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Follow the money ( ENG )

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bye bye pensioenIn the NRC Handelsblad of December 20th, 2013 this timely congratulatory ad appeared. On the 19th of December, after a beautiful and vain staged drama of Senator Adri Duivesteijn a nighttime pension agreement was reached, number four in over three years. It should be executed in the entire Kingdom, because all governments have to cut their expenses drastically. Standard & Poor’s reduced their credit rating for the European Union from AAA to AA +, due to insufficient credit and a painful lack of financial and fiscal discipline. The Netherlands were recently been downgraded .


Disturbing economic outlook in Netherlands
House prices have fallen by 5 % in November 2013 compared to November 2012. The number of unemployed rose excessively, the consumers do not buy enough. Severe cutbacks were introduced on health care, on the housing market, the price of labor, on social security, pension contributions and retirement funds. The price of gold fell on the 20th of December to the lowest level since August 2010. The decline follows the decision by the Federal Reserve (Fed) to the intended reduction of its large stimulus support purchases. A cautious start will begin in January 2014. That will affect the markets and the interest payable on government loans. These developments will also have an impact on the rest of the Kingdom.

Insurance companies see a new hopeful gap in the market and are ready to serve the citizens profitably. They will invest the accumulated pension contributions lucratively. In the Netherlands insurance companies seem more influential than the Government. Within the deluge of Dutch health insurances (26 insurance companies in 9 groups with about 100 basic insurance and a multitude of additional insurances) and 20-35 energy suppliers, cartels and price fixing have emerged. The comparison websites are paid by these companies to present these suppliers advantageously. Meaningful information is rarely given. Among these companies seem to be many vague daughters of unknown mothers. About these strange companies the potential insured is not informed. The insurance companies are just as skilled as politicians to serve an unpleasant message as if it was a precious Christmas dinner.

Duration building retirement
According to the current plan the insured employee in 40 years with a pension contribution rate of 2.25 % builds a pension of 90 % of the average salary in 40 years (2004). Before that there existed the final salary pension scheme. In 40 years a pension could be built up equal to 70 % of the final salary. That meant an accrual rate of 1.75 %. The new system keeps the build-up period at 40 years. However, the accrual rate is higher, 1.875% in order to get a pension amounting to 75 % of the average wage. Whether pension contributions will decrease as planned is uncertain. Increase or decrease of contributions are determined by the pension funds themselves and not by the Government. Pension funds may well use the increased contributions to stabilize their mandatory coverage. In the Kingdom the governments are pretending to be puzzled by the ‘ strong’ falling death rates. That is a mistake, as is the assumption that pension contributions are not adapted to the aging population and their longer life expectancy. They were. On January 1, 2014, the maximum pension is reduced. For employees with a pension plan (almost) maximum deductible that will have to change to an adjusted pension. If not the pension no longer meets the new tax requirements. The net salary will be less because there is more tax to be paid. This means that before January 1, 2014 , the plans need to be adjusted , because the government stops subsidizing pension and tax must now be paid on the accrued pensions.

To offer a present to be paid by the receiver
The new pension agreement means taking money from the employees’ pension funds to boost the economy. Citizens can finally buy that car, that the Prime Minister is urging on the population for so long.” People have to work longer to get the same pension later in life,” says Jaap Koelewijn in the Financial Times of December 20th. “The net present value of the future income decreases. The retirement age rises to 67 years and people are living longer. To guarantee sufficient pensions for future generations these changes are needed. Because the accrual rate goes down, the pension payable is also reduced. This leads to lower labor costs. So the net income of the contributors would have to rise. The tax office benefits too, because it can reap more income tax when the salaries rise. “There is no improvement in purchasing power, because the employee pays his rise in salary himself as his retirement saving are decreasing. The pension rights were decreased already because the final salary schemes disappeared almost everywhere. Moreover pensions were not indexed for years. New is that workers with high mortgages may later use their paid contributions to pay off their mortgages. As a result, they have less accrued pension. That is possible the Government decided as a cheap housing could be rented. That however seems most unlikely. Rents are still rising exorbitantly and there simply do not exist cheap houses any more.

Koelewijn believes that pensionmanagers/funds, once every five years should provide each insured with a guaranteed pension calculation. This outlines how much pension an employee has built up at that moment – what would be the annual return – and how much the employee will have saved after 40 years. It is also important to know how much extra pension may be saved without paying tax and how much the funds charge the insured for their work. It is uncertain whether all institutions concerned will inform the insured truthfully.

Moral compass and mistaxation
The Dutch Central Bank (de Nederlandsche Bank (DNB) will check that the funds will raise pension contributions ‘fairly’. If pension funds demand unnecessary high premiums, they may be severely fined. Moreover; many employers do not plan to give the released pension contributions of the employees of 2014 to their employees. It is therefore unclear whether or not the employees will be compensated for all their sacrifices. “If one thinks that we are all set with the new laws, then you are wrong,” says Michel Harmsen in the Financial Daily of December 20th. “In 2014, a wide-ranging dialogue will be starting and the SER will be asked for advice before the end of 2014. By that time, the confusion will undoubtedly be so great that you and I have long lost our way.”

If the diagnosis is fatal, the appropriate treatment should be initiated in time, without disproportionate expense for the future financial security of workers and their pensions. All agreements must be in writing and explained to clarify, without bending the facts or introducing bogus facts. Transparency is obligatory. “Citizens demand faultless politicians, politicians pretend that inerrancy. This theoretical emphasis on transparency creates flawlessly playacted perfection – from afar one can observe that it is completely prefabricated”, says Tom-Jan Meeus in the NRC-Handelsblad of December 21st, 2013. Good preparation is half the work, especially for the various social dialogue participants. The development described can be expected in Aruba and on the other islands as well. Are you prepared for an uncertain future as future senior? And will the Central Bank be able to supervise the pension funds and insurance companies properly and conscientiously?

©2013 Renée van Aller, John de Vries , December 20, 2013


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