Dutch employers favour risk-bearing pension schemes

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Risk-bearing pension schemes are becoming increasingly popular among employers. The so-called PPIs Premium Pension Institutions are actually investment funds for pension premiums. Each year on 1 January company pension funds can choose to change their status to PPI.

National broadsheet Trouw reports that about 40 employers with a total of 7,000 workers have chosen to restructure their pension schemes into PPIs, which are licensed by the Netherlands Central Bank.

A PPI is not obligated to adhere to the compulsory coverage ratio applicable to regular pension funds, and also is under no obligation to raise its premiums or cut benefits to maintain such a compulsory ratio.

However, all risks are born by the participants. The amount they receive when reaching the pensionable age currently 65, but gradually being raised to 67 is fully dependent on the value of their invested premiums at that time. And a PPI makes no arrangements for next of kin.

The advantages of a PPI to both employers and employees are the relatively low investment costs and, as a result, low premiums. Premiums are never raised and employers never have to make additional payments.

A PPI pays out a lump sum upon reaching retirement age. It is then left up to the individual participant to invest that amount in an annuity to obtain life-long pension benefits.

© Radio Netherlands Worldwide

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