DNB to review contracting-out risks
NETHERLANDS - Pensions regulator De Nederlandsche Bank will focus its supervision this year on the way pension funds' boards handle the responsibility of risk management when it comes to dealing with contracted-out tasks.
The pensions watchdog has advised "boards must show that they have adequately organised their expertise and governance, in order to carry the ultimate responsibility".
More specifically, the DNB stressed: "The main challenge for pension funds' boards is ensuring that the stimuli for the providers are in line with schemes' interests."
Dutch pension funds are increasingly outsourcing tasks to pension providers, asset managers and administration firms in order to save costs and benefit from external expertise.
As a result, DNB said it will, for example, look this year into the role of a pension fund's management bureau and whether a scheme's board sufficiently understands the costs and fee structure of organisations to which it has contracted-out tasks.
The supervisory body said it will investigate the way functions have been separated and risks are being managed, as well as look at which risks arise through coagulation of pension providers.
Most of the large schemes, and almost all smaller pension funds, have outsourced their asset management and/or their administration, according to Dennis van Ek, partner at consulting firm Mercer.
"Dozens of schemes, with combined assets of approximately €100bn, have placed their assets with a fiduciary manager, who often has contracted-out tasks in turn," pointed out Van Ek.
Similarly, Frans Prins, director of the Foundation for Company Pension Funds (OPF) estimated three-quarters of all company schemes has contracted out one or more of its tasks towards the pension scheme.
According to the Association of Industry-wide Pension Funds (VB), almost all of its 80 Dutch members have placed their asset management and administration with external players.
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