Free Lunch

The Dutch Authority for the Financial Markets (AFM) recently warned pension funds and administrators not to focus solely on the positive aspects of the new pension system, such as the potential for higher payouts. Clear communication is also needed about the risk of a decrease in pension benefits. As economists like to say: “There’s no such thing as a free lunch.”

Chances of Increases – and Decreases
A key difference between the old and the new pension system is that pension payouts under the new system move more directly with financial market performance. This means pensions can rise more quickly when returns are good—but also fall more quickly when results disappoint. It’s essential to clearly explain this chance of both upward and downward movement.

Risk Is Hard to Grasp
According to psychologist Daniel Kahneman, people naturally struggle with estimating risks and probabilities—especially when it comes to small chances of large losses. A 5% drop in pension value may sound abstract, but if it means receiving €100 less per month, the impact becomes very real. Still, people tend to underestimate such risks, especially when communication around them is limited or vague.

Honest Communication
It’s understandable that messaging about the new pension system often emphasizes benefits—such as earlier indexation. But if the possibility of declines is downplayed or omitted, trust can be lost the moment reality falls short. That’s why honest and transparent communication—especially about negative scenarios—is crucial to create and maintain public support.

Why This New System Makes Sense
There are plenty of solid arguments in favor of switching to the new system. The old system was built on assumptions from the 20th century: lifelong relationships, stable careers, and high interest rates. In that context, fixed pension promises were workable.
But today’s reality is different: we live more flexibly, relationships are often shorter, people switch jobs more often or work independently, and interest rates have been persistently low.
The Future of Pensions Act (Wet toekomst pensioenen, or Wtp) introduces a system that better matches how we live, work, and age today: more personal, more transparent, and more sustainable.

Trust Is Built on Truth
Trust in pensions isn’t built by sharing only the good news. It’s built by taking people seriously—by clearly explaining the trade-offs, the risks, and the decisions that have been made. That includes being open about the possibility that pensions may fall. That might be a hard message, but in the long run, it’s the only way to earn and keep people’s trust.