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In the 2003 Dutch collective bargaining round, occupational pension issues have led to a deadlock in negotiations at a number of major companies, notably in financial services and industry. Employers want to reform their pension schemes radically, as shrinking capital reserves and increasing numbers of claimants have depleted their funds. The Akzo Nobel chemicals group even wants to hive off its pension fund, making it independent. The trade unions are fiercely opposed to this plan and other more drastic austerity measures, but are increasingly prepared to accept a greater use of average-salary rather than final-salary schemes and a temporary suspension of pensions indexation.
Occupational pension schemes (NL0108142F and NL0210102F) have been a key issue in the 2003 collective bargaining round and have led to deadlocks in negotiations over company agreements at a number of major financial services and industrial groups.
In finance, large employers such as ABN Amro, Aegon and ING, want their non-contributory occupational pension schemes (ie to which employees make no contributions) to be abolished, or at least modified. Given current stock market problems and rising employers' pension obligations, these firms believe that employees should bear part of the pension burden traditionally carried by employers in the banking and insurance sector - at ABN Amro, for example, the employers' contribution amounts to 5% of gross pay. The trade unions are less than enthusiastic about this. In bargaining in 2003, ABN Amro (which has 20,000 employees in the Netherlands) wants to reach agreement on the pension contribution issue before discussing other terms and conditions of employment, and negotiations with the unions have thus been suspended.
ING (33,000 employees in the Netherlands) has made a proposal for employees gradually to take over responsibility for 3 percentage points of the employer's occupational pension contribution over the next four years. Additionally, the company proposes a consolidated pay increase of 2%, to be paid in two instalments in summer 2003 and January 2004. On balance, the unions believe that this would result in a loss of employees' purchasing power. They have threatened to take industrial action, including strikes, if necessary, and are likely to be supported by employees, given major increases in senior management pay at ING and a profit of EUR 4.5 billion in 2003. At ING the ability of the pension fund to cover its obligations is not an issue (the rate of cover is 122%), but this issue does play a role at ABN Amro, where the requirement to maintain the company fund is said to undermine the group’s profit figures (cutting them by between 10% and 20%). Moreover, according to ING, its shareholders should be investing in a company not a pension fund. As well as dwindling yields on its pension capital, the bank now has to deal with the consequences of an ageing population, in the form of rising pension costs. ABN Amro thus proposes raising the current retirement age from 62 to 65.
In industry, bargaining at the Philips electronics group (30,000 employees in the Netherlands) has been postponed because of the pension issue (NL0304101N). Philips wants to change its occupational pension scheme in the new collective agreement, replacing the final-salary scheme (whereby the pension is calculated on the employee's pay at the time of retirement) for the 12,000 employees still covered by it with an average-salary scheme (whereby the pension is calculated on the employee's average pay over their career) which already applies to 16,000 employees. Furthermore, the company intends to make the indexation of pensions to prices and wages subject to conditions and increase the retirement age from 62.5 to 65 years of age. While early retirement would still remain an option, employees would be required to accumulate additional savings in order to retire early. The unions have asked for more time to study the plan, but have so far been critical.
At TPG Post (postal services), however, management and unions have reached a new agreement, providing for a 2.5% pay increase over two years, plus amendments to occupational pension provisions. While the non-contributory scheme will be maintained, employees will have to contribute towards the additional EUR 110 million needed by the company pension fund by waiving their premium savings scheme for the next year.
Akzo Nobel wants to hive off pension fund
The Akzo Nobel chemicals group has proposed another approach in an attempt to prevent its occupational pension burden from having an impact on its operating results. It is the first Dutch company to propose 'hiving off' its pension fund (ie making it independent from the company), thus placing the risks associated with investment on the employees. While in the past the company acted as a 'sponsor', both carrying both the burden of the fund and benefiting from the 'windfalls'– by ploughing them back into the company, for example – it now wishes to break this close link. Until a few years ago, the company’s non-contributory occupational pension scheme was considered an attractive fringe benefit, used to entice would-be employees, but it is now regarded as a burden. Undoubtedly a factor in this change has been introduction of new EU book-keeping rules which will oblige companies to include the investment results of company pension funds in their balance sheets from 2005, with pension fund results thus potentially having an impact on the profit and loss account. The issue has been made all the more pressing by the fact that the company has 40,000 non-active pensioners, compared with 13,000 employees making pension contributions.
