The assets of civil servant pension fund ABP have fallen by 66 billion in six months, a decrease of 12 percent. Nevertheless, pensions will go up this year. In recent years, when the assets of the pension funds rose sharply, the benefits actually remained the same, causing the purchasing power of pensioners to decrease.
This at first sight inscrutable logic is due to the wonderful phenomenon of actuarial interest. To determine how much money must be set aside now to be able to pay out pensions in the future, one euro from now is increased by the interest of today. Because interest rates have been extremely low in recent years, a relatively large amount of money had to be kept in cash and pensions could not keep pace with inflation. Now the situation is exactly the opposite.
Many retirees experienced this as a great injustice. In reality, a euro yielded much more return, which in their eyes meant that the pension funds were richer than the calculation rules implied. You could add that the interest rate was artificially low, because it did not arise in the financial markets, but was mainly the result of the monetary policy of the European Central Bank (ECB). So the retirees had a point.
This does not alter the fact that it is impossible in the pension discussion to determine what a fair distribution of the pension pot is. For that you should be able to look into the future, know exactly how pension assets will develop further. If stock prices continue to rise happily in the coming decades, we can conclude with hindsight that we have failed the current generation of retirees. If stock prices barely rise or even fall, we will conclude that the future generation of retirees will bear the brunt of the too generous pensions of the generations before them.
Nevertheless, there are many politicians and experts who claim with great certainty that they do know what is fair. Because the discussion between them has stalled, it has been decided to give everyone in the new pension system their own pension pot, just like giving children their own bowl of chips to prevent one person from stuffing so many chips in their mouth that there is nothing left for the other. A complicated operation because it is not at all easy to calculate how much money should be in that individual pot. The question of what is fair is also difficult to answer in this case.
The level of the pension will soon be determined more than now by luck. Retirement partly takes on the same dynamics as one’s own home, where equity and mortgage debt are largely determined by when someone bought their first home. It will not necessarily benefit solidarity in society, which raises the question whether the dispute about the actuarial interest could not have been resolved in another way. Is the current system not being discarded too easily?
It may be illogical to increase pensions when the investment results are disappointing, but it is very welcome for retirees. Now that inflation is high, a reduction in pensions is highly undesirable. Because pension funds have been thrifty in the good years – perhaps too thrifty – they can be more generous in the lean years, such as now, and the current system may inadvertently turn out to work very well.
The position of the newspaper is expressed in the Volkskrant Commentaar. It is created after a discussion between the commentators and the editor-in-chief.