COMMENTARY - The Dutch authorities’ decision last month to delay the FTK for pension funds by a year, while broadly expected, was still significant.

In a bland statement, the central bank said that the new Financial Assessment Framework (or Financieel Toetsingskader) would not be compulsory for pension funds until January 1 2007. The decision followed consultation with the Ministry of Social Affairs and Employment.

The delay was all but inevitable given that the government had already allowed insurance companies an extra year’s grace. The pension industry had of course been lobbying for more time.

The FTK is a package that will alter the face of Dutch pensions. It includes a solvency test and a continuity analysis. Perhaps the biggest difference is the introduction of market values for both liabilities and investments.

The shift to mark-to-market measurement will result in a material impact on schemes’ coverage ratios. For example, Horeca’s coverage ratio under the old 4% system would be a healthy 120% - but under the new rules it’s 106%, dangerously close to the 105% limit.

The DNB cited the fact that the parliamentary debate would not be completed in time to meet the original January 1 2006 deadline. “A change in regime halfway through the year is not deemed expedient,” it said.

The FTK grew out of a 2001 memorandum prepared by the unlamented regulator Pensions and Insurance Supervisory Authority (the PVK or Pensioen- & Verzekeringskamer). Indeed it seems as if the antagonism felt towards the PVK, which has since been absorbed into the central bank, has in some way been transferred to the FTK.

Although players will now have an extra year to implement the changes of the FTK, the government have made it absolutely clear that it won’t change course.

In fact it just delays the inevitable. Some observers reckon funds will act like children faced with unwelcome homework when it comes to preparing for the FTK – they will put it off until the last possible moment. They know it has to be done, but not just now. They will welcome the extra 12 months, but how many of them will really be prepared for the changes when they actually arrive? With so many other issues on the agenda, the natural temptation will be to put the FTK onto the back burner.

The matter seems to have exposed a gulf between Dutch pension industry professionals and those who make policy.

It wasn’t that long ago that the people were up in arms about the PVK, which was accused of not understanding pension funds’ plight. Now there’s a new three-letter acronym that has a similar effect.

Pension people in the Netherlands accept some of the ideas behind the new regulations, but they object to what they say is a lack of foresight. And, in a country which prides itself on its consultative heritage, they feel they are being railroaded too quickly into the new environment.

The industry fears the FTK hasn’t been thought through well enough. In essence the worry is that it is a blunt instrument that removes some of the subtlety and finesse involved in running pension funds.

But the government sees it in a fundamentally different way. It looks on the FTK as a way to remove the “secret code” that surrounds pensions management. Aart Jan de Geus, the pensions minister, is a man on a mission to increase transparency and shine a light where none has been shone before. It reveals what amounts to mistrust in the corridors of power about the way such a key part of the Dutch economy is being run.

For years the system operated smoothly, and it understandable the industry will feel put out by any new regulations that it feels impinge upon its operations. The government maintains that the FTK was widely consulted, although that is not the impression one gets when talking to the industry. “Did the DNB consult and think about the consequences of the FTK?” asks Guss Boender of consulting firm ORTEC.

De Geus waves such questions away, sticking to the line that the FTK went through a full consultation with the social partners. He’s known as a tough, principled, operator but his objectives clearly aren’t the same as those in the industry.

Despite all this, the FTK will become mandatory in a little over a year’s time and there’s nothing pension funds can do to avoid it – so they had better start preparing as soon as possible.

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