Peter Van der Nat

I am trying to get a grip on UK pension reform by looking at what the Dutch are making of their “WTP”.

The Future Pensions Act (Dutch: Wet toekomst pensioenen, abbreviated Wtp) is an amendment to welfare law in the Netherlands.

This law revises the Dutch pension system and amends thirteen laws, including the Pension Act. The law came into effect on 1 July 2023, and pension funds currently have until 2028 to switch to the new system.

I came across this post on pensions and it helps me understand the confusion the Dutch have between pension balances and pensions. It is a problem we have had with CETVs and I would like to get Peter van der Nat’s post on the blog’s board!

This is a problem that the Dutch will have with putting a value on people’s pensions even though they won’t be able to encash the pension. I see no sense in it. We had this fiasco in the UK in the last five years of QT when depressing interest rates (and gilt yields) drove up CETVs (cash equivalent transfer values). The point at which transfer values on DB pensions were at their highest was the point when those pension schemes could least afford to pay such transfers. CDC will not get into that mess so long as they avoid guaranteeing anything.

The Dutch system of pensions allows people to see their pension values going up and down when in the CDC scheme by declaring a theoretical value without giving them access to that money as a cash out. It’s a bit like the value of the house you live in, it may go up or down but to you it’s value is in the comfort and protection it gives you  – and the happiness.

I don’t know Peter van der Nat or how I came into possession of this clip from Linked in. He works for Howden – a very British company which has now reached into 65 countries. We need to take a step back and see if we can find some common ground between the Netherlands and the UK as we move towards CDC and work like Peter’s is part of that process.

I think that the Dutch’s wish to give people the value of their CDC rights by way of “balances” is misguided. It is merely of value to actuaries in pricing pensions purchasable with contributions (and transfer ins). This balance means nothing to the ordinary person just as their CETV meant nothing (unless they chose to take it). Giving people a balance of their rights when they are in their CDC scheme is just a recipe for discontent.

What we are moving to , in the UK , is a valuation of our DC rights in terms of pension rather than pot. It is what we will get as our balance when we look at our pension dashboard and we will only be able to see the balance (as the Dutch call it) by digging into the information presented by the dashboard.

The Dutch are confusing the pension (the amount we get each month to spend) with the balance (the cost of paying that amount until death). It would be a very retrograde move if we were to give prominence to a balance over a pension on our dashboard and certainly on our CDC pension.

As Peter’s snip shows , the value of people’s balances has gone down recently but their pension is exactly as expected. How can this be? Quite simply explained in actuarial terms but hugely confusing for those outside financial circles.