Draft legislation for a new financial assessment framework (nFTK) in the Netherlands has “some positive elements”, but there is a real danger the pensions regulator (DNB) will be given too much power to decide schemes’ investment strategies, the Pensions Federation has warned.
Gerard Riemen, director at the Pensions Federation, said he was pleased the draft legislation included such elements as the spreading of financial shocks over time, a 12-month average funding rate and complete pension contracts, in addition to measures to promote contribution-level stability.
He said the draft law also showed that Jetta Klijnsma, state secretary of Social Affairs and Labour, had “listened to the industry”, as the proposals included the smoothing of contribution levels by applying expected returns, and allowed schemes to make up indexation shortfalls without submitting to the new rules that will apply to indexation going forward.
However, Riemen said he was concerned pension fund trustee boards would have little room to set policy if pension contracts set every detail in stone.
He said he was particularly worried that, in practice, pension scheme boards would no longer determine such things as the timing of the spreading of financial shocks – and that the DNB would make those decisions instead.
Riemen argued that pension schemes could be subject a strict “scaled” planning that would severely curb policymaking freedom.
In that event, the industry’s fears would be realised, “as pension fund trustee boards would no longer be allowed to take responsibility”.
He added: “The DNB can force pension funds to change their investment strategy. It doesn’t literally say so in the Memorandum of Explanation, but there is a real risk this may happen.”