The Dutch government has been urged to work with the pensions industry to deliver solutions to societal challenges, while also being reminded that it must continue to honour the pension agreement to ensure a stable transition to the new system.

In a letter to the Mayor of Leeuwarden, Sybrand van Haersma Buma, the Dutch Pension Federation (Pensioenfederatie) emphasised that the Netherlands is facing "major societal transitions", with an ageing population, the energy transition, significant housing shortages, and rising defence spending.

However, Pensioenfederatie chairman, Ger Jaarsma, said that, as institutional investors with a long-term perspective, pension funds are "willing and able" to contribute to strengthening the Netherlands' earning capacity and delivering solutions to these challenges.

The letter stressed that "the major transitions of our time require long-term investments", pointing out that climate change and other systemic risks pose a significant risk to returns and thus to future pensions.

Given this, the Pensioenfederatie noted that many funds already contribute to societal solutions, provided this is profitable and aligns with their investment policy, as "a good return and acceptable risk remain paramount".

However, the letter argued that a "stable, long-term policy and room for long-term investments" is needed for pension funds to intensify such investments.

"The government must provide clear direction on how to deal with future technologies and the role of institutional investors within them. A certain scale and programmatic approach are essential," it stated.

In particular, the federation said that Dutch pension funds would like to see the government embrace public-private financing systems more fully and, where necessary, cover the unprofitable peaks.

"We ask a future cabinet to further develop Invest-NL into a strong national investment institution, while maintaining Invest-NL's current, effective operation," it stated.  

This, the federation suggested, would help stimulate impactful investments by institutional investors, such as pension funds, enabling the Netherlands to accelerate its sustainability, innovate, and contribute to the economy and future earning capacity. 

In the immediate term, however, the letter stressed the need for the government to give the pension sector, including employees and pensioners, space for a careful transition to the new pensions system. 

Whilst the federation acknowledged that the shift to the new system is "progressing smoothly", with more than half of the employees and pensioners expected to have transitioned to the renewed system in the coming months, it argued that, given the complexity and social importance of this task, pension funds and administrators must be able to work on this undisturbed. 

"Changing rules undermines the transition, which brings delays and risks for employees and pensioners. Participants' confidence in the system benefits from clarity and consistency," it stated. 

"Workers and retirees in the Netherlands can enjoy one of the best pension systems in the world: a stable, robust, and funded system that offers security and prosperity. Stable and long-term policies are crucial for this," Jaarsma stated.

"In line with the Social and Economic Council's (Sociaal Economische Raad) position, we advocate for all parties to continue to comply with and honour the agreements in the pension agreement."

In particular, the federation pointed out that any reduction in accrued pension would be contrary to the pension agreement, warning that such cuts could cause middle-income earners to face a significant drop in income upon retirement.

Cuts to pension accrual could also have an impact on survivors' pensions, leading to a direct disadvantage due to the substantial reduction in risk coverage.

"In [the pension agreement], the government committed to the current pension ambition: 75 per cent of the average salary over 40 years of accrual," it stated.

"Any reduction in the fiscal framework will also lead to lower tax revenues from pension payments for the government in the future." 

Whilst the federation admitted that the increasing ageing population is putting increasing pressure on the affordability and sustainability of social security systems, it argued that this outlook makes it even more important to maintain the current pension ambition and fiscal framework.

The letter also warned that any reduction in the fiscal framework will lead to lower tax revenues from pension benefits for the government in the future. 

"Currently, the increase in state pension expenditure in 2025, 2030, 2040, and 2060 is roughly equal to the increase in tax revenue on pension benefits in those years," it explained.

"Lowering the capping threshold will break this automatic ageing stabiliser. This will make it even harder for future generations to cope with the ageing population." 

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