De Nederlandsche Bank (DNB), the Dutch pension regulator, is confident of a smooth pension transition, DNB president, Klaas Knot, has said in a keynote speech on the transition.

As well as sharing that he has no doubts the transition will succeed, he used to speech to reiterate the need for the transition to a new pension system, despite the Dutch pension system consistently being ranked as one of the best in the world.

“We have embarked on the biggest financial operation in the history of our pension system: the infusion of potentially €1,500bn into the new system. And by ‘we’ I mean you, the pension funds, the social partners, the pension administrators and AFM and DNB, the regulators. We collectively,” he said.

“I know that there are concerns among some of you about whether we can complete the pension transition in an orderly and timely manner. And the current political climate is not entirely helping to allay those concerns either. So let me say this in advance: there is not a hair on my head - and despite the passage of years, there are still a few left - there is not a hair on my head that doubts that we will succeed.”

On the need for a new pension system, Knot listed several reasons, such as pension funds not being able to meet their commitments, who have to make cuts, where he referenced funds that were not able to index for over a decade. This, he said, resulted in angry participants who no longer have confidence that their fund will deliver the pension they were promised, and no longer trust the pension system.

He continued: “The endless discussions about the actuarial interest rate. Understandable, because the actuarial interest rate concerns the distribution between young and old. The average premium, as a result of which an employee who decides to become self-employed halfway through his career has, on balance, contributed too much premium up to that point. A system that is no longer tailored to today's labour market, where a million self-employed people fall outside the system. In short, a system that is clearly in need of maintenance.”

However, Knot said the parts of the system that make it the best in the world need to be preserved but it does need modernising. “I believe, and DNB believes, that the new system is a good answer to the shortcomings we face today and is well equipped to meet the challenges of our time,” Knot said.

Discussing the benefits of the new system, he said pension funds will align investment policies with the risk attitudes of different generations.

“As a result, the risks to which young and old people are exposed better match the risks they are willing and able to take. In addition, the interest rate risk of young people no longer needs to unintentionally fall on older people. Moreover, by no longer granting pension entitlements, pension funds no longer need a discount rate to value pension entitlements. And thus no longer the possibility of turning the interest rate knob. This removes an important source of tension between the generations.

“The average system will also be abolished. This eliminates the effect that when you leave the system you have paid too much premium, and when you enter at a later age you have paid too little premium. This makes the system better suited to today's labour market. At the same time, the strengths of the current pension system will be retained, including the compulsory nature of the system, collective execution and collective investment policy,” he said.

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