Most pensionschemes in the Netherlands are still defined benefit. Defined benefit is no longer sustainable. The cause lies in structural demographic changes. This evolution is structural and irreversible. The dotcom crisis, but even more the credit crunch, actually work as a catalyst of the underlying demographic problem. The excessive pressure on the solidarity of future generations and on the affordability (employer and labour market) mean that we should stop structurally shifting these risks. From now on, the current generations will have to absorb the risks themselves.

This is where Defined Ambition comes in. As in defined benefit defined ambition is based on accruing benefits according to years of service and salary. The level of accrual is derived from the pension ambition including the indexation that members should be able to reach. The pension assets are pooled and the risks are shared within and between generations. The investment policy for the collective pension assets is aligned with the ambition, including the preferred security level of achieving this ambition.

So far, this is fully in line with defined benefit. The main difference is that the pension age will increase according to future increases in life expectancy and that in cases of for example more severe market stress or increased longevity the benefits accrued in the past can be adjusted. The ambition is realigned. In better times, the benefits lost can be recovered. So the benefits are not guaranteed anymore, they are an ambition or target. To stay on track, the ambition has to be met by a solid funding system according to the security rules of an appropriate financial assessment framework. Faced with the same kind of financial drawdowns, the result in both defined benefit and defined ambition should be the same; the distribution of the shortfalls is however more likely to be fair. A new sustainable solidarity-balance between young and old can be reached. And the employer can stay in the system, his risk is controlled.

Defined ambition is hybrid or synthesis between defined benefit and defined contribution. It has defined benefit elements like a pensiontarget to be funded properly and it remains based on collectivity and risk sharing (also between generations). And it has defined contributions elements like adjustable benefits. Defined ambition offers the possibility to profit as much as possible from risk sharing and is the only way out of unsustainable guarantees without needing to revert to individual contracts.