NETHERLANDS - The Internal supervision required under new Dutch pension fund governance rules could be misleading, argues Joep Schouten, exiting chairman of pensions provider Cordares.

Schouten made the remarks at a round table discussion at the Amsterdam-based securities bank KAS Bank last week as part of its 'toolkit' for the supervision on pension funds.

The rules, implemented at the beginning of this year, require pension schemes to set up internal supervision allowing independent experts to evaluate the functioning of the pension fund and its management.

However, critics, including Schouten, argue the new internal supervisory body will not have any significant powers.

"If you think there is meaningful internal supervision, while in fact the supervision doesn't matter, then people trust in something that doesn't exist. This would be misleading," said Schouten.

Adding to this, Stefan Peij, lecturer and professor boards & governances chairman Research and Innovation Centre (RIC) Governance, also argued: "You call it internal supervision, so it looks like a tiger, but when it opens its mouth there is nothing in there."

Schemes can opt for internal supervision via a visitation commission - looking at performance at least once every three years - or a permanent independent body within the pension fund which itself has at least three independent members.

Other options are a one-tier board (OTB) or an audit commission designed to oversee the execution of pension fund management, which is made up of executives and a group of non-executive employers' and employees' representatives as well as pensioners.

Peij argued: "The way the internal supervisory body has been arranged, can lead to an unbalanced power situation ... because none of the supervisory bodies can really counterbalance the management. Nobody has real powers that an internal supervisory body is supposed to have, in my opinion."

Nonetheless, Mila Hoekstra of the Dutch umbrella organisation for corporate pension funds (OPF), argued the main goal is the proper functioning of pension funds

"I am not convinced internal supervision needs ‘teeth', as this would imply that the system is currently not functioning properly," said Hoekstra.

Earlier this month, a survey of 75 pension funds by KPMG Financial Services found schemes are struggling with the introduction of new governance rules.

Of the respondents, almost 50% still have to make a start with the most important steps, such as establishing an internal supervisory body and an accountability organ, KPMG said.

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