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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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  • Eduard Ponds
  • Bart van Riel

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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File URL: http://crr.bc.edu/working-papers/the-recent-evolution-of-pension-funds-in-the-netherlands-the-trend-to-hybrid-db-dc-plans-and-beyond/
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Bibliographic Info

Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2007-9.

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Length: 36 Pages
Date of creation: Apr 2007
Date of revision: Apr 2007
Handle: RePEc:crr:crrwps:wp2007-9

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  1. Rooij, M.C.J. van & Kool, C.J.M. & Prast, H.M., 2007. "Risk-return preferences in the pension domain: Are people able to choose?," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-381463, Tilburg University.
  2. Deken, J. de & Ponds, E.H.M. & Riel, B. van, 2006. "Social solidarity," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-348135, Tilburg University.
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Cited by:
  1. 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.
  2. 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 Group Munich.
  3. Willem Klein Haneveld & Matthijs Streutker & Maarten Vlerk, 2011. "Collective adjustment of pension rights in ALM models," Computational Management Science, Springer, Springer, vol. 8(1), pages 137-156, April.
  4. Dirk Broeders & An Chen & David Rijsbergen, 2011. "Valuation of Liabilities in Hybrid Pension Plans," DNB Working Papers, Netherlands Central Bank, Research Department 326, Netherlands Central Bank, Research Department.
  5. Lans Bovenberg & Theo Nijman, 2009. "Developments in pension reform: the case of Dutch stand-alone collective pension schemes," International Tax and Public Finance, Springer, Springer, vol. 16(4), pages 443-467, August.
  6. Ponds, E.H.M. & Riel, B. van, 2007. "Sharing Risk: The Netherlands' New Approach to Pensions," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-387569, Tilburg University.

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