October 28, 2020

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Minister Koolmees also wants to prevent major pension cuts

Minister Koolmees also wants to prevent major pension cuts

The likelihood of significant premium increases or pension cuts in the coming years appears to have decreased. Minister Koolmees for Social Affairs supports the Desires of employers and employees In order to regulate an exception, he confirms the kup. What exactly this exception will look like should become clear later this year.

The time until the new pension system comes into effect is the most talked about end of the pension contract development. The new system must come into effect in 2026, and from then on the funds will have to maintain fewer large buffers. It also becomes clearer which part of the pension money belongs to whom.

But in previous years the rules of today still apply and that will lead to considerable setbacks, it is feared. Due to the corona crisis, Minister Koolmees announced an exception earlier this year (just like last year): if the funding rate is 90 percent on December 31, there is no need to cut it. As things stand today, this works with most funds.

But from next year there will still be substantial discounts, substantial premium increases, or much less pension accruals in the air. An exception now seems to have been made. A coverage ratio of 95 percent is called the lower limit. A solution is also being examined for the risk of rising pension premiums. What does that mean?

choice

“During the transition to the new system, the pension money has to be distributed,” says Marike Knoef, professor of economics in Leiden and director of the pension think tank Netspar. “If the premiums are not reduced and not increased, it simply means that fewer euros will soon have to be distributed.”

This means that the expected pension in the new system will soon be lower or that the risks will increase. “That’s a choice,” says Knoef. If the minister does nothing, more than 10 million pensioners will receive a discount of around 10 percent next year, Koolmees reported earlier this week in a letter to parliament based on calculations by the DNB.

In addition, the pension contributions of many funds are likely to increase by up to ten percent in the coming years. Or the participants should receive less pension for the money they have paid in.

If employees now receive a (substantial) increase in premiums, this will be at the expense of the economic recovery in the short term, writes Koolmees. In addition, employers – who pay most of the pension premium – have already indicated that a (much) higher premium would come at the expense of the scope to increase wages.

Change between the generations

Fewer cuts and fewer contributions mean there is redistribution between generations, says Corine Reedijk of pension advisor Aon. This will no longer be possible after 2026.

“With the transition to the new system, generation effects can be included for the last time, for example that too much was paid for the elderly or too little for the young,” explains Reedijk. “During the transition to the new system, each participant will receive their own fund. Then these generation effects will be completed.”

Postponing a discount (now at the expense of young people) or paying a premium that is too low (now at the expense of pensioners) is no longer at the expense of another generation, but of the participant himself, says Reedijk.

How the final division of the pension pool between the generations works is in the hands of the pension funds. You can choose from several methods. Generations disadvantaged in recent years can then be compensated.