Pension schemes and costs increasingly affect industrial relations

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In late 1998, the issue of pensions was prominent in Dutch industrial relations, owing to a number of developments. In November, the Lower House of Parliament approved a government proposal to allow for more flexible ways of building up pension rights. At the same time, pensioners' organisations launched a court case, claiming once again a share of excess pension fund reserves. Furthermore, experts raised concerns that interest rates may lead to a sharp rise in pension contributions and consequently in wage costs, while the "pension gap" for younger employees caused unrest in the dockyards sector.

The issue of pensions has been taking an increasingly prominent position in Dutch industrial relations in recent times (NL9808194F), and late 1998 saw a series of important developments in this area.

New rules on building pension rights

On 23 November 1998, the Lower House of the Dutch Parliament approved government plans to allow for more flexible ways of building up pension rights. As of 1 January 1999, employees are given more freedom in choosing how they build up their pensions. An overview of the most important changes is as follows.

• The current minimum age for pension entitlement (currently set at 65 years) has been abolished. The minimum age for entitlement to a full pension is now set at 60 years.

• Pensions can now be built up over a shorter period of time: employees will be able to set aside 2% of their pay a year to build up their pension (previously 1.75%).

• The maximum pension has risen from 70% to 100% of final pay. This results from the introduction of new measures, such as allowing the use of employees' savings in building up pensions.

• The Lower House also approved the continuation of pensions contributions during various types of leave and temporary part-time activities. Employees' pensions will no longer be cut if they choose to work fewer hours or carry out less highly qualified work over their last 10 years prior to retirement.

Pensioners demand their share of pension fund reserves

On 20 November 1998, the Dutch Association of Pensioners' Organisations (Nederlandse Vereniging van Organisaties van Gepensioneerden, NVOG) announced plans to initiate a test case against Shell and Unilever. NVOG claims that these multinational companies are breaking the law by using excess pension fund profits to their own advantage whilst excluding pensioners from the benefits. An NVOG spokesperson pointed to the fact that pension funds are legally required to benefit each of the parties concerned in equal measure. According to NVOG, this means that the social partners cannot use pension funds to finance the introduction of new schemes such as flexible early retirement. The Dutch Union for Pension Interests (Nederlandse Bond van Pensionbelangen, NPB) has also announced plans to initiate a test case. However, this organisation's position is complicated by the fact that it represents mainly civil servants, whose pension funds have not benefited from surplus profits. The NPB estimates the total current national pension fund surplus to be NLG 200 billion. Of this, 42% was accrued by former employees who now receive a pension (current pensioners), 9% by people who contributed to the funds but who later left (for example, because they changed jobs) and 49% by employees who are still paying contributions (the current member base).

Interest rates down, contributions to rise?

A number of experts have voiced concern over the current low rate of interest in the Netherlands. Due to the long-term nature of their commitments, both pension funds and life insurance companies base their calculations on a low average return on investment of 4%, the so-called nominal interest rate. If the long-term interest rate remains at its current all-time low, the nominal interest rate must be adjusted accordingly. According to recent calculations by the Dutch Association of Actuaries (Actuarieel Genootschap), such a measure would lead to a sharp rise in pension contributions and, consequently, wage costs. For example, at a nominal interest rate of 3%, a 25-year-old employee's pension contribution would go up by 39% whilst a 45-year-old employee would be facing an increase of 24%. Total annual Dutch pension costs would eventually go up by NLG 4.7 billion. Pension contributions would then constitute 7.4% of gross wages as opposed to the current figure of 5.8%.

The Association of Company Pension Funds (Vereniging van Bedrijfspensionfondsen, VB) has estimated a less dramatic rise in contributions of 18%. According to VB, this is due to the fact that pension funds are becoming less dependent on bonds, and have begun to invest more in shares and property.

Trade unions and employers are well aware of the pressures that rising contributions are placing on collective bargaining and labour relations in general. The already strained negotiations in the mental healthcare and healthcare sectors (NL9811105F) were further complicated when the pension fund in question, PGGM, announced on 13 November 1998 that it intended to raise contributions by 0.4% in connection with the increasing number of employees claiming disability and long-term illness benefits. This followed an earlier announcement of a 0.6% increase due to the relative increase in the number of pensioners, wage trends and disappointing investment returns.

One week after the announcement, unrest developed amongst dockyard workers regarding pension arrangements, which will certainly affect the next bargaining round over new collective agreements.

Unrest in dockyards over pensions gap

It has been less than two years since a pensions agreement was reached in the dockyards sector, and it has become clear that many dock workers will receive lower pensions than expected. This affects principally employees born after 1950. At the time of the referendum held on the agreement, the proposal was accepted by a marginal majority. Those who voted in favour did so on the assumption that they would be entitled to at least 80% of their final wage by the time they turned 60. It has now emerged that most employees will receive only around half of their final wage. Short-changed employees who find themselves unable to bridge the gap could take out supplementary insurance, but this would cost them several thousand guilders a year.

A director of FNV Bondgenoten, the largest trade union in the dockyards sector, admitted that the union was itself partly to blame for the current problems since it had grossly underestimated the costs of supplementary insurance two years ago. Solving the problem will require an estimated NLG 350 million. The union is considering various measures to fill the gap: reviving talks with the pension insurer concerned, Optas, possibly under threat of terminating the contract; making extra wage demands in the collective bargaining round in early 1999; and possibly holding individual negotiations with the various port authorities. However, the latter option could prove to be at the expense of employees who were dismissed during reorganisations or those employed by financially weaker companies. However, the General Employers' Association (AWVN) which is responsible for handling labour relations for employers in the dockyards sector, has announced that it is not willing to reopen pension negotiations at present. On 25 November, Optas communicated its willingness to work towards a solution, albeit at a price.

Commentary

The trend towards increasingly flexible pension schemes must be seen in the context of greater flexibility in labour relations as a whole. The government is aiming to push through a cohesive package of measures in the course of 1999, which will allow the growing group of "atypical employees" to build up a complete pension. Tax legislation will play an especially important role in this process. The government's objective is to manage pension costs and, thereby, wage costs. The social partners themselves have come to recognise the correlation between pension costs and employment conditions. Pension schemes and their associated costs play a leading role when it comes to negotiations on employment conditions, as is clearly illustrated by the present unrest in the docks.

Just who is entitled to possible pension fund surpluses will remain an open question until talk of test cases is put into action. The only guideline at present is a decision by the Supreme Court dating from 1993, which effectively declares that in the absence of any written agreements, no party is legally entitled to a share of the surplus. The case concerned a group of employees who were forced to withdraw from the Unilever pension fund when shares in their company were transferred to an external company. The employees unsuccessfully claimed rights to a proportional share of the surplus. (Robbert van het Kaar, HSI)