A historical tax agreement and increasing coverage ratios of pension funds

Positive, but still sceptical

Jacobs says he is very positive about the new tax agreement, but still a bit sceptical. ‘As always, the devil is in the details. It is very good that governments worldwide are trying to do something about the transfer of profits from multinationals to tax havens. Now governments are getting taxing rights on the profits of multinationals that are parked in countries with very low or no tax rates.’ But therein lies the devil in the details, Jacobs says. These tax rights only apply when the profit exceeds a normal profit level. That residual profit is then divided among various countries, which may then levy taxes over it.

Points of discussion

According to Jacobs, there will be a lot of discussion about how exactly the new agreement will be shaped. ‘Moreover, quite a few sectors, such as financial services, have been excluded, which will also cause some discussion.’ Nevertheless, Jacobs admits that, politically speaking, a very big and important step has been taken.

Not all countries have agreed to the agreement, among which Ireland. ‘When all countries start to levy profits on companies that operate through Ireland, I am unsure how Ireland will be able to stop this.’ Jacobs says that it remains to be seen how this will work out. ‘Perhaps all kinds of constructions will be possible again to shift taxes, but in any case, it will be different from what we are seeing now.’

Higher coverage ratios, lagging pensions

The funding ratios of many pension funds have risen considerably due to higher interest rates, while cuts were still threatening last year. However, pensioners are not going to benefit from this, as the growth is not strong enough to allow for the indexation of pensions, which means that pensions would move in line with prices. This is causing huge pension gaps of about 20 to 25% in some pension funds.

The lack of indexation is causing anger among the trade unions. According to Jacobs, the rules are clear. ‘In the current pension system, agreements have been made and pension funds have been given a reprieve every time in anticipation of the introduction of the new system, in order to avoid having to make cuts. The rules of the game are very clear: you first need to recover from the blow dealt to pension funds since 2009 before you can start indexing again. If you start indexing now, you will be giving money to the elderly that you will have to take from the young, and that is not the way you should do it.’