The pensions industry has been in denial longer than any other financial sector about the need to increase transparency for its participants, according to the chief executive of the €433bn Dutch asset manager APG.
During a meeting organised by the Dutch Association of Investment Professionals (VBA) and the CFA Society on ethics and integrity, Gerard van Olphen, who heads the asset manager responsible for the €372bn civil service scheme ABP, attributed this to the distance between provider and member and “the customer’s lack of interest for pension products”.
He argued the sector needed to reflect on the reason pensions funds were initially created, and establish concrete targets in order to convince participants of their added value.
“The current €27bn annually spent on pension contributions [in the Netherlands] can’t be spent or invested for other purposes,” Van Olphen stressed.
Also during the meeting, Jeroen Dijsselbloem, the Dutch finance minister, called on the financial sector to develop its own system of standards and values, rather than relying on the existing legal framework, and increase transparency to its customers.
He contended that a legal framework had to be imposed because the sector had not sufficiently reflected on what its own standards and values should be.
“I see, in particular, the tendency to follow the imposed rules, whereas the sector should draw up and implement its own high standards,” Dijsselbloem said.
“Financial institutions, such as asset managers, should be aware that they have an enormous knowledge advantage over their customers,” the minister said, adding that they should therefore ”take a more paternalistic approach and provide insight through more simple financial products”.
According to APG’s Van Olphen, the pensions sector had brought the significant increase in supervisory rules upon itself.
“The gap between pension funds and their participants is too big, and therefore we must improve our communication with participants,” he said.
“Asset managers have a tendency to develop ever more complicated products to show their skills, whereas they should develop empathy for participants.”
Van Olphen further said he feared that the discussion about a new pensions system in the Netherlands would become a drawn-out process.
Referring to the general elections due in March next year, he predicted that a coalition of four or even five political parties would be necessary to form a new government – rather than the current grand coalition of prime minister Mark Rutte’s centre-right VVD and the centre-left Labour party (PvdA) – and noted that the parties all had different views on pensions.
“And as soon politics has made a decision about a new system, pension providers must quickly be able to implement the changes,” Van Olphen added.
“We won’t get years of leeway for the implementation process.”
Van Olphen also said he doubted whether pension funds could keep on generating the historically high returns of the past 30 years, which had seen returns of 8% for equity and 6% for bonds on average.
“During this period, we have benefited from a growing working population, interest rates that dropped by more than 10%, emerging markets as well as increased free trade,” he pointed out.
The big unknown, in his opinion, is the impact of technology.