Brans Brief number 7/8, volume 9, July/August 2006

In this issue of the Brans Brief:
 

	Pensions and the ageing population
	Amendments to the Regulations on Applications pursuant to the Multi-Employer Pension Fund (Obligatory Participation) Act 2000
	Revision of Policy Rules Governing the Assessment Framework for the Multi-Employer Pension Fund (Obligatory Participation) Act 2000
	Amendments to the Occupational Pension Scheme (Obligatory Participation) Regulations
	Basic Course for Pension Fund Directors

Pensions and the ageing population

Can the Dutch pension system handle the ageing of the population?
In light of the recent publicity about the possible consequences of the ageing population, Watson Wyatt Brans & Co wishes to focus once again on a number of aspects of pension funds.

The risk of disappointing economic developments and investment yields is one that cannot be denied. In addition, the pension system may also be endangered by the fact that the population is ageing:

1. if the financing of the pension accruals is postponed;
2. if the indexing policy does not match the expenses to the income;
3. if the valuation of the pension commitments is based on optimistic yield forecasts; and
4. if the estimates of survival chances are too low.

1: Capital cover
In the Netherlands, pension accruals must at all times be covered by capital. Moreover, each pension fund must have a solvency buffer, which depends on the insurance-related risks incurred, including negative stochastic deviations and uncertainties about mortality trends.

2: Conditional indexing
The capital cover requirement does not apply to future indexing, provided that, as is habitual, it has been agreed conditionally. In practice, this means that the indexing can be cut back depending on the pension fund’s financial position.

3: No-risk discounting without smoothing
The valuation of built-up pension commitments is based on the current time structure of the virtually risk-free interest rates on the interest swap market. This means that no advances are taken on risk premiums on shares, nor is any ‘smoothing’ applied.

4: Survival chances including mortality trends
Watson Wyatt Brans & Co uses the Brans Table for its sufficiency test. This allows us to take the expected future developments into account in the survival chances. The table below demonstrates how important this is.

Conclusion
This does not imply that the Dutch pension funds can handle all possible macroeconomic consequences of the ageing of the population. However, Watson Wyatt Brans & Co feel that the pension system, including the actuarial foundation, takes sufficient account of the possible microeconomic consequences. It should be noted that this conclusion is based on the assumption that the conditional nature of the indexing is accepted as a given and that the indexing is to be cut back as necessary.

For more information contact: Roland van Gaalen.

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Amendments to the Regulations on Applications pursuant to the Multi-Employer Pension Fund (Obligatory Participation) Act 2000

On 1 August, 2006, the Regulations on Applications pursuant to the Multi-Employer Pension Fund (Obligatory Participation) Act 2000 (Regeling betreffende aanvragen op grond van de Wet verplichte deelneming in een bedrijfstakpensioenfonds 2000) were expanded to include requirements regarding the registration of organisations applying for the obligatory status, a change in the obligatory status or revocation of the obligatory status. The purpose of this addition is to increase the reliability of the process of determining whether the level of representation is sufficient. This amendment ties in with the Registration of Collective Bargaining Agreements and Application for Statements of Generally Binding Status Decree (Besluit aanmelding van collectieve arbeidsovereenkomsten en het aanvragen van algemeen verbindendverklaring).

In addition, a new clause has been introduced laying down the amount of time within which decisions have to be issued in procedures concerning the obligatory status, a change in the obligatory status or revocation of the obligatory status. As a rule, the Minister must decide within 26 weeks after the publication of the announcement regarding the application for obligatory status, a change in the obligatory status or revocation of the obligatory status in the Netherlands Government Gazette. This deadline may be extended twice at most, each time for a period of 13 weeks. The applying parties must also respond within six weeks to requests from the Minister for additional information. The purpose of this amendment is to prevent disproportionately long periods of uncertainty for the parties affected by the obligatory status. Applications for obligatory status received before 1 August 2006 will be processed in accordance with the Regulations on Applications pursuant to the Multi-Employer Pension Fund (Obligatory Participation) Act 2000 as they applied until 1 August 2006. This transitional arrangement will remain valid until 1 January 2008.

For more information contact: Rick Crauwels.

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Revision of Policy Rules Governing the Assessment Framework for the Multi-Employer Pension Fund (Obligatory Participation) Act 2000

When the Multi-Employer Pension Fund (Obligatory Participation) Act 2000 entered into force, the accompanying assessment framework also came into effect. Its purpose is to provide an insight into the criteria against which applications regarding obligatory status are assessed and the procedure followed for such applications. A new assessment framework was introduced on 1 August 2006. The aims of this revision are as follows:

• to interpret the amendment to the Regulations on Applications pursuant to the Multi-Employer Pension Fund (Obligatory Participation) Act 2000 that entered into force on the same date (see above);
• to clarify the procedure to be followed for the periodic assessment of representation level;
• to introduce deadlines used for procedures concerning the obligatory status: target deadlines for the activities of the applying parties, the Dutch Central Bank and the Ministry of Social Affairs and Employment;
• to clarify a large number of ambiguous issues that arose as a result the practical application from 2001 onward.

For more information contact: Rick Crauwels.

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Amendments to the Occupational Pension Scheme (Obligatory Participation) Regulations

The Occupational Pension Scheme (Obligatory Participation) Regulations is to be amended on 1 September 2006. As with the Regulations on Applications pursuant to the Multi-Employer Pension Fund (Obligatory Participation) Act 2000, the Occupational Pension Scheme (Obligatory Participation) Regulations have also been expanded to include requirements regarding the registration of organisations applying for the obligatory status, a change in the obligatory status or revocation of the obligatory status. The purpose of this addition is to increase the reliability of the process of determining whether the level of representation is sufficient.

In addition, a new clause has been introduced, laying down the amount of time within which decisions have to be issued in procedures concerning the obligatory status, a change in the obligatory status or revocation of the obligatory status. This procedure is similar to the procedure for the deadlines laid down in the Multi-Employer Pension Fund (Obligatory Participation) Act 2000. Applications for obligatory status received before 1 September 2006 will be processed in accordance with the Occupational Pension Scheme (Obligatory Participation) Regulations as they applied until 1 September 2006. This transitional arrangement will remain valid until 1 January 2008.

The Policy Rules Governing the Assessment Framework for the Occupational Pension Scheme (Obligatory Participation) Act have been added as an annex to those Regulations. These policy rules are new, and stem from the replacement of the former Occupational Pension Scheme (Obligatory Participation) Act by the new Act. This new assessment framework corresponds to the revised assessment framework for the Multi-Employer Pension Fund (Obligatory Participation) Act 2000, and allows members of the same profession to understand the criteria against which applications regarding obligatory status are assessed and the procedure followed for such applications.

For more information contact: Rick Crauwels.

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Basic Course for Pension Fund Directors

This course has been set up specifically for policymakers (board members or administrators/directors) of pension funds. As a critical director, you need to be able to assess the value of the advice you receive from experts. In addition, besides your common sense you also need substantial knowledge of the subject matter. Watson Wyatt offers an expertise course which focuses on the following modules :

• Laws and regulations;
• Pension schemes and types;
• Financial technical and actuarial aspects;
• Investment process.

The course lasts 2 days and is to be held in Zeist on 4 and 5 October 2006.

For more information about this course, please contact Alice Christiaans or Mascha van der Spek (telephone +31 (0)20 543 30 00).

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Questions or Remarks?

If you have any questions or remarks concerning this issue of the BransBrief, please let us know.

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