Casino pensions

The vast Dutch pension system is to be reformed. There's a lot at stake: €1.5 trillion in fact. As always, we trust the experts. What could possibly go wrong?

In the aftermath of 2007/8 financial crisis, some of the more astute critics of our economic system made forceful and persuasive arguments, as some of you may recall, that neoliberalism had been comprehensively and definitely discredited by the unseemly spectacle of investment banks collapsing due to their own egregious financial misdeeds. These critics may have been right, but the Dutch parliament never got the memo. On Tuesday 30 May, the Upper House, the Senaat, put the final stamp of approval on a long-awaited and far-reaching reform of the private (supplementary) pension system. The most notable change is the transition from defined-benefit to defined-contribution plans, in which collective funding is replaced by individual accounts (similar I believe to the 401(k) scheme introduced years ago in the US). By breaking the solidarity inherent in the collective funding model it is a quintessentially neoliberal strategy, one that reflects that (in)famous comment by one of the leaders of the neoliberal counter-revolution of the 1980s, Margaret Thatcher, who famously said that there is no such thing as society, only individuals; men, women, and families.

The Dutch private pension system is huge, worth €1.5 trillion (yes, with a ‘t’), which some say makes it the largest in the world. The Dutch like to save and they are very good business people, so perhaps that shouldn’t surprise us. Under apparent pressure from the EU and big finance lobbies, plans to overhaul the system have been many years in works; After years of negotiation, the new arrangement has been given its blessing by parliament and is due to go into effect in 2027. Benefits will henceforth be adjusted annually based on changes in economic conditions and estimated lifespan, hence some critics call the new system a “casino pension”. Political economist Ewald Engelen pointed out on Twitter that that the change is a direct assault on peoples’ collective social security:

from [defined-benefit] to [defined-contribution] means a massive shift of risk from employer to employee and thus an equally massive deterioration of employees' pension rights.

Engelen is one of the sharpest commentators on economic affairs we have, and he has observed in the past that the Netherlands is the most neoliberal country in Europe (continental Europe of course, the UK has of course gone even further). So perhaps this course of events was predictable.

Lilian Marijnissen, leader of the Dutch Socialist Party, addressing demonstrators outside parliament on Tuesday who were calling for the Upper House to vote against the pension reform. Source: ANP

There were a growing number of voices urging parliament at the last minute not to ratify the pension reform, of which perhaps the most prominent is Pieter Omztigt, the independent parliamentarian who, unlike nearly all his colleagues, actually has some understanding of the complexities of the pension system; pensions was part of his parliamentary portefeuille as a member of the Christian Democrat party, which he left last year. In several strongly-worded posts on his personal blog, he urged the Upper House not to approve the legislation. ('“Een nieuwe pensioenwet in de oude Eerste Kamer: doe het niet!, 10 mei 2023, “De duistere voortekenen van de pensioenwet”, 29 mei 2023)

I don’t want to get too deep into the weeds of this complicated topic, so let me just offer a brief summary of some of his main points:

• The €1,5 trillion is to be divided up among some 20 million individual accounts.

• According to the the Dutch Central Bank (DNB), 75% of the pension funds have not successfully completed internal audits during the past two years, hence, according to the DNB, "Insufficient control over data quality could result in participants' pension entitlements not being accurate, complete or traceable."

• No appeal process will be allowed. Everyone — current and future pensioners alike — will migrate to the new system with no say in the matter.

Despite (or perhaps because of?) the lack of a formal appeal process, Omtzigt and others anticipate decades’ of legal challenges concerning hundreds of billions of euros, potentially, say some critics, overwhelming the justice system.

Here’s the paradox: Holland, despite a number of festering crises and a general decay in the public sector, remains for the most part a stable, functional society. This sense is reinforced spatially and visually thanks to a highly ordered physical environment (careful and meticulous urban and rural planning). It's an environment that you might think would condition a measure of instinctive conservatism: the system appears to be mostly working, let’s not break it. In reality however it produces a kind of fatal complacency. Reflexive self-satisfaction and normalcy bias assures us things will continue as usual, the system is infinitely stable, hence some big, complex technocratically-driven change will work out just fine. They always do. Except increasingly they don’t.

Making predictions is something I’m loathe to do, but nonetheless, based what we’ve seen in recent decades, here is how I think this is likely to play out:

The new system will prove, if at all feasible, far more complex and expensive to implement than expected, hence inevitably there will be delays and postponements. A committee of experts (the familiar suspects from the management consultancy world?) will assembled to study the situation; whatever misgivings they (privately) may have, they will succumb to the sunk cost fallacy, remain captive to various institutional interests, and recommend nonetheless moving forward with a few tweaks. The new system will eventually be rolled out in fits and starts. Problems will ensue. The parliament will dither and fail to respond. It will have neither the will nor the means to solve the problems. If worse comes to worst, they will shrug their shoulders and say: Sorry, but Brussels made us do it. Blaming the EU is the eternal get out of jail for free card of the hapless, feckless European political class.

(This of course presumes the “business as usual” that we’ve come to know and expect from Mark Rutte and his coalition. In due time we quite likely get a different parliament and a different cabinet, which may operate differently, but the systemic rot is very deep and there may be real limitations in how far they can go to change course, at least in the short term.)

In closing, an anecdote: some years ago I was corresponding with an old friend who for many years was a tenured full professor on the faculty of the humanities department of a prominent liberal arts college in the US. I knew that she was approaching the age of 65 and asked her lightheartedly whether she had any plans to forsake the classroom for a life of leisure in some sunny climate. She replied bitterly that her institutional 401(k) “casino pension” had been wiped out in the 2007/08 crisis and that for economic reasons she would need to work until she was 70 (which in the intervening years she duly did). I wonder how many Dutch people, who so fervently cherish stability and security, as do people everywhere, will find themselves in such circumstances in the future? Does the citizenry have any idea of what their government has just done?