The draft of the new Dutch pension law, which was under consultation until yesterday, limits pension funds in several respects, according to Pensioenfederatie, the Dutch association for pension funds.
The association wants more possibilities for pension funds to determine the risk appetite of their members, how to attribute returns to the different age groups in a fund and how to share longevity risk, it said in its 18-page official response to the consultation. Pensioenfederatie also fears a possible tsunami of secondary regulation that could reduce pension funds’ room for manoeuvre even further.
“In no less than 20 instances, the draft law leaves the possibility for more, lower-level regulation,” said policy advisor Marcel Lever, commenting on the draft law in a call with journalists.
“This of course means we can at this stage only give a generic opinion about the draft law because so many details remain unclear. But details can be of decisive importance.”
The association is therefore demanding a “careful process” to determine this lower-level regulation. “It’s important this will be available for consultation before the law is sent to parliament [after summer],” the organisation said.
The pension fund lobby group made it clear it would like to see pension funds retain as many discretionary powers as possible. In this context, it noted the uncertainty surrounding the so-called solidarity reserve, a newly introduced buffer that pension funds can introduce to weather financial market headwinds and share risks between generations.
According to Lever, it would “not be in line with expectations” to draft compelling rules for pension funds on how to use their solidarity reserves.
There should not be a lower or upper limit to the size of the solidarity reserve, because it should be left to each individual pension fund to decide on how much risk they want to share between generations, he added. “Leaving pension funds discretionary powers should be the starting point of the law.”
In a separate response to the consultation, the Netherlands’ largest pension fund ABP said it wants the ban on redistribution of wealth between generations to be scrapped entirely as this would give pension funds more leeway to use the funds in the solidarity reserve.
Pensioenfederatie also believes the proposed guidelines for communicating with members are too prescriptive.
“Detailed requirements about what communication channels to use, which information to share and the need for predetermined formats increases the gap between the information pension funds provide and what people really want to know. It also makes it harder for pension funds to anticipate technological developments,” it said.
Finally, the association also wants pension funds to retain the option to offer members the possibility to save additionally for their pension, which is scrapped under the current proposals. “It’s unattractive for members if they have to go somewhere else if they want to up their pension savings,” according to the Pensioenfederatie.
The Pensioenfederatie also joined the ranks of several large Dutch sector funds which last month dismissed as “too optimistic” social affairs minister Wouter Koolmees’ claim that the average fund will be able to reach a funding ratio of 95% at the transition moment in 2026 without having to cut pensions.
“It’s very important that the necessary legislation to pave the way for the transition to the new system is finalised soon,” it said.
‘Pension savers struggle to estimate risk’
The draft pension law obliges pension fund to measure members’ risk appetite every five years and to design their investment policies according to the results.
However, the Pensioenfederatie said: “Experience tells us that members struggle estimating risks. Studies have shown members tend to prefer a fixed pension, without realising how expensive this is. A pension fund has the important task to take decisions related to risks with a long-term perspective in mind, which is in the interest of members. A member survey cannot therefore be all-decisive.”
A pension fund ought to take into account “a broad set of characteristics of its members” to determine the desired risk profile, including the financial position of its members and pensioners, Pensioenfederatie added.
Look out for the March issue of IPE magazine, which will feature an in-depth article on the various ways Dutch pension funds can measure their members’ risk appetite