Governance and Stakeholder Involvement in the Dutch Pension Industry, Lessons for Developing Countries

Abstract

SUMMARYThe article discusses governance structure and stakeholder involvement in pension plan reforms. Although the global financial crisis has put pressure on pension reforms, some reforms were implemented earlier because of sustainability issues that had emerged on the basis of, among other issues, demographic trends. We show, based on Dutch experiences, that stakeholders and individual participants in particular were only partially involved in these changes. On the basis of these findings, we propose some tools to improve stakeholder involvement, which can contribute to sustainable support from stakeholders to pension plans.

PUBLIC POLICY FOR PENSIONS REFORM: A GOVERNANCE CHALLENGE FOR PUBLIC ADMINISTRATION AND DEVELOPMENT: Introduction to the Special Issue

“…Government management of these risks has proven to be challenging. Johan de Kruijf and Michiel de Vries () describe the Dutch privately oriented (pillar 2) approach that limits the risks for individuals by having most risk managed at the scheme level with close regulation and obligations for proper funding of the defined benefits, noting this has not been without its difficulties including when smaller funds struggle to meet increasing liabilities from members living longer.…”

“…On the other hand, benefits promise schemes, and particularly government‐managed schemes that are not fully funded, require regular review to ensure that liabilities can be managed without undue burdens on future generations. de Kruijf and de Vries () draw on surveys by Mercer that suggest that systems based on privately financed schemes achieve better overall outcomes (in terms of ‘adequacy’, ‘sustainability’ and ‘integrity’) than those more reliant on public funding and that, of these, those with defined benefits (such as in the Netherlands) perform best of all. That said, they also highlight the difficulties the Netherlands has faced in managing the necessary reforms to maintain a privately financed, fully funded, defined benefit system.…”

“…People in government are not the only ones who do (or should) influence the design of pension systems. de Kruijf and de Vries () provide a detailed description of how stakeholders have shaped the Netherlands' system and reforms and have a continuing role in management of the system. Employers and unions continue to be the key stakeholders, but the reforms have required important adjustments to expand pooling and draw upon greater financial expertise, and the finance industry is now another key stakeholder.…”

“…It is clear from the article of Beltrao and Pinhanez () that Brazilians would not agree to allocating so much of the risk to individuals, with the implication that government in Brazil must therefore take action to better manage the risks it has accepted. The Netherlands (de Kruijf and de Vries, ) relies heavily on private financing but its long accepted defined benefit approach means they do so without individuals bearing the level of risk they do in Australia. This has, however, required major reform to ensure that funds can manage their greater share of the risks, including through a strengthening of government regulation arrangements.…”

“…The importance of technical and administrative capacity to manage pension systems is highlighted in several articles (Bali, ; de Kruijf and de Vries, ; Li, ). This may constrain basic system design (such as whether means tests can be applied or privately funded defined contribution schemes can be properly regulated) or may affect system management (such as levels of pooling to create the critical mass needed to find sufficient management expertise).…”