Develop alternatives to DC, urges Bank president

NETHERLANDS - The president of supervisor De Nederlandsche Bank (DNB) has challenged the Dutch pensions sector to develop new alternatives to defined contribution (DC) plans.

"I foresee opportunities for new products that are tailored to individuals, but maintain the benefits of a collective system," Nout Wellink said at a seminar in honour of  Peter Bronkhorst, the departing managing director of Shell Asset Management Corporation.

According to Wellink, the innovation should involve both assisting individuals with complex choices, and making risk-pooling instruments more readily available.

The DNB president indicated he doubts whether a shift to DC schemes is the optimal way to reduce pension risks for employers. "Many participants aren't able to make responsible investment decisions, and on average 20% of their assets are being invested in their own company stock," he said.

Wellink was referring to experiences in the US, where many pensions plans are based on DC now. "Furthermore, their participants have problems to commit themselves to sufficient saving," he added.

The president of the pensions supervisor emphasised the added value of collective pension plans over individual ones. "In such a system, participants contribute enough towards their old age financing, while professional asset managers make sure that the contributions are well invested from a risk-return perspective."

In Wellink's opinions, a clear separation between a sponsor and a pension fund is a desirable feature of any pension system. "It excludes insidious conflicts of interest, and avoids all the workers' eggs being put in a single basket," he pointed out.

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