Dutch pension participants in favour of SPR solidarity reserve, research shows

 

By Natalie Tuck

 14/02/24

The majority of Dutch pension fund participants are in favour of the solidarity reserve, within the solidarity premium schemes (SPR) that many pension funds are opting to transition to.

According to research by Netspar, which conducted a sample of 2,100 participants of the 38 largest sector pension funds, this majority support does not yet mean that one standard can be followed in the implementation of the solidarity reserve and communication about it.

“We find broad support for the design of the buffer, but also a high degree of heterogeneity. This heterogeneity is consistent with the insights of the academic literature on social preferences (Fehr & Charness, 2023). Also in our study, we find a threefold division in the population according to i) altruism, ii) reciprocity and iii) self-interest,” the report stated.

“Almost half of the participants show unquestioning solidarity with others and can be characterised as strongly altruistic, or willing to help others without expecting anything in return. This group provides the greatest support for the buffer. Over a third of participants also want to show solidarity with others, but on a reciprocal basis. The third group of participants is relatively small, rather focused on self-interest and assigns less value to solidarity and the buffer.”

The solidarity reserve, also known as a buffer, is part of the SPR schemes that pension funds can transition to. Pension funds have the option to transition to either an SPR scheme or a flexible contributions scheme.

The purpose of the solidarity reserve within SPR schemes is to share windfalls and setbacks between members. This involves sharing investment risks and shocks in inflation and longevity. The reserve aims to help dampen differences between unlucky and lucky generations and to achieve more stable benefits.

Based on its finding, Netspar has recommended three things for pension funds to consider in their transition to the new pension system. Firstly, it stressed that pension funds should keep in mind that there may be different views about the solidarity reserve.

Secondly, pension funds should examine the extent to which the design and communication matches the distribution of their participants’ social preferences. And finally, for funds with relatively large numbers of participants focused on self-interest and reciprocity, communicate that the buffer is designed to work both ways.