According to the Central Agency for Statistics in the Netherlands, the pension assets in the Netherlands already exceed 1,700 billion euros. Hence, the Netherlands accounts for more than 50 percent of the total pension assets in Continental Europe, while the number of inhabitants is only 2.5 percent of the total number of inhabitants in this region.
Even in the Netherlands there is no guarantee for a comfortable pension income after retirement. Pension experts, entrepreneurs, trade unions and politicians are in agreement that reform of the Dutch pension system is necessary. However, how extensive the changes need to be is a subject of fierce debate.
Who takes the hit of the pension risk?
Due to global economic conditions, with sustained low interest rates and the so-called 'low yield' environment, current and future pension liabilities are increasingly difficult to meet. The consequence: disappointed pension fund participants because of rising premiums and retirees who are missing out on indexation.
While the Dutch defined benefit system still accounts for more than 94% of pension schemes in the Netherlands, employers who are not subject to mandatory participation in an industry pension fund are increasingly switching to individual DC (iDC) solutions.
As a result, the risk of accumulating sufficient retirement pools is shifting from employer to employee. Consequently, employees face the uncertainty of the level of future retirement income. They will have to plan diligently to be able to retire carefree. A challenge indeed, since currently no more than 5% of Dutch employees know how their current pension arrangement is constructed, let alone about the investment portfolio. An epic risk.
Stress levels are increasing
Pension accumulation is not a popular subject. On the contrary, most Dutch citizens perceive it as extremely complicated and boring. Yet they all want to have sufficient income after retirement.
The subject gains popularity among those who have some affinity with pensions. This is partly due to the forthcoming SER (Social Economic Council) advice regarding the reform of the Dutch pension system and the coalition talks after the recent Dutch elections. The probability that the government will further increase the pension age for the state pension and the uncertainty about the retirement income start to worry a lot of people. Lower retirement income would mean that retirees will have to adjust their standard of living or work longer, but how much longer? These uncertainties increasingly cause stress amongst people of all age groups in the Netherlands.
Opportunity for asset managers
To capture this opportunity, asset managers should truly understand the challenges of both employers and employees and develop solutions at low costs. With one client centric goal: applying all knowledge and talent to achieve the highest possible retirement income for employees, regardless of the retirement system the new Dutch government will construct. Asset managers who get this right will greatly benefit from the new Dutch pension system.
Vincent Hooplot & Michiel Breeschoten