Age-Related Premiums: Solidarity 2.0
PNO Media, a provider for 450 media sector companies in the Netherlands, is striking a new path to retain pension market share in a competitive environment, according to Gail Moss
PNO Media, the €5bn non-mandatory pension fund for the media sector, has introduced age-related premiums for the 450 employers it covers. Unlike mandatory industry-wide schemes, the non-mandatory defined benefit (DB) schemes under the PNO Media banner are allowed to switch to age-related premiums.
The pension fund has also added a suite of defined contribution (DC) schemes in addition to its previous DB-only offering. This is intended to discourage participating employers from shifting their pension arrangements to insurers that base premiums on employee age. They are allowed to switch pension providers every five years.
The move has also been triggered by the desire to extend PNO Media’s reach into the creative industries, such as entertainment, advertising, and gaming, which are dominated by young companies.
For instance, in TV and radio, small independent companies have sprung up to take over functions outsourced by public broadcasters, or have entered the market as producers themselves.
Taking advantage of this market environment, the new strategy is intended to increase the number of fund participants by 5,000 within three years. At present, it has 15,000 active members, 9,000 pensioners, and 33,000 deferred members. The change – which went live in January – does not mean that individual employees actually pay premiums according to their own age.
“The reason the unions agreed was that the new DC schemes still have solidarity [aspects] and the results are not necessarily [lower] than for the DB schemes we already offer, so hey see this as an extra option for members”
Instead, the level of premium is now determined by the average age of employees in each company – the younger the average age, the lower the premium the company now has to pay for the same value of each employee’s pension rights, meaning substantial savings for companies with young employees.
PNO Media says that companies with an older workforce will see their premiums increase, but only in phases, and by no more than 1 percentage point this year. Ultimately, the difference in premiums will be about 3% for each year of a company’s average age, it estimates.
To attract new participants, Media Pensioen Diensten (MPD), which runs the scheme on PNO Media’s behalf, has introduced a suite of DC schemes. Extensive market research had revealed that employers were not interested in a DB-only offering, because they wanted to set up DC schemes instead.
“The reaction from potential clients was, ‘we want access to a DC scheme, but once we have that, we might be interested in a DB scheme as well’,” says Nelly Altenburg, chair of PNO Media. “However, the DB scheme would have to be no more expensive than DC.”
PNO Media’s aim is to provide companies and their employees with a pension scheme that fits their needs, and to increase its market sector share. Many companies do not yet have a pension scheme. The revamped offering will increase participant numbers to the extent that it will also achieve additional economies of scale, allowing MPD to keep premiums competitive.
The redesign of MPD’s offering has four strands:
• First, within the existing DB schemes, companies used to pay the same average premium, regardless of employee age. This has been changed so that companies pay a premium dependent on the average age of the workforce. “We had to do this, otherwise we were afraid some of the younger creative companies would at some point leave our pension scheme for a DC scheme insurer which charged lower premiums for younger companies,” says Altenburg. It is up to each individual company, with union agreement, as to whether the premiums within its scheme are the same for all employees or linked to the employee’s own age.
• The second strand is the introduction of a collective DC scheme, with a fixed premium but variable accrual rate, so that accrual rates are higher in years when pension rights cost less, and lower when rights are more expensive.
• Alongside this, individual DC schemes have also been introduced. “Our individual schemes should achieve a better pension result compared with the standard individual DC scheme because they give members the ability to invest a larger percentage of their pot in equities, and for a longer time, than traditional lifestyle funds, which should therefore give higher returns,” says Altenburg.
• The fourth strand is the imposition of a minimum accrual rate of 1.2% on each company, although most agree to up to 1.875%. Within that overall premium, the split between employee and employer is decided by each company and their unions. “Members whose overall contribution is very low are going to be disappointed when they enter the pension phase,” says Altenburg.
She says the most complex aspect of the changes has been the individual DC schemes. “Across the sector as a whole, the small size and relative youth of many of the companies means you have to provide very simple pension schemes,” she says.
“In order to implement individual DC plans, we’ve worked hard in the past six months on IT, and adapting our administration. We’re now talking to our advisers to ensure the proposition is of the right complexity for members to understand.”
Altenburg says the most important practical consideration has been acquiring the right marketing and sales skills. “When the sector was smaller, we knew all the companies, but now, there are 2,500 of them, with around 30 employees each.”
The changes were discussed with all stakeholders. “The reason the unions agreed was that the new DC schemes still have solidarity [aspects] and the results are not necessarily [lower] than for the DB schemes we already offer, so they see this as an extra option for members,” says Altenburg.
Once the project was in the pipeline, communication with employers, potential new clients, unions and scheme members was crucial to getting it off the ground.
Among other things, PNO Media talked directly to members, and set up a helpline and a portal with interactive planning tools. This allows them to calculate future disposable income according to retirement age, level of pension and living costs, and plan the best pension strategy accordingly.
With the redesign completed and introduced, the pension fund is expecting a successful outcome. Altenburg says: “Already, companies who were intending to leave are now staying with us, and we are also talking to a lot of other interested companies. We expect much more of this in the future.”