Aon agrees CDC framework for Belgian pension vehicle
Aon Hewitt Netherlands has agreed with Belgian financial regulator FSMA that Dutch-style collective defined contribution (CDC) arrangements can also be implemented in Belgium.
According to the consultancy, the regulator approved its proposals for a framework that removes the employer’s duty to fund any shortfall in its pension scheme. It also has the ability to cut pension payouts if underfunding persists.
Aon Hewitt has already established a multi-employer pension fund structure in Belgium, known as United Pensions. Its clients include chemicals giant Dow and pharmaceuticals company AbbVie.
Previously, Belgium-based pension plans had not proven attractive to Dutch employers because they were responsible for funding shortfalls as with traditional defined benefit (DB) funds. Companies across the Netherlands and other countries have been switching away from DB for years for this reason.
Aon said it would soon transfer part of its own Dutch pension plan to the Belgian scheme without having to make up for a shortfall, but while retaining the ability to apply rights discounts, based on an in-house developed mechanism for deferred discounting.
Heleen Vaandrager, chief commercial officer at Aon Retirement and Investments as well as a trustee at United Pensions, described the process of developing a new assessment framework and having it accepted as “complicated”.
“The Belgian system is more principles-based,” Vaandrager said. “Rights cuts are unusual and a pension fund must always be fully funded, with the employer being responsible.”
According to Vaandrager, the FSMA agreed with the option of rights discounts as it applied Dutch social and labour legislation when dealing with Dutch schemes.
“In the Netherlands, rights discounts are allowed and they come with communication requirements, which the FSMA also likes,” Vaandrager added.
The CCO said that the supervisor had also approved Aon’s proposal to allow for a maximum delay of five years to implement benefit reductions, to prevent short-term dips causing cuts.
The FSMA’s approval came with the caveat that funds should hold a 10% financial buffer based on a “moderate” investment profile, and that inflation compensation would only be allowed if funding exceeded this level.
Vaandrager pointed out that the Belgian arrangements would require discounts to be applied sooner than under the Netherlands’ financial assessment framework (FTK), which allows for spreading out discounts over a 10-year period.
“But full indexation would also be possible sooner, because the FTK only allows inflation compensation when a scheme’s funding is approximately 120%,” she said.
The employer duty to plug any funding shortfalls would remain in place during the first year following the value transfer.
Vaandrager said: “The FSMA doesn’t want a Dutch scheme having to apply rights cuts within a year in order to protect the reputation of Belgium as pensions country.”
Aon Hewitt said that its €45m closed pension fund would soon become subject to the new Belgian scheme, after Dutch supervisor De Nederlandsche Bank (DNB) approved the value transfer.
According to the CCO, the assessment framework developed by Aon Hewitt could act as a blueprint for other Dutch CDC arrangements looking to set up in Belgium, but other players could draw up another system and put it before the FSMA.
Aon Hewitt said it expected that its new framework would increase interest among Dutch companies for cross-border pension arrangements.
The consultancy has been trying for several years to move its own closed pension schemes to Belgium, but this plan was initially opposed by its works council (OR), which feared a “less sound” supervisory regime.
After a “reset” in the negotiations following the OR losing a court case on the issue, the works council agreed to a transition of the smallest of its two company schemes, serving the staff of merger partner Hewitt Associates.
At July-end, coverage of the pension fund stood at 114% under the Dutch FTK and 125% under Belgian rules.
Aon Hewitt said that a decision hadn’t been made yet about the €750m pension fund of Aon Groep Nederland, but indicated that the social partners as well as the OR had demanded that in this case the Belgian employer duty to fill in a funding shortfall would remain in place.