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DNB 'cannot block' cross-border transfer over ‘supervisory arbitrage’

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Dutch pensions watchdog DNB cannot stop cross-border pension transfers to another EU member state if the reason given for this transfer is more flexibility, according to Wouter Koolmees, the Netherlands’ minister for social affairs.

All member states have to comply with a set of minimum requirements, which may result in pension schemes from the Netherlands ending up in a country where a higher discount rate is applied, he said.   

Koolmees was responding to questions from members of parliament about the transfer of the pension fund of Aon Hewitt Netherlands to the United Pensions vehicle in Belgium. 

United Pensions’ discount rate for valuing liabilities is higher than the current discount rate in the Netherlands. The entitlements of pensioners would thereby be discounted at a rate of 3.5%. This figure is based on the expected return on the same composition as the Dutch investment portfolio. A move of the accrued pensions from the Netherlands to Belgium will result in a coverage ratio that is 11 percentage points higher. 

Dutch MPs Pieter Omtzigt of the Christian Democrats and Martin van Rooijen of the Seniors’ party had demanded clarification on this matter. In his reply, Koolmees noted that the Netherlands did not consider a discount rate of 3.5% based on the expected return to be prudent. 

“Belgium has chosen a different interpretation of the financial assessment framework, including a different interpretation of the discount rate,” said Koolmees.

This was possible because European rules only stipulated a minimum and maximum discount rate, he added. The Netherlands did not want to further harmonise these rules.

The minister indicated he agreed that the actuarial rate for the group of pensioners in the Netherlands was around 1%, as assumed by Omtzigt.

However, nothing could be done, according to Koolmees. The Belgian assessment framework complied with EU legislation, he noted, although it based itself more on principles than rules, and hence allowed “a lot of room for own interpretation by the pension provider or the employer”.

When an assessment framework met the minimum requirements of the EU pension fund directive, IORP II, differences with the state of play in the Netherlands could not be a reason to stop a collective pension transfer. DNB would not be allowed to block a transfer due to supervisory arbitrage, Koolmees confirmed.

IORP II, which the Netherlands is currently in the process of adopting in national law, would not change this.

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