(Bloomberg View) -- The headline from the Dutch businessnewspaper Het Financieele Dagblad caught my eye on Twitter a fewweeks ago: 'America is the example of how not to do pensions.'

The quote was from an interview with Angelien Kemna, who steppeddown on Nov. 1 from the top finance job at APG Groep NV, whichmanages the Netherlands’ biggest (and world’s fifth-biggest)pension fund.

After reading it, it struck me that it might be useful to letU.S. readers know what one of the leading figures on the globalpension scene thought was wrong with the way this country handlesretirement savings.

The Dutch retirement savings system, considered one of theworld’s best, is built around defined-benefit workplace pensions --as the U.S. system used to be.

But while some pension funds are affiliated with a singlecompany, such as Royal Dutch Shell PLC or Koninklijke Philips NV,industry-wide pension arrangements are the norm.

APG manages ABP, the 405 billion-euro pension fund for workersin the public sector and education, and several smaller funds.

Before joining APG as chief investment officer in 2009 (she waspromoted to chief finance and risk officer in 2014), Kemna waschief executive officer of ING Investment Management Europe andworked in various jobs at Dutch asset manager Robeco Groep NV.

From 2007 to 2009, she taught part time at Erasmus UniversityRotterdam, where she got her Ph.D. in finance, while living inAtlanta, where she got some firsthand experience of how the U.S.handles retirement.

I spoke with Kemna by phone in mid-December. What follows is anabridged and edited transcript of our conversation.

Justin Fox: Why is America the example of how not to dopensions?

Angelien Kemna: What I saw living in the United States was thatso many people not only lost their jobs and houses during thefinancial crisis, they also lost more than half of their pensions,because their pensions were 401(k)s. These are individualizedpensions with high fees. People don’t understand the risks theytake, they do not share risks over generations. It makes themextremely vulnerable in an area that is very important for them --their future life and safeguarding their future life.

I think that financial services organizations made a lot ofmoney selling these things. People have extreme difficultyunderstanding pensions at all, and it’s very easy to convince themto do things that might actually not be good for them.

That is something that I have been fighting against my wholelife in the Netherlands, the shift to an individual system. You cantop up individually if you want to, but the basis pension should berisk sharing between people of various ages.

JF: One thing that seems under-understood here is that it’s notjust the competence issue of whether individuals are good atinvesting for retirement, it’s that in theory -- and I thinkin practice in the Netherlands -- it’s cheaper to do itcollectively, right?

AK: Oh, absolutely. And yes, we also suffered from the crisis aspension funds, but de minimis. We’ve totally recovered from thecrisis, and I would say that the system has been shown to be prettyrobust under market crises. Our system is less robust underlongevity risk.

JF: That’s every pension system in the world. I was justrereading a Bloomberg View piece by Satjayit Das on Australia’spension system, which is pretty highly acclaimed. The gist of hisargument was that maybe none of these pension systems can actuallywork with the way populations are developing in wealthy countries,with people living a long time and also relatively low growth inthe working-age population.

AK: Yes, exactly. I think none of the pension fund systems arerobust enough against that. But in our system, we can cut off someat the top. We did that a couple of years ago where you don’t getall these benefits from pensions and taxes if you make more than100,000 euros a year as remuneration, and we could lower that. Ifyou don’t have to take the top, top, top salaries, that makes thepension system as a whole more affordable and more solid, morerobust.

There are some ways to overcome the negatives of our currentsystem. But what will certainly not overcome the negatives is to goindividual and to be basically very unprotected.

JF: In the U.S., the place where there are still defined-benefitpensions is mostly with state governments, and there’s lots ofpressure politically for the states to go individual, in partbecause they’ve done a pretty poor job in general of setting asideenough money. It seems like the Dutch and a few other NorthernEuropean countries have this unique mix of a sense of “We’re inthis together,” but at the same time a really hard-nosed accountingtradition. That’s hard to replicate.

AK: Yes, the majority of the state defined-benefit systems inthe U.S., if they would have to apply our regulatory rules, theywould be seriously underfunded. It’s very hard to invest your wayout of that, so they do need to do something.

If you go individual, that’s easy. You just let go of yourresponsibility. But basically you’re not only vulnerable forlongevity risk, you’re also vulnerable for market risk, much morethan in a risk-sharing arrangement. I would encourage those statepension funds to look around in the world and see what alternativesthere are that would actually be somewhere in the middle betweentheir current system and a 401(k).

I know it’s hard for people from the U.S. to actually see thatother systems might teach them something. But I would encouragethem.

JF: There’s definitely something of a movement here to try topush the 401(k) in the direction of a pension, with more defaultdeductions, more contributions by employers, more options forannuitization upon retirement. But in the Netherlands, what you’vebeen doing is taking this defined-benefit system and making it alittle less defined. During the crisis, how was it adjusted, by notgiving inflation adjustments for a couple of years?

AK: Yes, that was the majority of the adjustment, and only inone or two specific cases we cut the pensions, but that was in oneyear by 1 percent. It’s politically incorrect to say so, but thisenabled us to actually catch up with the investments to cover forthe rise in longevity risk.

The elderly people were a bit upset that they didn’t get theinflation coverage, but I think that was actually fair. Normallyyou work for 40 years and you live another 15 years and that’s thefair pension payment. But if you now only work 35 years and live 25years longer, then of course you get a lot more from your pensionthan you’ve actually saved in the past.

JF: In both these systems, unexpected things happen -- you havea market crash or life expectancies keep growing. The advantage ofa 401(k) system is that it’s supposedly not the government’sproblem, although they might end up with a lot of very poor80-year-olds 20 years down the road. With the defined-benefitsystem, if you can make adjustments like that, that’s the betterway to go. I think the problem with state pensions in the U.S. isthat both politics and, in Illinois, the state constitution arepreventing them from making even the slightest adjustments.

AK: It takes us forever, but over the years, continuously,adjustments have been made so that our pension system would stayaffordable. We went from a pension based on your last earned incometo pensions based on average income over your lifetime. That’s ahuge difference, but it went pretty smoothly. Now we’re not givingextra pension if your income is above 100,000 euros, and that alsowent pretty smoothly. So it’s not easy, but being able to have someflexibility is necessary.

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