Rise and Evolution of Pension Systems in Netherlands

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In this chapter is discussed how the Dutch pension system is structured. Moreover, a explanation will be given regarding how pensions are build up and monitored by the law.

This chapter will also provide an insight in the pension accounting before and after the adoption of IFRS. To conclude I will discussed the impact of the financial crisis on the Dutch pension funds.

2.1 The Dutch Pension system.

The Dutch pension system is a three pillar system and it is based on a combination of capital funded and pay as you go schemes. This three pillars together determine the old age pension amount one will received when one retired. The first pillar is the basic state pension, this is a compulsory collective pension called AOW. The state pension is an income for everyone who reach the age of 65 or is older than 65 years.

The second pillar is the supplementary pension schemes which an employee can build up via the employer. The pension contributions typically shared between employers and employees. The employer sets the pension obligations in a pension fund or an insurance company. The purpose of the supplementary pension scheme is to have an income to one's disposal which are related to the salary during the working life. This supplementary pension can be based on the final pay scheme or the career average scheme. earned salary during the employment period.

The final pay scheme is a pension scheme in which the amount of the pension is derived from the last earned salary. By a salary increase the already build up pension will be raise to the new salary. The missed pension contributions caused by the salary increase must be paid by the employer in order to maintain the proper pension benefit , this is called back service costs. The career average scheme is a pension scheme based on the average earned salary during the employment period.

After an employee have retired at the end of his working life, he will received his nominal pension rights and the concerning indexation for inflation compensation.

In the Netherlands do pension funds manage the majority of the built pension assets, insurance companies only manage a small part. In the Netherlands there a three type of pension funds [1] 

Industry- wide pension funds;

Corporate pension funds

Pension funds for independent professional groups

Industry- wide pension funds do manage the pension assets based on agreement made between the employers of one industry.

When companies do have their own pension fund we talk about corporate pension funds. Even though the corporate pension fund does has strong ties with the company, it is an independent legal entity that aren't part of the company. According to the pension act the pension fund can't be liable for debts of the company and will therefore not be affected.

Pension funds for independent professional groups manage the pension schemes based on

on an agreement between the independent professionals and with a certain occupation such as dentists.

The third pillar consists of voluntary occupational pension scheme. Everyone does has the option to supplement their pension in order to compensate for a pension deficit by concluding an individual insurance. The most important insurance in this category is the annuity insurance. The build savings schemes from these insurance are additional on the top of the state's pension and the supplementary work related pension.

The focus of this thesis is on the supplementary pension scheme which are build up via the employers, the second pillar of the Dutch pension system. The other two pillars will not be further discussed in this thesis.

2.2 Fund Regulators and pension legislation

As from October 2004 the Dutch Central Bank "De Nederlandse Bank" (DNB) and Pensioen & Verzekeringskamer (PVK) have merged. From that moment DNB supervise the Dutch pension funds. Before the merger DNB was responsible for the supervision of the credit institutions and PVK for the supervision of the pension funds and the insurers. The policy of DNB consists of supervision regulations, policy rules and recommendations. In the table below an overview of the Dutch pension funds are given:

Table 8.17 Pension funds under supervision of DNB

 

 

 

 

 

 

 

 

 

 

Aantallen instellingen per ultimo

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

 

____

____

____

____

____

____

____

____

____

____

____

____

____

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bedrijfspensioenfondsen verplicht

67

66

66

67

70

71

75

78

78

78

71

69

68

Bedrijfspensioenfondsen niet verplicht

15

19

27

25

30

31

28

24

25

25

25

26

19

Ondernemingspensioenfondsen

957

938

904

877

843

804

753

714

676

643

597

543

474

Ondernemingsspaarfondsen

9

6

6

6

7

7

6

8

7

7

7

4

5

Beroepspensioenfondsen

11

11

11

11

11

11

11

13

12

12

12

13

12

Speciale wetgeving

1

2

2

2

2

2

2

2

2

2

1

1

1

 

____

____

____

____

____

____

____

____

____

____

____

______

______

Totaal

1060

1042

1016

988

963

926

875

839

800

767

713

656

579

Source: www.dnb.nl

In order to secure the affordability of the pension system, a legal framework have been established. This consists of the Pensions Act (PW), the 2000 Mandatory Participation in an Industry-Wide Fund Act (Bpf 2000), the Mandatory Pension Act for Professional Groups (WVB) and the Equalisation of Pension Rights in the Event of a Divorce Act (WVPS) [2] .

In 2007, the pension act has become effective. This has lead to the introduction of the Financial Assessment Framework (FTK). The FTK formulates the requirements with regard to the financial position of the pension funds and insurers through coverage ratio and safeguarding that the pension funds dispose of enough equity to be able to deal with financial setbacks. The objective of FTK is to protect the pension promise of participants in a pension fund and to provide a better insight in the capital funding and the financial risks of the pension funds and insurers. According to the pension act the minimum coverage ratio is 105%.

A coverage ratio of 100% means that the pension does have just enough equity to comply with the pension obligations. A coverage ratio higher than 100% results in a buffer and lower than 100% signifies a deficit.

Beside the pension regulator DNB, the Dutch Authority for the Financial Markets (AFM) does also supervise the pension funds. The AFM keep supervision of the information supply by pension funds. The pension funds must disclosed some information to the participants and the ex participants of the pension scheme and the pensioners. It is required that this information is disclosed on time and is understandable, clearly and correct.

Furthermore, the AFM supervises the compliance of agency (zorgplicht) for the defined contribution plans. Pension funds are required to advice the pension scheme participants about their investments.

2.3 Pension accounting before Adoption of IFRS

The "Raad voor de Jaarverslaggeving" (RJ) is the board who formulates the accounting guidelines for the Dutch companies. The draft accounting guideline RJ 271 was published in 1999. Due the considerable comments on the content of this draft, prevent the RJ to publish a definitive version of the accounting guideline RJ 271.

It took three years before the board could published a discussion memorandum since there was a lot of discussion about the adoption of IAS 19 and the recognizing method of the pension schemes in the financial statements. Eventually in July 2003, the board has published a definitive version of RJ 271. The RJ indicates that they formulates the guideline 271 based on IAS 19 and the Dutch pension system. The definitive version of RJ 271 is mandatory for fiscal periods starting on or after 1 January 2005

During the periods that there wasn't any accounting guideline for the pension schemes, the companies recorded the pension contributions paid to the pension fund in the income statement as a liability. According to art. 2:362 lid 5 BW the liabilities regarding the pension scheme should be justified in the profits and loss account of the employment period in which the labour have been performed.

2.4 Pension Accounting and IFRS

2.5 Dutch pension system and the market turbulence

Pension accounting vanaf 1 jan 2005  IAS 19 + aanpassingen (Fair value, switch DB naar DC, verwijzen naar studies vb Brouwer, Nederland was DB, kritiek IAS 19)

Dnb PENSIOEN monitor

Pensioenen en crisis

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