NETHERLANDS - Pension supervisor AFM has told insurers to "maximise their duty of care" when advising individual defined contribution pension policyholders about their freedom of choice when investing.
The authority tasked with supervising pensions communications said in a letter to insurers it was especially concerned policyholders need to be fully aware of the risks they take with their investments at a much earlier stage if choosing their own asset allocation, as some strategies have now revealed shifting from assets such as equities to bonds as they approach retirement appears "disadvantageous".
"Regardless of the followed procedure, the participants must be able to keep their built-up assets within the present investment mix," said the Authority Financial Markets.
Following adoption of the new Pension Act, insurers must either apply a life cycle-based standard investment profile, or advise participants of the risks they face if they wish to take over the responsibility for managing their investment strategy from 1 January 2009.
Insurers can opt to maintain the existing investment mix for participants in a DC scheme, unless participants explicitly prefer to switch to life cycle investment.
Insurers can also apply a default option, if participants do not select any of the choices offered.
"We are receiving signs from the market that strict application of decreasing investments risks for participants who are nearing their retirement date can be disadvantageous," said Bert-Jan Bosboom, senior supervisor of pension providers at AFM.
"The sale of shares now can mean a loss, while buying back other cheap shares is not a certain solution because the shares to be sold could considerably increase in value again soon," he pointed out.
"Given the volatility of the markets, this is a very bad time for making decisions. In our opinion, it is better to wait and see how the markets are developing. Therefore, it is important that insurers offer the participants the least risky investment choices," Bosboom continued.
In the AFM's opinion, insurers should also be very careful at applying the default option at the moment. "This could lead to future claims from participants, who have missed the communication involved," warned Bosboom.
The AFM's letter is aimed at insurers who provide second-pillar pensions directly to individual employees of companies where there is no access to a pension fund.