Why we don't keep the old pension scheme
The social partners have agreed on the new pension scheme. They have asked PME to convert the pensions from the old pension scheme applicable before 1 January 2027 into the new pension scheme. PME has complied with that request. If we were to nevertheless keep the old scheme,
- you would have a lower expected pension under the old scheme;
- you would have a lower expected pension under the new scheme;
- there would be no money for compensation from the buffer;
- it would be more difficult to collectively deal with setbacks and windfalls;
- it would be more difficult to gain insight into your pension;
- and the costs for the administration of the pension scheme would be higher
You will find a detailed explanation below.
Why are pensions being converted to the new scheme?
The trade unions and employers in our sector (social partners) have agreed on the new pension scheme. They have laid down these agreements in the transition plan (in Dutch) (pdf). The law stipulates that the pensions must be converted to the new pension scheme if this is beneficial for the members and pension beneficiaries. The social partners have therefore requested that the pensions under the old scheme be converted to the new pension scheme. These are the pensions that have been accrued and the pensions that are paid. The pension fund will comply with the request to convert the current pensions to the new pension scheme, as it believes that this is beneficial for members and pension beneficiaries. The implementation plan (in Dutch) (pdf) tells you how the pension fund came to this decision and what considerations played a role in this decision.
What would have been the consequences of ‘not converting’?
If the pensions from the old scheme are not converted to the new scheme, this will create two different pools of assets. One pool for pensions that will ‘stay behind’ in the old pension scheme and one pool for the pensions that have been accrued and will be accrued under the new pension scheme. As soon as your pension starts, you will receive a pension from the old pension scheme and possibly a pension from the new pension scheme (if a pension is also accrued in this scheme).
This is expected to lead to:
If we do not convert the pensions, money will stay behind in the old pension scheme. No new money will be added to the old pension scheme because the accrual by new members and the further accrual by current members will take place under the new scheme. Under the old scheme, the group for which we invest is getting older and smaller. As a result, we should invest more cautiously in the old scheme and take less risk. Less risk usually means a lower expected return. The pensions that stay behind are then expected to be lower than if we do convert the pensions. This mainly affects people who have been building up a pension for a long time and people who are already receiving a pension.
The new scheme would also have consequences if we did not convert the pensions. In that case, the new scheme would start at ‘zero’. In the first few years, there are little or no buffers to deal with setbacks. That is why less risk can be taken when investing during that period. Less risk usually means a lower expected return and a lower chance that the pensions can be increased.
If the money for the pensions stays in the old pension scheme, there would be no money for compensation from the buffer. This compensation is intended for people who are expected to be disadvantaged by the fact that all new pensions are accrued under the new pension scheme (abolition of the average contribution system). It is a legal requirement that the switch must be handled carefully and fairly. This becomes much more difficult when there is no money to compensate people faced with an expected disadvantage.
An important characteristic of a pension fund is that you deal with setbacks and windfalls together. If we do not convert the accrued pensions, you are less likely to arrange your pension ‘together’. Young people accrue the majority of their pension under the new pension scheme. Older people have accrued the majority of their pension under the old pension scheme. Their money in particular would stay behind if the pensions were not converted. This makes it difficult to collectively deal with setbacks and windfalls. This is because two groups are created. The group of people receiving a pension under the old scheme is large and shrinking after the switch. The group of people receiving a pension under the new scheme is very small and growing in the first few years after the switch. It is difficult to deal with setbacks and windfalls with small groups of people. Both groups (under the new and old scheme) have to deal with this immediately after the switch or much later.
This will also affect the reserve if we do not convert the old scheme and two schemes continue to exist side by side. A reserve that is part of the old pension scheme may not be used for the new pension scheme. At first, there is only a small reserve in this new scheme. This is why the part of the pension falling under the new scheme is initially more susceptible to financial setbacks. The reserve under the new scheme is then gradually built up, resulting in this risk decreasing again later on.
It is important that you can quickly and easily see how your pension is doing. If you have two pension schemes with one pension fund, that would be more difficult. You would receive two pension statements. And it would be more complicated to make a pension plan if your pension is administered in two very different pension schemes.
The choice of ‘not converting’ would mean that we have to administer two pension schemes. Two administrations. Manage two pools of assets. And many different types of letters and statements. Technically it is possible, but it is more expensive than if we do convert the pensions.
Conclusion
The social partners and the pension fund management have considered the aspects outlined above. They conclude that converting the pensions that have already been built up under the old scheme to the new pension scheme will result in a more stable, fairer and understandable pension. Therefore, PME does not deny the request of social partners to convert pensions.