NETHERLANDS - Dutch pension funds and insurers are missing out on considerable cost savings by choosing not to commute the pensions of deferred participants, the consultancy KPMG has claimed.
Although the majority of schemes are aware of the option, made possible by the new Pension Act, only 30% take advantage of it, the consultancy found in its survey of 100 company pension funds.
Commutation of pension benefits can be undertaken by pension funds themselves or by an external party according to KPMG.
"Schemes with relatively large numbers of deferred participants who left before 2007 in particular, can considerably reduce their administrative costs," KPMG said.
Before the new Pension Act, which came into force last year, a small pension could only be commuted on retirement or if the participant emigrated.
This limitation resulted in many small pensions remaining under the administration of pension providers and insurers, thereby considerably increasing administrative costs, KPMG reported.
"Apparently, over 60% of pension funds have not integrated this administrative settlement into their standard procedures," said Edward Snieder, head of pension advice at KPMG.
According to Snieder, pension funds must be aware that commuting small pensions will become a structural activity after a buy-out of ‘old' deferred pensions has been completed.
"We know that several schemes are planning to actively apply the wider options. But we will start a survey soon to find out the position of all our members," said Frans Prins, director of the Foundation for Company Pension Funds (OPF).
"Because it is beneficial to both insurers and their clients, we are positive towards commuting small deferred pensions," spokesman Hennie Zoontjes of the Dutch Association of Insurers (VvV), said.
"The fact that insurers have not been active in alerting their clients to the options so far, is mainly due to the present administrative burden of recent legislation," he explained.
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