The Dutch parliament has authorised a significant overhaul of the nation’s pension system, which is predicted to result in huge modifications in asset allocation for the €1.45tn sector.

The brand new legislation was handed late on Tuesday after prolonged debate within the Senate. It implies that the nation’s occupational pension system will transfer from a “outlined profit” to a “outlined contribution” mannequin during which pension funds now not make retirement earnings guarantees to members.

As an alternative, members pays into particular person accounts, with earnings ranges extra depending on funding returns and contributions. Funds may also provide collective DC preparations, which purpose to clean out funding volatility for particular person pension holders. The deadline for the system to be absolutely in place is 2028.

“This can be a once-in-a-generation occasion,” stated Onno Steenbeek, managing director for strategic portfolio recommendation at APG Asset Administration, the nation’s largest pension fund supervisor with €541bn of belongings below administration. “I might anticipate some modifications in the way in which and extent pension funds will use rate of interest swaps and foreign money hedging merchandise.”

The laws survived a blocking try by opposition senators who argued that the brand new legislation required approval of two-thirds of the Home, moderately than 50 per cent, to be constitutional. Authorized consultants consider the legislation will probably be topic to future authorized challenges on this constitutional level. It was ultimately handed 46 in favour and 27 in opposition to.

Hans Van Meerten, professor of European pension legislation at Utrecht College, stated: “It’s troublesome to foretell whether or not the brand new pension system will probably be higher for people. There will probably be some capability throughout the system to soak up market shocks, however the DC mannequin is extra insecure as a result of it’s extra depending on monetary markets for outcomes.”

For the previous twenty years, tens of thousands and thousands of staff within the Netherlands have constructed up retirement financial savings by outlined profit preparations, which pay out a goal quantity based mostly on wage and size of service. 

Nevertheless, the system had develop into contentious as pensioners and savers suffered retirement earnings cuts and elevated contributions throughout a protracted interval of low rates of interest, which diminished anticipated funding returns. Not like within the UK, the Dutch outlined profit system didn’t assure a set stage of earnings.

In a briefing on the reforms De Nederlandsche Financial institution, the Netherlands’ central financial institution, stated: “Pension funds make guarantees in regards to the quantity of pension advantages they intend to pay out to members. Nevertheless, if the returns on investments are decrease than anticipated, pension funds can not dwell as much as their guarantees. Our system wants to alter so as to repair these vulnerabilities.”

Whereas there isn’t any certainty of how huge retirement pots will probably be within the new system, DNB, which supervises pension funds, stated there can be extra transparency about retirement financial savings below the modifications.

“In that method, everybody has an outline of the share of the belongings reserved for his or her pension,” it stated, including the brand new system will give “a lot much less trigger for dialogue about unsure guarantees and in regards to the distribution of those collective belongings”.

Funding advisers stated the reforms would make the Dutch pension system extra sustainable than the outdated system, which made it dearer to make use of older staff on account of DB pension liabilities weighing on employers.

The Netherlands’ transition to a brand new system will probably be carefully watched by international locations world wide.

“[Pensions sustainability] is one thing that a whole lot of international locations are going through in the mean time, as we’ve seen reducing fertility charges over the previous couple of many years,” stated Graham Pearce, senior accomplice for DB pensions at Mercer, a consultancy. “Below the brand new system it is going to be extra enticing to make use of older staff.”

The senate’s approval for the overhaul marks the tip of a four-year journey for the reforms that have been first agreed between employers, workers and the Dutch authorities in 2019 however whose passage by parliament suffered quite a few delays.

The reform may even impose huge modifications on asset corporations managing pension cash on behalf of tens of thousands and thousands of savers.

“No asset courses will fall out of the portfolio as a result of modifications within the legislation. I think about the main target would possibly develop into extra on whole return methods however it is vitally troublesome to say at this stage,” Steenbeek stated.