An introduction to the APF vehicle
Leen Preesman examines the Netherlands’ latest pensions creation, the general pension fund, or APF
Another new pensions vehicle is to be introduced in the Netherlands. The general pension fund (algemeen pensioenfonds or APF) is intended to serve as a low-cost alternative for funds that want to keep the identity they would otherwise lose if they were to opt for liquidation or to insure their liabilities.
The APF allows for different pension schemes to operate under a single board. If all stakeholders agree, the schemes’ accountibility bodies can also merge. Individual schemes’ assets are to be ring-fenced.
The concept was drawn up as a response to consolidation in the pensions sector, and would allow funds to benefit from increased scale. The number of pension funds has dropped from more than 1,100 in 1992 to fewer than 350 today.
Many players, including pension providers and insurers, have announced that they are developing an APF or wanted to join one. Both the Pensions Federation and the supervisor, De Nederlandsche Bank (DNB), have indicated that they expect at least 10 APFs to be created. At least 60 pension funds on the DNB list considering liquidation or already in the process of liquidation could move to an APF.
AZL, First Pensions and PGGM as well as Mercer and the insurer ASR are all setting up an APF. Even the DNB and the financial markets supervisor AFM are investigating the options of merging their pension funds into one. The insurer Centraal Beheer, part of Achmea, is also developing an APF in co-operation with Syntrus Achmea, the group’s pensions subsidiary. Syntrus Achmea is already the provider of pensions administration for 80 pension funds.
Aegon and its subsidiary TKP have followed suit. The two claim that 10 pension funds and five companies with insured pensions arrangements have shown interest. Insured pension plans are facing hefty premium hikes as a consequence of low interest rates, notes Maarten Edixhoven, director of Pensions at Aegon Netherlands
Although the APF is also affected by low interest rates through the new financial assessment framework (nFTK), participants do not need to guarantee costs. Perspectives for indexation are also better, Aegon claims, adding that governance costs for small and medium-sized pension funds could be reduced by 30-40%.
At a glance
• The APF pension vehicle replaces the API (algemeen pensioeninstelling).
• A range of providers, including insurers, may set up an APF but sector pension funds may not join one.
• APFs allow different funds to operate under a single board and include different risk and asset pools.
• The APF could reduce governance costs by 30-40% for smaller pension funds.
The APF of Aegon and TKP will initially have three multi-client pools, each with individual indexation targets and investment policies. Participating companies will be charged an actuarial contribution per participant and not be burdened with a higher premium because of other firms in the same pool, the insurer says.
Larger companies and pension funds could be allocated their own individual pool within the APF. However, sharing a pool with other participants would generate the best cost benefits. TKP Pensioen will carry out pensions administration for its APF, and TKP Investments will act as fiduciary manager. The vehicle will also outsource investments to external managers.
Recently, Van Lanschot Bank, the custodian KAS Bank, the payment processor Equens and General Electric’s Artesia Bank confirmed they were assessing the possibility of an APF. An earlier initiative to establish an industry-wide pension fund for the financial sector failed.
In June 2015, Jetta Klijnsma, state secretary for social affairs, indicated that 20 pension funds were seriously considering moving to an APF. The sector estimates that dozens, predominantly smaller, pension funds and companies will use the new vehicle.
However, mandatory industry-wide schemes are not yet allowed to be part of an APF. Klijnsma is still looking at the options, as the Senate has made clear that it also wants merged industry-wide pension funds to maintain ring-fenced assets.
The APF is an elaborate version of the current multi-company scheme (multi-OPF) with ring-fenced assets. However, only a handful of pension funds are co-operating in a multi-OPF.
The APF also replaces the API (algemene pensioeninstelling) vehicle, which focused on defined benefit plans under a single board, and which was intended to accommodate cross-border arrangements. However, the proposals were withdrawn before they could be discussed in parliament. The APF structure does not facilitate cross-border schemes.
The bill for the APF has already been approved by the lower house and now awaits Senate approval. The vehicle is scheduled to take effect on 1 January 2016, having already been postponed by six months.