Dutch supervisor De Nederlandsche Bank (DNB) should take a stricter stance on pension funds taking too much risk, according to the International Monetary Fund (IMF).
In its five-year financial system stability assessment, it argued that DNB and communication watchdog Authority Financial Markets (AFM) should be allowed to introduce more technical regulation.
In an explicit recommendation, it said that the prudent person principle should be elaborated through regulation, to provide the supervisor with more options to intervene if pension funds take excessive risks.
In 2011, DNB told the pension fund of glass manufacturer Vereenigde Glasfabrieken to offload most of its 15% gold allocation, which led to a five-year legal battle between the scheme and the supervisor.
The IMF said it wanted regulators to have more say in setting their own budgets, and warned against limiting trustees’ pay.
The fund also proposed direct supervision of “third parties”, but it did not specify which players it meant.
Extended supervision should target governance as well as the qualifications of staff at group level of companies that carried out outsourced tasks, the IMF added.
In the opinion of the IMF, pension funds’ recovery plans based on assumptions for future returns, such as 7% for equity, were very optimistic.
It also noted that many pension funds used the legal option of charging contributions less than the amount needed to cover costs.
The IMF further questioned the effect of DNB’s feasibility check for pension funds, arguing that its 60-year horizon was too long.