Evolution or revolution?
On January 12, the WIFS executive lunch featured Fleur Rieter (CFRO at pension administrator at MN). Fleur is captivated by the social impact of pensions. We are still well off in the Netherlands and it is nice to contribute to that.
With the pension agreement in hand, the pension world faces enormous challenges. Having been decided by the social partners and pension funds, it will have a major impact on the sector in terms of implementation. Professionalisation is necessary. Does this require evolution or revolution? What suits this sector? And to this time? What can be learned from other sectors?
Why is the pension agreement necessary? There are roughly three reasons for this. First, we are now making a promise with our pensions with regard to indexation/purchasing power maintenance, which we have not been able to keep for years due to e.g. low interest rates and higher life expectancy. Second, the labour market has changed enormously in recent decades. Life-long employment is no longer of our time, so employees accumulate different pension entitlements. The current system no longer matches today's labour market. Third, the system is complex and therefore difficult to explain. And that affects the trust in the sector among supporters.
In short: good that the pension agreement is in place. Does it also provide opportunities? Yes, it does! These were therefore widely discussed in the interview.
One of the opportunities is "coming clean". There is no sector where data has to be held for so long. At the time of retirement, it must be known exactly what the pensionado is entitled to (and why). Choosing to embed history in the new system could be a huge improvement. The question is whether hands will be raised for this. Whether there is sufficient confidence that the industry will do this carefully and "fairly".
Another opportunity is embedding SRI. The new pension agreement calls for a form of investment strategy by age cohort. You could do some more experimental SRI for young people. Suits what appeals to them and the retirement horizon is still long, so they can take more investment risk.
Another opportunity: look not at the nominal pension amount but at an equivalent welfare level. Consider, for instance, the high healthcare costs that older people face. Does the pension then still deliver an equivalent level of welfare? And should there be a big bang with a fixed retirement date? Or can the new system offer more flexibility?
What all attendees agree on is that interest in pensions is low and that both pension fund communication and financial education in general need to improve greatly. For a large part of society, pension information is poorly understood. Besides a periodic health check, wouldn't you grant everyone periodic financial coaching? There are employers who include this in their terms of employment.
Partly because of the complexity of the subject, it is important that there remain industry pension funds that facilitate whole employee groups collectively. So that everyone can benefit from collectivity for instance in asset management, which remains anno nowadays.
We also discussed differences between pension funds and insurers. Insurers pack up, pension funds keep -charged- discussing until there is consensus. Consensus is an important value, precisely also in the context of creating support. That takes a long time. Commercial parties are more decisive. On the other hand, the reputation of pension funds is better, they are trusted more because they are not profit-driven. That might be precisely related to the culture described above. And with that, you could also conclude that revolution suits this sector less than evolution.
However? Isn't the consolidation from 1,000 to 200 pension funds a revolution?
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