Pensions - Articles - Drawbacks of collective pensions must be considered

 Dutch-style collective pension funds can cut pensions in payment if deficits rise, with Deloitte partner Tony Clare commenting:

 “Dutch-style collective pensions offer benefits but it’s also important to consider their drawbacks. For example, 55 out of 415 Dutch funds actually reduced pensions in payment in 2013 alone. Many Dutch pensioners have experienced falling pensions and standards of living as a consequence. Once a scheme member retires, the options to rebuild pension savings become more limited.

 “Contributions to some Dutch funds also tend to increase during economic downturns as their trustees prefer this solution to cutting benefits to deal with deficits. The result can be that employers’ pension costs increase and employees’ take home pay reduces just at the time when people and business can least afford it.

 “Young employees often perceive their contributions as a tax. Employees and employers pay level premiums to Dutch funds but as the costs of benefits are much higher for older employees, younger employees effectively subsidise the pensions of older workers.”

 “Dutch-style collective pensions are certainly an option, but great care needs to be taken in their design and communication.”