The Dutch Model of Sector-wide Supplementary Pensions:
 Fund Governance, Finance and European Competition Policy

Abstract

There is considerable interest in the design and funding of European pension systems. While many commentators emphasize the financial burden of under-funded European social security systems, less understood are the structure and performance of European supplementary pensions. In this paper, we introduce readers to the Dutch system of funded supplementary pensions focusing upon the governance structure of those pension funds in the context of European competition policy. From the early 1950s, the Dutch government has encouraged the development of employer-sponsored and industry-wide supplementary pensions, covering most employed Dutch workers. As the government has slowly discounted the real value of social security, supplementary pensions have come to play a crucial role in maintaining high levels of income replacement upon retirement. From an Anglo-American perspective, however, these pension institutions appear quite unusual. In many instances, firms are required to participate in sector schemes denying them the right to make separate arrangements with competing financial institutions. Moreover, many sector schemes are, in effect, mutually-owned financial conglomerates selling services to a captive internal market. Referencing the decision of the European Court of Justice in Maatschappij Drijvende Bokken, this paper assesses the arguments for and against this model of pension provision. While sympathetic to the goals of national social solidarity, the underlying structure of governance unfortunately combines the risks of moral hazard with limited transparency and accountability.