A lot has already been said and written about the new pension law that went into effect last year, yet misconceptions persist. In the series “Pension myths debunked”, we examine one myth at a time. We put the fifth one – pension benefits will be reduced in the renewed system to Julia Adam, strategic policy officer at APG.
Some pensioners fear that their pension benefits under the revamped system will be much less than they would be under the current system. Is that true? No, it’s not, says Julia.
“On the contrary, pension benefits are expected to possibly increase under the renewed system. The renewed system actually provides the opportunity to increase pension benefits sooner, because less of a buffer needs to be accrued. That way, good results can benefit participants, including retirees, as soon as possible.”
So don’t these lower buffers lead to more uncertainty? Julia believes they don’t. “In the current system, retirees often perceive their pension benefits as something certain. It is often said that the risks now lie - entirely - with the pension funds, but that is not correct. Even in the current system, pensioners run the risk that their pension benefits will be reduced or that their benefits cannot be indexed, causing the pension to lose purchasing power.”
Limited risk of reduction
In the revamped system, while financial results are reflected in pension benefits sooner, at the same time, there are three tools that can be used to achieve stable benefits.
“As in the current system, the renewed system also aims to keep pension benefits as stable as possible. For example, a pension fund will be able to opt to maintain a reserve, with which reductions in pension benefits can be cushioned - sometimes completely. On top of that, reductions in the renewed system can be spread out over up to ten years, thus reducing the annual effect of a reduction. In addition, less investment risk is taken for pensioners. As a result, the likelihood of pension cuts is also more limited.”
Good elements retained
In short, the advantage of the renewed system is that financial windfalls over the reserved personal pension assets and over pension benefits will be distributed sooner. At the same time, the good elements of the current system, such as collectivity and solidarity, are being retained. And the revamped system provides sufficient tools to achieve pension benefits that are as stable as in the current system. The fear of some pensioners that their pension benefits in the renewed system will be less than in the current system is therefore unfounded.
In the “Pension myths debunked” series, our basic premise is the solidarity premium scheme (SPR), one of two contract forms from which funds can choose in the revamped system. All the funds that APG works for have opted for the SPR.