A good pension without discount interest: is that possible?

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                              You can abolish the discounted actuarial interest rate for pensions, but at the same time that means that you have to let go of the promises about the amount of pension benefits and that benefits can vary from year to year. That is what pension experts RTL Z spoke about. Are there possible solutions?

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        <p>Minister Wouter Koolmees (Social Affairs) and the trade unions are investigating a new idea to finally come to a new pension contract. Great Tit would be willing to surrender the discount rate, the trade unions the pension security.

This was confirmed by the spokesperson for the Minister of Social Affairs and Employment at RTL Z, following news coverage in De Telegraaf.

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        <h2>What is the discount rate? </h2>

The actuarial interest has been criticized for some time. That is the interest that pension funds use to determine how much money they need now to be able to pay out the promised pensions. Is the interest rate high? Then you need less cash. Is the interest rate low? Then you have to hold more reserves.

The interest rate has been very low in recent years, so pension funds have to have a lot of money in their cash. This is measured on the basis of the so-called coverage ratios. Interest rates have become so low in recent years that a number of funds risk falling below certain limits. Lowering pensions can solve that, but that is – for understandable reasons – difficult.

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        <h2>"Changing the rules every time"</h2>

Some politicians and interest groups argue for an increase in the discount rate. This way pension funds can avoid discounts, explains Lukas Daalder, Chief Investment Strategist for the Dutch market at BlackRock.

He is, however, afraid that the rules will be adjusted every time when pension funds approach the point where they have to cut, but that stops once. At some point, the money is really used up, if discounts are always postponed.

That will also affect the solidarity of young people, because they will start to wonder why they should pay pension premiums, while they may not receive much or much less pension later, according to Daalder.

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        <h2>Pot of money</h2>

Is releasing the actuarial interest a good idea? Then we have a pot of pension money left, where you later see how much pension can be paid out later, pension expert Emilie Schols explains.

Then you pay a pension premium during your working life, without knowing what you will pay if you stop working.

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        <h2>Uncertainty vs. false certainty</h2>

This would make the pension a lot more uncertain. The amount of your pension may even vary from year to year, thinks Jaap Koelewijn, professor of corporate finance at Nyenrode Business Universiteit.

Schols believes that our pension is not really that secure either. Many pension funds have not applied any inflation correction for years, she explains, and as a result the purchasing power of pensions has fallen by at least 20 percent in total.

“That is huge and at least as bad as cuts. Pension discounts are never 20 percent,” says Schols.

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        <h2>Guarantee pension up to a certain level</h2>

She sees more in a pension system where you guarantee the pensions up to a certain amount, for example 10,000 euros above the state pension. After all, it is strange that pensions of 60,000 euros a year are just as uncertain as pensions of 6,000 euros a year, says Schols. Your pension would then only be reduced if you are above that threshold level.

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        <h2>Take more risk</h2>

An uncertain pension, where pension funds no longer make firm commitments about the amount thereof, does ensure that pension funds can take more risk when it comes to their investment policy, Koelewijn analyzes.

After all, if you do make commitments, you must have more certainty about the return on your investments and that means a larger part of your investments in bonds and less in shares. Bonds have a certain but relatively low return. Shares have an uncertain, but (hopefully) higher return.

By investing more in shares, investment returns will fluctuate more, but measured somewhat higher over the longer term, says Koelewijn. After all, in principle risk and return are the reverse of the same coin, if you take more risk, you can also expect a higher return.

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        <h2>PAYGING SYSTEM</h2>

The Netherlands is the country that is pretty much the country with the highest pension assets in the world, in most other countries workers are primarily or almost entirely dependent on an equivalent of the state pension.

There is a lot to be said for a pay-as-you-go system, when the government can borrow for free or even get money if it issues bonds, says Daalder.

The government could use the AOW to contribute to alleviating the turmoil about pensions, but bear in mind that the Netherlands is only just beginning to age, he says. If more money goes to AOW benefits, then there may be less money for other things, warns Daalder.

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                                        <h2>Why the discount rate is so important for your pension</h2>







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