The trade unions are not at all enamoured with Akzo Nobel's proposed move and do not want to see discussions on reforming the pension scheme dominate the 2003 collective bargaining round. Moreover, the unions have previously put forward proposals for recovery that have in part been accepted by the company. Three years ago, the scheme was changed from a final-salary to an average-salary basis, and a financing agreement was subsequently reached. The 2003 negotiations have been postponed until further notice. The unions want to conclude the current collective bargaining process before entering into further discussion about pensions, while management takes the opposite view.
Trade unions change approach
Despite a lukewarm response from the trade unions to the occupational pension proposals made by a number of major employers, it is not the case that the trade union movement as a whole has no interest in resolving the problems confronting pension funds. In a 2003 draft memorandum on pensions entitled 'Towards a solid system based on solidarity' (Naar een solide en solidair stelsel), the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV), asserts that wage moderation is the most obvious and effective method of maintaining control over the pension issue. FNV also states that wage and price indexation of pension benefits can no longer be taken for granted, and could be waived and then made up once the economy picks up again. The Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) agrees with this position.
By proposing a temporarily abandonment of indexation, FNV is attempting to find a solution to the current problems that does not involve further raising contributions - total pension contributions are already due to increase to as much as 20% of paybill over the next two years, and anything more would not be economically viable. A system whereby pensions are based on average, rather than final, wage levels is now also open for discussion for FNV. The unions, which together with employers manage the sector-wide occupational pension funds that cover some 80% of employees, would also like to raise contributions wherever possible. Finally, it is suggested that, in the future, the pension rights of unemployment and disability benefit claimants would only stay intact if based on premium payments. The draft memorandum has yet to be discussed with FNV's members.
While the largest employers’ organisation, the Confederation of Netherlands Industry and Employers (Vereniging Nederlandse Ondernemers-Nederlands Christelijk Werkgeversverbond, VNO-NCW) has yet to comment on Akzo Nobel’s proposals, and it is clear that it recognises the problem, it does not see a solution in hiving off company pension funds. The Dutch Federation of Small and Medium-sized Enterprises (Midden- en KleinBedrijf-Nederland, MKB-Nederland) shares these views. Along with FNV, VNO-NCW supports introduction of a pension system based on average wage levels.
Pension funds shortfall
Dutch occupational pension funds had amassed up a shortfall of EUR 10 billion by the end of 2002. Of all the 284 funds, more than 60% had too little in their coffers. In spring 2003, a further 70 funds entered into financial difficulties due to capital shortfalls. The Pension and Insurance Supervisory Board (Pensioen- en VerzekeringsKamer, PVK), which is responsible for regulating the funds, requested the funds to put forward concrete proposals on how to resolve the situation, and 106 of these plans have since been approved. Some 80% of the funds have raised contributions and 70% have frozen pension benefits. A total of 26 companies have granted their pensions funds a loan to top up their capital reserves. After discussions with the social partners, the state secretary for social affairs, Mark Rutte, has decided to review the strict requirements for pension cover applied by the PVK and will submit a legislative amendment to this end in autumn 2003.
Commentary
That occupational pensions would eventually become an important theme and act as a stumbling block in collective bargaining was clear several years ago (NL0108142F). The fact that FNV has only now drawn up a draft memorandum on the matter indicates that at least one of the social partners feels overwhelmed by the problem. The viewpoints adopted by the companies referred to above also point to something of a panic situation. The unions are refusing to approve the most far-reaching proposals, such as that put forward by Akzo Nobel. However, on other points such as the average-salary system for calculation of pensions, the social partners are beginning to see eye to eye. Around a third of employees are already covered by this system.
Rationalisation of the pension system seems inevitable in view of the various adverse developments: the ageing population, which has served to further upset the balance of non-active and active, contribution-paying people; shrinking capital reserves held by pension funds as a result of the current slump in the stock market; more rigorous cover requirements imposed by the PVK; and new EU book-keeping rules. While the last two points fall within the political arena and the ageing population is an issue confronting society as a whole, the social partners share responsibility for managing the funds. They have relied excessively on stock market profits over the past few years and have permitted pension fund windfalls generated in times of economic prosperity to be fed back into corporate coffers. In the current collective bargaining round, they are having to reap what they have sown in terms of inappropriately managing the funds in the past. (Marianne Grünell, HSI)