The new Dutch pensions vehicle general pension fund (APF) could be an alternative for smaller sector schemes that are currently hesitating to join a larger industry scheme because of rights cuts in case of a funding difference, an APF director has argued.

In a note, Yop Versteegt, director of business development at Centraal Beheer APF, suggested that existing rights could be placed with an APF, while new pensions accrual could take place at the merger scheme.

“Industry-wide pension funds should look into this option as an alternative to a full merger,” said Versteegt.

Splitting existing and future rights across an APF and a sector scheme, respectively, has not happened so far in the Netherlands.

Several small sector schemes are assessing their future viability, for example because their industry is shrinking.

Recently, the €198m pension fund for the cigar-making sector joined BPL Pensioen, the €16.3bn pension fund for the agricultural sector. As the cigar scheme’s funding was higher than that of BPL Pensioen, its participants received an additional indexation.

Versteegt said a merger could be difficult if a funding of a smaller scheme were lower.

“It would be difficult to explain to participants that a merger would come with a rights discount,” he said. “This would often be a reason to refrain from joining another pension fund.”

In Versteegt’s opinion, placing existing pension rights with an APF is legally possible, as accrued rights are no longer subject to the mandatory participation in sector schemes.

“Further accrual can take place in the merger scheme, which has to extend its scope,” he said.

According the director of Centraal Beheer APF, joining an APF could also be beneficial because, in the alternative case of a merger, the financial position of the “incoming scheme” could be negatively affected if the receiving pension fund had a larger proportion of women – who have a higher life expectancy – among its participants.

“An APF pays a lot of attention to preventing such perverse solidarity,” he said.

Another advantage of placing existing rights with an APF, according to Versteegt, would be that a pension fund does not have to sell assets straightaway, as is often the case when joining a sector scheme. 

“In particular with illiquid holdings, waiting for the right moment is often more in participants’ interest,” he noted.

Versteegt acknowledged that pensions rights at different providers would complicate communication, but underlined that a better pension would offset this.

“Many workers have accrued pension rights with several providers anyway,” he said.

More than €4bn of Dutch pension assets have been transferred to the new general pension funds since July 2016, according to the Dutch regulator, De Nederlandsche Bank (DNB). APFs were introduced on 1 January 2016. 

DNB recently said it expected the number of Dutch schemes will drop to just over 200 following more consolidation. So far most of the consolidation has involved pension rights transferring to insurers or industry-wide schemes rather than pension funds joining APFs.