Creating affordable pensions

The year 2040 may be decades away, but those set to retire that year already need a good pension scheme now. The vast majority of Dutch employers are required to offer a collective pension scheme, but around 20 percent of Dutch businesses need to decide for themselves whether to offer an employee pension scheme and how this should be organised. Rabobank supports these companies with tailor-made pension advice and affordable pension products.

The Dutch pension market is substantial and differs from that in many other countries. Under the Dutch system, employers and employees pay pension contributions to pension institutions. The latter, in turn, invest these funds (currently amounting to a total value of 1,000 billion euros) and pay out pensions to retired workers and surviving dependents of deceased policyholders.

Too complicated and not immediately relevant

But even though pensions and retirement are important topics that affect everybody, Rabobank pension experts Pierre Baas, Cindy Kaijser and their colleagues have found that many people tend to view them as issues which aren't relevant to them personally. On a day-to-day basis, these experts encounter numerous employers and employees who barely take the time to learn about how pension schemes really work and dismiss the subject matter as overly complex, with many workers reckoning they are still years away from retirement anyway. After all, it's not like 2040 is just around the corner, is it?

Non-regulated pension market

Around 80 percent of Dutch employers are required to provide pension schemes to their employees under collective agreements or on an industry-wide basis. In these cases they are bound to a specific arrangement, with fixed rules in place for the options available to employers and employees, the pension institution, and the contributions. This is the case for the government sector and the metal industry, for example, as well as Shell and, indeed, Rabobank.

However, roughly 20 percent of Dutch employers do not fall under a mandatory industry-wide pension scheme or a pension obligation arising from a collective agreement. These businesses need to make their own decisions as to the pension arrangements they provide to their employees.
Examples of such businesses include audit firms, IT companies and organisational consultancies. The non-regulated pension market in the Netherlands has been growing gradually for some time.

'One of the social trends we have noted is that the Dutch pension market is becoming more liberalised one step at a time. There is a demand among the public for modern, straightforward and clear-cut pension schemes. As a bank with a strong sense of social commitment, we feel it is our duty to make things as easy and convenient as possible for people', says Rabobank's Bert Tijsterman, whose responsibilities include pension planning support for business customers.

'One of the social trends we have noted is that the Dutch pension market is becoming more liberalised one step at a time. There is a demand among the public for modern, straightforward and clear-cut pension schemes. As a bank with a strong sense of social commitment, we feel it is our duty to make things as easy and convenient as possible for people.'

Bert Tijsterman. His responsibilities at Rabobank include pension planning support for business customers.

Improved employee benefits

Rabobank's experts have found that employers are interested in offering pension schemes to their employees, as they are an important recruitment and retention tool and improve both employee benefits and the employer's reputation. At the same time, the high costs involved are a drawback for many companies: a pension scheme can easily cost an employer as much as eight percent of the total wage bill. Start-ups, in particular, find it difficult to afford this, and when given the choice of whether or not to make pension provisions, many choose to forego the option altogether. Pension expert Pierre Baas: 'I recently visited a business owner who said, three years after launching his company: I'm finally at the point now where I'm able to put in place a pension arrangement for my employees.'

Pension advice clears up any ambiguity

The first step in creating a sound pension scheme is obtaining tailor-made pension advice. 'Pension schemes are complex and cost money. Employers want to know exactly how those funds are being allocated and what they’re getting in return, and employees want clarity too', Cindy Kaijser explains. When providing pension advice to customers, the pension experts take stock of the employer's budget and the employees' needs. If a company in the non-regulated pension market already has a pension scheme in place which needs to be extended, the experts will review to what extent the current scheme matches the employer's financial capacity and meets the requirements of employees.

Tough negotiations

This sometimes requires tough negotiations. Schemes and pension guarantees for employees, which were common across Dutch organisations five or ten years ago, have become unaffordable due to factors such as low interest rates and demographic ageing. As pension expert Baas explains, many employers, when changing their pension schemes, switch to a plan with fixed employer contributions but payouts that depend on the returns earned. In the past, it tended to be the other way around.
This shift in the non-regulated pension market is also occurring on a large scale in companies subject to collective agreements or affiliated with industry pension schemes.

Relatively low management costs

The Rabobank BedrijvenPensioen corporate pension scheme, which many employers end up signing up for after receiving advice from the bank, is a competitive scheme characterised by relatively low management costs as a result of the limited number of options within this product. 'It goes without saying that employers want to offer people a number of different choices, but that’s a bit of a balancing act. Streamlining the range of options on offer ensures that costs remain in check while at the same time keeping the scheme simple and clear-cut', Bert Tijsterman says. There are certain options which Rabobank does not provide, such as a facility for customers to invest their own retirement funds.

Once the schemes are up and running, Rabobank's pension expert continues to liaise closely with employers, including an annual progress review to discuss pension accrual for employees and the affordability of the scheme. Baas: 'It may sound a little old-fashioned, but when you’re in the pension business you need to look employers in the eye. They need to be certain you can be trusted. And that only makes sense: after all, we’re talking about one of the most expensive employee benefits in which a company will invest.'