NETHERLANDS - Creation of new Dutch general pensions institutions, known as APIs, will not be given a fixed legal form to give overseas players flexibility in the market, according to Social Affairs' minister Piet Hein Donner.
The Nethlerlands government is creating the API as a new form of corporate legal entity to make the Netherlands more attractive as a place of business for international pension organizations, by using all options of the EU Directive Institutions for Occupational Retirement Provision (IORP).
Proposals revealed by the ministry suggest a key requirement is the legal setup of an API must prevent supervisory arbitrage - the scheme will not be allowed to switch back and forth from one preferred institution form to another to suit the needs of the day.
Moreover, the new financial assessment framework FTK will be applicable if an API has the same control instruments in place for deciding the level of contributions, indexation and cutting down of nominal pension promises, at those applied to the scheme's disposal as a pension fund, Donner said in a memorandum to parliament.
If, on the other hand, there are no control instruments and the API carries the full financial risks, the Financial Supervision Act (Wft), as well as the (future) financial assessment rules of Solvency II, will be applicable to the API, Donner pointed out.
The minister made it clear while he is also prepared to allow hybrid forms, further work is still needed to establish what sort of supervision should be applied.
In Donner's opinion, the FTK rules with its requirements for an additional financial buffer, should, in particular, apply to defined benefit (DB) schemes.
He believes defined contribution (DC) schemes could be competitive on the international pensions market because regimes elsewhere lack the pension promises requiring extra buffers.
Donner also said further study is needed into how the FTK might be adjusted to the API, particularly with regard to the required recovery period in case of a shortfall of assets.
While the FTK allows for a recovery period of 15 years, the ‘fully funded at all times' requirement of the IORP Directive prescribes a recovery of one year in case of cross-border pension funds.
Since placing a pension scheme with an API is comparable to housing it with an insurer, such a step should be preceded by employees' participation, according to the minister. However, further research is needed to fine-tune the pension fund governance, he said.
In the pictured setup, an API will be allowed to ring-fence assets of separate schemes, as the Foundation for Company Pension Funds (OPF) has urged.
According to Donner, an API should also be allowed to deliver schemes for self-employed workers, a move which is in addition to the Mandatory Occupational Pension Schemes Act (WVB).
However, the minister insisted he does nt want to change the present mandatory participation in pension funds.
"We are heading in the right direction, but much needs to be worked out," Frans Prins, director of the OPF, told IPE in a first response. "The ring-fencing of assets is an especially welcome element in the proposal."
"However, many smaller company schemes need clarity about their futures soon. If it takes too long, we might as well push for a change of the Pension Act instead of APIs," he added.
Leny van der Heiden, acting director of the Association of Industry-wide Pension Funds (VB) also underlined the many remaining questions in Donner's API memorandum.
"We want more clarity about, for example, the mandatory separation between policy and implementation, supervision, the fiscal regime and governance," she said, adding Donner has so far failed to address the issue of VAT on services for pension schemes.
Because most of its members are mandatory schemes, VB will be less affected by the proposals, Van der Heiden made clear.
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