NETHERLANDS - Dutch pension administrators have been warned they could face formal action from the communications regulator AFM if they continue to be in breach of legal requirements on pensions information.

The Financial Markets Authority (AFM) warned a conference yesterday that providers are failing to ensure pension scheme members understand the information they are being because it contains too much "incomprehensible" industry language and jargon, very often does not contain the statutory information required of providers and in some cases does not meet essential risk requirement checks.

Its findings were based on three separate studies: two aimed at all Netherlands-based pension providers, and one looking only at defined contribution pension.

Flore Kraaijeveld, spokeswoman for the AFM, said: "It is very clear: they have to improve things. From now on we will take action if it is very evident they are not meeting legal requirements. Action can be a penalty and can also be a formal letter if a penalty has already been given."

The pension services most at risk of AFM action appear to be a group of 22 DC pension providers examined who have a duty of care to ensure investment strategies meet the DC member's risk status.

The providers are required to conduct a client profile and then a risk profile of the individual, to ascertain what sort of investments strategy they should adopt. However, the AFM the problems begin at the very start of the process as members are not sufficiently informed of the risks they run in their investments choices - particularly in relation to stock market and interest rate risk - and data is not being properly collected on participants' desired level of pension, income, outgoings, risk appetite and investment knowledge.

More worryingly, the need to rebalance lifecycle investments as members approach retirement is not being done in a timely manner and according to the statutory requirement, said the AFM.

Kraaijeveld confirmed there is no regulated set timeline to which lifecycle investments should be rebalanced up to retirement, but noted guidance is available to pension providers so they may match the needs of each individual.

At the same time, concerns have been raised about the quality of starter letters to new members as a representative sample of 55 letters found they are often "incomplete and incomprehensible".

The study also found consumers often do not understand the letter after reading it once because the language is too complex and full of jargon.

Similarly, the Uniform Pension Overview (UPO) was found to be too difficult to understand in many cases even though three in four members are interested in its content, according to the AFM study published in January.

At least 85% of the 563 online survey respondents said they cannot understand the UPO without additional explanation yet they are unlikely to take the initiative and find out more.

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