what happens in ten or twenty years.  The same of course can be said for most pensions, increases on our state pension are subject to changes in mind, we did not always have a triple lock and we will not always have it in the future.

The FT are right to call this new Dutch system DC but it is collective too. People will have a valuation on their accumulated rights expressed as a “pot” but that will be much closer to a CETV ( Cash Equivalent Transfer Value) rather than a measure of wealth, transferrable between generations and designed for large capital expenditure.

For many Dutch employers, there is a release from uncertainty. Almost a third of the country’s pension system will switch in January to a new more certain system where it will more fair because of the risk share.

John Landman , CEO of the PFZW (who’s CIO Rogier Sierstra spoke at the Pension PlayPen) makes it clear what this is from the provider (well call it “proprietor’s”) perspective

“We want the new pension plan to remain collective and include some level of solidarity, next to a more effective adaptation to volatility on the financial markets,”

Mary McDougall (happy new year Mary) is spot on in her analysis

The new system includes a form of collectivity for most schemes, so that an individual’s pension assets are not automatically passed to beneficiaries when they die. The Dutch say this move allows for risk to be shared and lets the total pool of assets grow more and pay higher pensions.

“Collective investing helps to generate a high pension income for younger workers and a stable and predictable pension income for older generations and to create trust in the pension system,”

said Annette Mosman, chief executive of APG, which manages the assets for ABP, the Netherlands’ largest pension fund.

Here there is a lock in with the view I have for CDC in its new multi-employer style being introduced by our DWP this year. Not only are employers released from an obligation but so are those investing the collective fund. The net result will be more money invested into growth funds and I suspect that the employers paying the new DC payments will be expecting back into the Dutch economy. I certainly hope that this will be the case in the UK when we have our transition that will start in 2027 and continue for a number of years.

Our Pension Minister has argued that a move towards a better fairer share of risk and return coming from collective DC in the UK could result in as much as 60% more pension for pension savers over a lifetime. This number comes from Hymans, Aon and WTW and is prudently calculated.

I see the last date of the old Dutch system as a day for the Dutch to celebrate. It has done them well, they are considered among the pension successes around the world.  Please use the sharing tools found via the share button at the top or side of articles.

By 2024, a quarter of the country’s elderly population had a gross annual retirement income above €65,000. Just 4 per cent of pensioners are poor — mainly immigrants who have accrued fewer years of contributions, and the self-employed.

We are moving in line with this practice for our private pensions. Our long term future is for collective DC pensions as a major part of the pensions our retired workers get. This will be alongside a stronger state pension, solvent and defined public pensions and a DC saving system where it is a pension not a pot that we will be defaulting to.

Amidst all this collectivism, there will continue to be an opt out for those who want to manage their own affairs from a “pot” and this too is to be liked, the Dutch are like us here too!