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The Recent Evolution of Pension Funds in the Netherlands : The trend to Hybrid DB-DC Plans and Beyond

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  • Ponds, E.H.M.

    (Tilburg University, School of Economics and Management)

  • van Riel, B.

Abstract

According to the classification in official statistics, Dutch pension plans have mainly preserved their DB character in recent years. The dominant reaction of pension funds to the fall in funding ratios at the beginning of this century has been a switch from final-pay schemes to average-wage schemes. This contrasts sharply with the experience in the United States and the United Kingdom, where the fall in pension funding ratios has accelerated the switch from DB to DC schemes. This paper scrutinizes the recent evolution of Dutch pension plans: how does the evolution of Dutch pension funds diverge from that of Anglo-Saxon pension funds, and how can we explain this divergence? Using an ALM framework, we argue that the current average-wage pension plans may be better viewed as hybrid DB-DC schemes, as indexation of all liabilities has been made solvency-contingent. Because these hybrid plans make use of two steering mechanisms to control solvency risk, Dutch pension funds display a high effectiveness in minimizing the risk of under-funding. The current hybrid schemes reflect a compromise between the various stakeholders. We examine the institutional basis for this compromise, and contrast this with the situation in Anglo-Saxon pension funds, where primarily employers are responsible for absorbing funding deficits, which gives them in turn more grip on pension plan design issues. In addition, we look at the role of unions, the strong preferences within the Dutch society for collective risk-sharing, and the underlying high level of social trust, as explanations for the divergence with the experience in the US and the UK…
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  • Ponds, E.H.M. & van Riel, B., 2007. "The Recent Evolution of Pension Funds in the Netherlands : The trend to Hybrid DB-DC Plans and Beyond," Other publications TiSEM 678caf10-ac76-49a4-a7ff-5, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:678caf10-ac76-49a4-a7ff-5e02edd5fe85
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    References listed on IDEAS

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    Cited by:

    1. Christine Mayrhuber & Gerhard Rünstler & Thomas Url & Werner Eichhorst & Michael J. Kendzia & Maarten Gerard & Connie Nielsen, 2011. "Pension Systems in the EU. Contingent Liabilities and Assets in the Public and Private Sector," WIFO Studies, WIFO, number 43938.
    2. Ricardo Bebczuk & Alberto Musalem & María Luisa Streb, 2011. "Suggesting Guidelines for Public Pension Funds Governance," Department of Economics, Working Papers 089, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    3. Zhen Shi & Bas J.M. Werker, 2011. "Economic Costs and Benefits of Imposing Short-Horizon Value-at-Risk Type Regulation," Tinbergen Institute Discussion Papers 11-053/2/DSF17, Tinbergen Institute.
    4. Musalem, Alberto R. & Pasquini, Ricardo, 2012. "Private pension systems : cross-country investment performance," Social Protection Discussion Papers and Notes 68937, The World Bank.
    5. Ponds, Eduard H. M. & Riel, Bart Van, 2009. "Sharing risk: the Netherlands' new approach to pensions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(1), pages 91-105, January.
    6. Willem Klein Haneveld & Matthijs Streutker & Maarten Vlerk, 2011. "Collective adjustment of pension rights in ALM models," Computational Management Science, Springer, vol. 8(1), pages 137-156, April.
    7. Anderson, Karen M., 2008. "The politics of multipillar pension restructuring in Denmark, the Netherlands and Switzerland," Discussion Papers, Research Unit: Inequality and Social Integration SP I 2008-205, WZB Berlin Social Science Center.
    8. Lans Bovenberg & Theo Nijman, 2009. "Developments in pension reform: the case of Dutch stand-alone collective pension schemes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 443-467, August.
    9. Kurtbegu, Enareta, 2018. "Replicating intergenerational longevity risk sharing in collective defined contribution pension plans using financial markets," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 286-300.
    10. Damiaan H.J. Chen & Roel Beetsma, 2014. "Mandatory Participation in Occupational Pension Schemes in the Netherlands and other Countries," CESifo Working Paper Series 4593, CESifo.
    11. Dirk Broeders & An Chen & David Rijsbergen, 2013. "Valuation of liabilities in hybrid pension plans," Applied Financial Economics, Taylor & Francis Journals, vol. 23(15), pages 1215-1229, August.

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