Advisory committee on parameters is adopted
The long-awaited advice of the Parameters Committee will be adopted in legislation. This means that the level of current pensions in the current or old system will become (even) more dependent on market data. Apparently, the Commission thinks there is sufficient market data to value long-term pension liabilities as well. This is notable because it was thought otherwise in 2019.

With the new 'UFR method', market interest rates up to a maturity of 50 years (!) must be used as of 2023 (though). Market interest rate changes therefore affect pension funds' funding levels even faster (both positively and negatively). This is especially true for pension funds with relatively many young participants who, after all, have many long-term liabilities.

Is saying goodbye to the old funding ratio system becoming more urgent?
Under the Act, there is an option to maintain the old system with its coverage ratio system for pension entitlements already acquired. That coverage ratio system therefore becomes even more dependent on 'market interest rates'. This means increasing volatility, which increases the likelihood of pension cuts. On the other hand, there is a greater chance of indexation, which is incidentally limited by strict buffer requirements.

With the new parameters, the question can be asked whether bidding farewell to 'the old funding ratio system' by importing the already acquired rights into the new system, when the Wtp enters into force (on 1 July 2023), is more desirable. In the long term, due to increasing volatility in funding ratios, the likelihood of having a purchasable pension may further decline relative to the expected pension outcomes in the new system.

Will a balanced transition become more difficult with the new parameters?
The Act stipulates that social partners and (industry) pension funds are legally responsible for a balanced transition of already acquired rights in the new system. What value will be 'deposited' in the personal pension pot? DNB is going to test balance and may even impose a ban on encashment at the final stage.

What is balanced is left 'open' in the Wtp. This open norm offers freedom to weigh up interests of all stakeholders (differently) and make choices. However, it requires that all interests are actually interpreted and weighed. 

Since the conversion of existing rights must take place on the basis of the new parameters of the old funding ratio system, the extent to which they determine the outcome is relevant. For instance, a relatively high interest rate leads to a low value of pension entitlements, with which the personal pension assets will also be relatively low when they are cashed in. In her letter of 6 October 2022, the minister emphasised that this interest rate sensitivity is not problematic, because with this lower personal wealth, a higher expected pension can still be obtained than with a relatively low interest rate (antwoorden op Kamervragen over verlaging van de variabele pensioenuitkeringen | Kamerstuk | The question is whether that consideration is sufficient.

Moreover, the new inflation forecast may lead to unrealistic economic scenarios at the time of boarding. The Parameters Committee assumes a long-term inflation rate of 2%. However, there are several indications in the economic literature that high inflation may persist longer. If inflation is higher than expected, there may be unbalanced redistribution of pension fund assets. Decentralised social partners (and pension funds) may choose to use the solidarity or risk-sharing reserve to mitigate inflation risks for pensioners.

What about investment policy (during the transition period)?
Besides balanced 'redistribution', the potential pension outcomes in the new system determine whether the goal will be achieved, a more purchasing power pension. Are we improving?

Investment policy during the transition period and after the transition is decisive. Pension funds are responsible for this. At the moment, this is attracting interest in the Lower House when the Wtp is being discussed (answer to Parliamentary questions on the prudent persons principle by Minister C.J. Schouten dated 13 December 2022 (antwoorden-op-kamervragen-over-het-prudent-person-principle-en-het-beleggen-met-geleend-geld-in-de-wet-toekomst-pensioenen.pdf).

Certain critical considerations do seem to be required. What do the additional risk attitude requirements set in the Wtp that depend on age cohorts mean for return potential? Does this limit the current open standard of 'prudent person', and if so to what extent? Should this already be anticipated during the transition period? To what extent can this be imposed on pension funds? In what relation is this to the intended goal of a purchasing power pension?

In this context, the standard of Article 19 of the European Pension Directive (Directive (EU) 2016/2341) applies. Is this requirement to invest prudently not at the same time also a right to 'discretion'. Subject to what has been stated about regulated financial markets (safety and quality) and ensuring liquidity for current pension benefits, what is prudent cannot be determined in advance, but will always depend on the (market) circumstances of the case and at the time (not after the event). In addition to the relevant market conditions for the investment products on the regulated financial markets, it is also about the intended and also necessary return that 'must' be achieved in order to enable a purchasable pension.

It should be emphasised that the social partners' and pension funds' discretion should remain the starting point in the transition to the new system. Especially with regard to the investment policy to be pursued, a critical attitude of the funds is appropriate if this freedom seems to be too restricted.