Dutch senators have accredited a serious overhaul of the nation’s pension system, which is anticipated to result in huge adjustments in asset allocation for the €1.45tn sector.

The brand new legislation was handed late on Tuesday after prolonged debate within the senate, the Netherlands’ higher home of parliament. It implies that the nation’s occupational pension system will transfer from a “outlined profit” to a “outlined contribution” mannequin by which pension funds now not make retirement earnings guarantees to members.

As a substitute, members pays into particular person accounts, with earnings ranges extra depending on funding returns and contributions. Funds may also supply collective DC preparations, which purpose to easy out funding volatility for particular person pension holders. The deadline for the system to be absolutely in place is 2028.

“This can be a once-in-a-generation occasion,” mentioned Onno Steenbeek, managing director for strategic portfolio recommendation at APG Asset Administration, the nation’s largest pension fund supervisor with €541bn of belongings beneath administration. “I’d anticipate some adjustments in the way in which and extent pension funds will use rate of interest swaps and forex hedging merchandise.”

The laws survived a blocking try by opposition senators who argued that the brand new legislation required approval of two-thirds of the Home, relatively than 50 per cent, to be constitutional. Authorized consultants imagine the legislation can be topic to future authorized challenges on this constitutional level. It was finally handed 46 in favour and 27 in opposition to.

Hans Van Meerten, professor of European pension legislation at Utrecht college, mentioned: “It’s troublesome to foretell whether or not the brand new pension system can be higher for people. There can be some capacity throughout the system to soak up market shocks, however the DC mannequin is extra insecure as a result of it’s extra depending on monetary markets for outcomes.”

For the previous 20 years, tens of thousands and thousands of employees within the Netherlands have constructed up retirement financial savings via outlined profit preparations, which pay out a goal quantity primarily based on wage and size of service. 

Nevertheless, the system had develop into contentious as pensioners and savers suffered retirement earnings cuts and elevated contributions throughout a protracted interval of low rates of interest, which diminished anticipated funding returns. In contrast to within the UK, the Dutch outlined profit system didn’t assure a set stage of earnings.

In a briefing on the reforms De Nederlandsche Financial institution, the Netherlands’ central financial institution, mentioned: “Pension funds make guarantees concerning the quantity of pension advantages they intend to pay out to members. Nevertheless, if the returns on investments are decrease than anticipated, pension funds can not stay as much as their guarantees. Our system wants to alter with a view to repair these vulnerabilities.”

Whereas there is no such thing as a certainty of how huge retirement pots can be within the new system, DNB, which supervises pension funds, mentioned there could be extra transparency about retirement financial savings beneath the adjustments.

“In that means, everybody has an summary of the share of the belongings reserved for his or her pension,” it mentioned, including the brand new system will give “a lot much less trigger for dialogue about unsure guarantees and concerning the distribution of those collective belongings”.

Funding advisers mentioned the reforms would make the Dutch pension system extra sustainable than the outdated system, which made it dearer to make use of older employees on account of DB pension liabilities weighing on employers.

The Netherlands’ transition to a brand new system can be intently watched by international locations world wide.

“[Pensions sustainability] is one thing that a number of international locations are going through in the intervening time, as we’ve seen reducing fertility charges over the previous couple of many years,” mentioned Graham Pearce, senior associate for DB pensions at Mercer, a consultancy. “Underneath the brand new system it will likely be extra enticing to make use of older employees.”

The senate’s approval for the overhaul marks the tip of a four-year journey for the reforms that have been first agreed between employers, workers and the Dutch authorities in 2019 however whose passage via parliament suffered quite a few delays.

The reform may even impose huge adjustments on asset companies managing pension cash on behalf of tens of thousands and thousands of savers.

“No asset courses will fall out of the portfolio because of the adjustments within the legislation. I think about the main focus may develop into extra on whole return methods however it is vitally troublesome to say at this stage,” Steenbeek mentioned.