It took a while, but last week there was an answer to a question asked in the House of Representatives on March 8, 2011. “Fortunately, there are always persistent MPs who keep asking questions,” laughs Paul Ulenbelt on the phone from Leiden when he hears the latest developments. It was he who, as a then parliamentarian on behalf of the SP, requested the minister to share advice on pensions with the House of Representatives. At that time, the cabinet and polder were frantically studying for a new pension system. The State Attorney reportedly told the minister that it is virtually impossible to reduce the accrued rights of participants in pension funds if they switch to a new system.
Ulenbelt wanted to know whether the state attorney had really said that. But he did not see the advice from the State Attorney to then Minister Henk Kamp (Social Affairs, VVD). It was a secret and always has been. Senator Martin van Rooijen (50PLUS) has asked for this in vain in recent years. And Pieter Omtzigt asked for it in August, so the minister is now sharing documents that shed light on the advice at the time.
The representatives suspect that the current pension reform is built on legal quicksand. Last week, part of the answer became public in a package of documents in which black lacquer had been used lavishly. As it turns out, in 2011 the cabinet was indeed warned that it is very difficult to tamper with the rights of pension participants. Seven questions about the meaning of this and whether it has consequences for the new pension system.
1 Why is that old advice important now?
Just before the composition of the Senate changed this year, the Senate discussed a new pension law. The law, which drastically changes the system, had been tinkered with for years, with major consequences for all workers and retirees who are affiliated with a pension fund (employed people are often automatically so).
The elections changed the composition of the parliament. Opponents of the new pension law such as PVV, NSC and BBB are now looking at what they can do to prevent the introduction of a new system. Their doubts about the planned changes are reinforced by the advice given by the State Attorney almost thirteen years ago.
There’s something at stake. Approximately 1,500 billion euros in saved pension assets will move to millions of individual money pots. That amount is almost as high as the value of the total home ownership in the Netherlands. “This may be one of the last major privatizations in the Netherlands, before neoliberalism ultimately hits the wall,” Pieter Omtzigt said last year when the law was discussed in the House of Representatives.
2 Why do critics of the new pension law use such big words?
A recurring point of contention in the discussion about pensions is who actually owns the pension. Employees pay contributions and they can receive this deferred salary when they become too old to work. But no one can choose their own pension fund, employed people are required to pay their pension contributions, employers and employees manage the pension funds and this has always been defended on the basis of mutual solidarity. As long as as many people as possible participate semi-forced, you have a wonderful system, say the proponents.
Because pension funds have had increasing problems in keeping their promises in recent decades, a way was sought to make the commitments less strict. The released documents show that in 2011 the State Attorney already saw “significant legal risks” if all rights were replaced at once in a new system. It spoke of an “infringement on individual property rights.”
This is evident from the notes that have been released, in which officials draw conclusions about the advice of the State Attorney; the advice itself is still secret. They list the conditions that in-house lawyers impose on such a system.
Opponents of the law feel strengthened in their conviction. Professor of European Pension Law Hans van Meerten has been arguing for years that the pension law is at odds with the European Convention on Human Rights, which enshrines property rights. He therefore speaks of expropriation, namely of 1,500 billion in private assets for which participants receive a claim back on an invested amount – whereby all investment risks end up with them, while they have little say over their money pot. Proponents prefer to speak of ‘entering’: participants enter their pension rights into a new system.
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3 What does that mean: loss of pension rights?
Sailing is jargon and they love it in the pension world, if only to soften painful messages through disguised language. Entering means nothing more than that the participants of a pension fund tear up their old agreement and replace it with a new contract. The biggest difference between the old and new agreement is that already accrued ‘hard’ pension rights are exchanged for softer entitlements. Commitments such as ‘you are entitled to a certain, fixed percentage of your salary as a pension’ are no longer possible under the new law.
4 Why do trade unions, employers and the government want to reform the system?
The current system has many problems. The aging population is throwing pension funds off balance. A shrinking group of workers – the young – must finance the pensions for a growing group of elderly people. Because people are living longer than expected, that problem has become worse.
The years of low interest rates were disastrous for the wealth of pension funds. They must calculate their future obligations based on the interest rate. This fell steadily from 2008 from just under 5 percent to negative interest rates in 2019, 2020 and 2021. Paper wealth turned into shortages: many pension funds had more liabilities than they had in assets. According to the textbooks, they were technically bankrupt.
This translated into ever-increasing premiums for employees, which still did not cover costs. Pensioners were also not compensated for inflation for years, as a result of controversial supervisory rules.
Actually, the situation was even more serious. Politicians repeatedly pushed the boundaries and created breathing spaces so as not to have to reduce existing pension benefits – this should have been done according to the rules in force at the time. As a result, young people were disadvantaged compared to the elderly.
In practice, funds were no longer able to keep their promises. The idea was to make it future-proof, you have to tone down the claims. “The rules are changing because we want everyone to be able to receive a pension in the future,” is the message of TV commercials, which the pension sector has launched, with the money of its supporters.
5 What do the opponents of the pension law want?
That’s not entirely clear. In any case, they want more rights for the participants. This will be discussed extensively in the coalition negotiations of a new cabinet. After all, you cannot simply revoke an adopted law. In the meantime, there are growing indications that pension funds are having great difficulty carrying out the complex entry operation properly. The Council for the Judiciary fears a tsunami of lawsuits when participants hear in a few years what is in their new pension pot. The NSC, Pieter Omtzigt’s party, therefore wants more say for them. Why the burdens, not the benefits? Can’t participants have a vote, for example by testing for each pension fund via a referendum whether the majority supports the migration of capital?
6 What does this law mean for the participants?
Everyone will benefit, said FNV chairman Tuur Elzinga when the law still had to be discussed by parliament. Such false promises infuriate opponents, because there is no such thing as one free lunch.
The value of a participant’s pension pot will rise more strongly on the waves of the financial markets, because the pot is a more direct result of the daily prices on the stock exchange.
And the decision has been made to build up fewer buffers as a pension fund, which entails a higher risk. Critics are calling for a little more cushioning for unfortunate participants. The new system makes it possible to take more risks with investments, which means higher returns can be achieved. But that can also turn out wrong. For young people, it becomes possible for the pension fund to invest with borrowed money. As a result, if things go wrong, their individual pots can even turn into a debt. It has been agreed that the fund will then adjust this to zero. In such a gloomy scenario, the fund has gambled away the participant’s money without the participant having anything to say about it. That is why opponents like to speak of a ‘casino pension’.
Coincidentally, interest rates have risen sharply in the last two years, causing many pension funds to quickly emerge from financial problems. You are actually reforming in the rear-view mirror, says pension lawyer Hans van Meerten.
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7 Will the State Attorney’s advice now be made public?
MPs insist on this. Its scope is now known, but its details are not. The remarkable thing is that representatives of trade unions and employers’ organizations were able to read the advice at the time, but parliament never did.
The minister received many legal opinions on this file, most of which are not public. At the same time, the explanatory memorandum to the law regularly refers to case law and arguments in trade journals – which are often behind a paywall – that supported the chosen route.
Some representatives have become suspicious of this. Wasn’t there selective shopping here? Weren’t only advice mentioned that turned out well? According to professor of pension law Erik Lutjens, the advice at the time was given in a completely different context than that which existed ten years later. He states that since then there have been many rulings by judges in Europe that indicate that the new system is not at all contrary to property rights. Sufficient safeguards have been built in to protect this, Lutjens believes. Because experts do not agree with each other about the system, it would help the legislature if all expert opinions were put on the table.
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