Industry veteran criticises Dutch pensions industry for lack of initiative
The Dutch government keeps producing “plans and memorandums” on pensions because the pensions industry has failed to come up with its own initiatives to reform the system, according to Peter Borgdorff, director at the €162bn healthcare scheme PFZW.
Speaking at a recent IIR conference in Amsterdam, Borgdorff said the Dutch pensions industry had allowed itself to be “put on the defensive” and to be “taken over by events”.
But he questioned whether government “interference” could restore confidence in the sector, and rejected the notion that the new financial assessment framework (FTK) had provided more certainty for pension funds’ participants.
Borgdorff also voiced growing concern over pension funds’ susceptibility to “continuously sliding” interest rates, noting that the 30-year swap rate had fallen to 1%, while the 10-year rate was actually negative.
“Could the 30-year swap rate also become negative?” he asked. “And what would be the effect of the current hedging policy if interest rates started to climb again?”
Also during the conference, Casper van Ewijk, director at Netspar – a network for pension researchers and professionals – attributed Mercer’s recent downgrading of the Dutch pensions system, to third place globally, to mandatory annuities at retirement.
“This principle blocks the freedom of choice and flexibility of pensions,” said Van Ewijk, who is also professor of economics at Amsterdam University.
Borgdorff, however, warned against giving people too many choices, over fears they would be unable to assess the long-term consequences of their actions.
Meanwhile, outlining plans to improve individual defined contribution (DC) arrangements at Shell’s Dutch scheme, Janwillem Bouma, its chief executive, said the pension fund wanted to reduce investment risks gradually for participants over 57 years of age whilst enabling them to purchase a pension from the scheme’s collectively managed assets.
The approach, which Bouma called a “collective conditional annuity”, aimed to further reduce risks from lifecycle investments, he said.
Bouma said the solution was “easy to explain, can be introduced quickly and is sustainable, cost efficient and financially sound”.
Currently, participants in Shell’s individual DC plan can choose one of three lifecycle mixes.
At retirement date, they can opt for a variable annuity from their own pension fund or for a fixed benefit from an insurer.
During a separate session at the conference, René van Leggelo, international retirement product manager at Amundi Asset Management, argued that the Dutch pensions industry was “virtually absent” on the pan-European market.
“Not a single Premium Pensions Institution is currently accommodating a foreign pension fund,” he said.
Van Leggelo attributed this lack of presence to De Nederlandsche Bank, the regulator, which, in his opinion, has sought to prevent Dutch providers from covering foreign liabilities.
At another session, Dick Kamp, adviser at pensions provider and asset manager TKP, said he expected the new APF pensions vehicle would become so attractive that even the largest pension funds in the Netherlands would convert into one within the next 15 years.
The APF, which does not yet enjoy legal status, is a pension fund that provides collective “circles” of participants with their own investment policy, ring-fenced assets and stakeholders body.
The APF can provide a range of pensions arrangements.
Kamp argued that the “circles” within an APF could provide unique solidarity and arrangements between various professional groups, such as fire fighters, professors and soldiers, which are now grouped together in the large civil service scheme ABP.