The Future of Pensions in the Netherlands

About the survey The Netherlands is probably on the eve of important reforms to the pension systems. The changes that will have major consequences for members but also for employers. 74% DB/CDC sponsors This survey tracks the opinions of 68 companies representing more than 320,000 employees on the current situation of the Dutch pension system and the expected consequences of future pension reforms. 26% DC sponsors The survey was conducted in April 2017, after the national elections. 2

Views on pensions today 3

Today less than half believe pension provision is affordable, transparent or fair Important differences by plan type: How strongly do you agree with the following statements about the pension system today? 70% believe the current pension system needs to be reformed % agree and strongly agree Pension provision is affordable Pension provision is sufficiently transparent DB/CDC sponsors 28% DC sponsors 78% 38% 50% Pension provision balances risks fairly between different generations 38% 44% % agree and strongly agree 4

The current system is seen as beneficial for older employees but also to high-income ones How strongly do you agree or disagree that the current system is beneficial to different groups of employees? DB/CDC sponsors DC sponsors 79% agree the current pension system is beneficial for older employees 84% 67% 28% beneficial for young employees 22% 44% 28% beneficial for low-income employees 26% 33% 53% beneficial for high-income employees 54% 50% % agree and strongly agree 5

Pension reform and the future of retirement savings 6

The reform will introduce more intergenerational fairness to the system, and would mean the end of traditional collective plans for employers 57% of employers agree the reform will introduce more intergenerational fairness to the pension system. 56% agree the reform will mean the end of traditional collective pension plans and replace them with personal pension accounts. the reform will improve the long-term sustainability of the pension system. 48% 78% DB/CDC sponsors DC sponsors % agree and strongly agree 7

Employers believe changes in accrual and contribution rates would improve fairness of the pension system DB and CDC plans - thinking about the transition to age dependent accrual rates % agree or strongly agree 48% 34% 20% 24% The reform will improve fairness of the pension system The reform will improve employee perceptions of the pension system Older workers will become more attractive to employers Wages should rise to compensate older workers for less generous pensions 56% 39% 72% 17% DC plans - thinking about the transition to age independent contribution rates % agree or strongly agree 8

Individuals will be more engaged with retirement savings, but perspectives will be worsen as lower generosity becomes clear What impact would the pension reform have on employees? 54% 37% 61% 49% 49% agree employees will be much more engaged with their retirement saving agree employees will look on their pension plans more favourably than before agree employees will need to save significantly more for retirement personally agree employees will reach retirement with significantly lower pension incomes would be very concerned if retirement savings were put towards buying a house or health care % agree and strongly agree 9

Employers are worried about employees retirement savings They expect employees to save less with the pension reform Percentage saving Far too little and Too little by group of individuals Retirement options Young Old 34% 41% 60% 65% Employees should start saving for retirement as soon as possible Employees should start saving for retirement only after they have addressed other financial goals (e.g., housing) Low income 54% 68% 44% 83% High income 42% 34% 24% Male 32% 37% 15% 10% Female Current pension system 34% 41% If the reforms are enacted Strongly Prefer Slightly 7% 7% Neutral Slightly 0% Prefer 3% Strongly 10

Mixed views on individual versus collective plans Individual Collective 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Employees should make their own investment choices 46% 41% Employees should act collectively Employees should face the financial risks from managing their retirement savings individually 44% 40% Employees should share the financial risks from managing their investment savings 11

Flexibility and retirement choices 12

More flexibility would have a positive effects on employees, but there s limited appetite for flexibility and choice at retirement How positive do you think the following changes or possible changes will be for employees working in your organization? 0% 10% 20% 30% 40% 50% 60% Flexibility in age to access the state pension 25% 35% More flexible contribution rates 24% 24% Access to pension savings before retirement 13% 31% More investment options 13% 26% Extremely positive Ability to choose pension provider 13% 16% Very positive Ability to take a lump sum at retirement 7% 21% 13

Employers believe it would not be easy for employees to cope with greater flexibility and choice at retirement Thinking about the introduction of greater choice and flexibility at retirement (different types of annuities to choose from, as well as the potential option to take lump sum rather than annuities), how strongly do you agree or disagree with the following statements? 82% 85% 79% of employers disagree: employees will be able to cope easily with a wide variety of choices % disagree and strongly disagree of employers disagree: employees will have a good understanding of the risks they face % disagree and strongly disagree of employers disagree it will be easy for employees to find the right guidance and information % disagree and strongly disagree 75% of employers agree that if employees are given too many alternatives they will be unable to make good decisions. % agree and strongly agree 14

Less than one-third believe a flexible SPA would lead employees to work longer Only 16% would welcome increased numbers working to older ages How strongly do you agree with the following statements about what is likely to happen if the government introduces a flexible state pension age? 29% It would cause many employees to work beyond the official retirement age 28% It would encourage employees to keep working while drawing from their state pension 16% The company would be happy if employees keep working longer 51% It would be fairer for people of different socioeconomic groups 43% It would cause many employees to retire earlier % agree and strongly agree 15

The employer s role 16

Employers see an obligation to help with choices for retirement A minority see a need for broader financial planning 63% 59% 52% 31% Employers will have the responsibility to help employees choose the option that best meet their needs. Employers have a responsibility to actively help employees on the options they will face at retirement. Employers have a responsibility to actively help employees manage their pension contributions. Employers have an obligation to provide financial planning benefits to employees. % agree and strongly agree 17

Giving support to retirement decisions seems to be increasingly important for employers In the future, how much less or how much more support will your organization provide to employees with regards to the following? Annuity choices at retirement 44% 50% 6% 22% 61% 17% General financial planning 28% 70% 2% 17% 67% 17% Investment decisions 18% 70% 12% 11% 67% 22% DB/CDC sponsors DC sponsors More / Much more About the same Less / Much less More / Much more About the same Less / Much less 18

But, instead of informing employees about the different options, almost half believe it would be better to preselect a narrower set of retirement options Employers tend to be in favor of providing financial well-being assistance Financial wellbeing Retirement options Employers should provide assistance with the financial wellbeing of their employees It s not an employer s role to provide assistance with financial wellbeing (employees are responsible on their own) Employers should inform employees about the wide range of retirement options (e.g. when purchasing an annuity) Employers should preselect a narrower set of retirement options 53% 25% 44% 18% 13% 19% 33% 34% 15% 22% 16% 18% 10% 10% 9% 10% 10% 4% Strongly Prefer Slightly Neutral Slightly Prefer Strongly Strongly Prefer Slightly Neutral Slightly Prefer Strongly 19