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Pension fund governance ‘should evolve’

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  • Pension fund governance ‘should evolve’

NETHERLANDS - Pension fund governance should also evolve as pension funds evolve into full-fledged financial institutions, according to Henri Lepoutre and Dries Nagtegaal of Hewitt Associates and Wijnanda Rutten of Allen & Overy.

The three have proposed a revision of the PFG Code that would make a supervisory board mandatory while canceling the mandatory accountability body, to achieve greater efficiency and effectiveness.

Under the current Dutch Pension Fund Governance (PFG) code there is significant overlap between the accountability body, participant council and internal supervision body of a pension scheme.

"Good governance is best ensured by the presence of a countervailing power, as this necessarily leads to discussion and so to a better decision making process," said Nagtegaal. "Such an internal ‘counterweight' can be provided by continuous internal supervision."

A supervisory board model for pension funds would not only lead to more efficient governance but would also contribute to governance quality, it is claimed, as such a board would consist of experienced trustees and supervisors familiar with financially complex organisations.

Internal supervision is most often currently implemented by a so-called visitation committee; the supervisory board has a broader range of responsibilities than the visitation committee: the board of trustees is accountable to the supervisory board but the supervisory board also serves as a sparring partner in matters concerning policy, according to Lepoutre, Nagtegaal and Rutten.

Instead, their proposal is:

At every pension fund, internal supervision shall be the responsibility of a supervisory board, which is a chartered body of three members; Members of this board would be appointed by public consultation for a limited term; Supervision would be determined by charter and the supervisory board charter would be required to ensure that board composition reflect pensions expertise, governing experience and financial expertise; The supervisory board member remuneration level must conform to market standards; The board of trustees would report to the supervisory board. The supervisory board would review governing board performance, supervise the (future) board of trustees' composition, and also serve as a sparring partner in the arena of policy-making. It would also grant the supervisory board the authority to review and approve the annual report. The accountability body would be discontinued or would at the least no longer be mandatory as the advisory duties of this body can be divided between the participant council and the supervisory board. Some corporate schemes may not have a participant council so would likely feel the need to install one. Alternatively, pension schemes that opt to install a supervisory board would no longer be required to have an accountability body. The Right to Survey (Pension Bill, art 219) is granted to national general associations of retirees, as well as trade unions represented with employers sponsoring the scheme, provided that the supervisory board has agreed to this.

The individuals intend to present their proposal for a new governance model well before the planned evaluation of the current Principles of Pension Fund Governance this spring.

This article was originally published by IP Nederland.com, the Dutch language sister publication to IPE.com. Go to ipe.com/nederland for the latest news and developments on the Dutch pensions market, written in Dutch.

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