Lift off for APF
The APF pension vehicle is proving popular, but it is too early to know whether it will come to dominate the pensions landscape. Leen Preesman reports
At a glance
• Six commercial players, mostly insurers, have launched an APF vehicle.
• They are expected to target the 200 or so remaining company pension funds but are only expected to be viable if they can acquire assets of at least €4bn by the early 2020s.
• Allowing sector pension funds to use the APF would represent a breakthrough for the vehicle.
• Among corporate employers, Unilever has received an APF licence and Shell Nederland is considering it.
At least seven pension funds are making use of the Dutch general pension fund (APF) – the new vehicle accommodating various schemes under a single board – as it takes off as a low-cost alternative to traditional pension funds.
In December 2016, the supervisor, De Nederlandsche Bank (DNB), granted a licence to the insurer Delta Lloyd, making it the sixth commercial player to offer an APF. Although the concept was meant to enable co-operation between small company schemes, no fewer than five insurers – including Aegon, ASR, Centraal Beheer and NN – have launched one.
PGGM, the €200bn asset manager and pensions provider for the €185bn healthcare scheme PFZW , has also adopted the vehicle as part of its offering, using the name Volo APF.
Unilever is the only corporate sponsor to have received an APF licence. The company says it does not intend to attract external clients, and will run the APF solely for its own closed €5.2bn defined benefit (DB) scheme and its new defined contribution (DC) plan. Its main purpose is to ease the governance burden for trustees and to retain a say in pensions matters.
In its 2015 annual report, Shell Netherlands indicated that it was assessing the options of an APF for its closed €26bn DB scheme SSPF and its individual DC pension fund for new staff.
So far, Aegon’s APF – called Stap and run with subsidiary TKP – has attracted three clients. It is accommodating the DB plan of the €155m Dutch pension fund of US firm Eastman Chemical, the €600m pension fund of Getronics as well as the Dutch scheme of publishing firm Sanoma. The accounting sector pension fund Accountancy, which is to liquidate, says it intends to place €24m of its assets with Stap.
Erno Kleijnenberg, Stap’s chairman, says he expects up to 10 pension funds to join his APF this year. He adds that Stap is “talking with dozens of schemes that are exploring the options for the long term”. According to Kleijnenberg, the APF is well on its way to achieving its target of €5bn of assets in five years’ time.
NN Investment Partners’ APF (De Nationale APF, operated together with NN’s subsidiary AZL) has already integrated the €124m pension fund of AZL. An additional as-yet-unnamed scheme will commit about €100m, according to NN. The company does not expect new schemes to join before 2018.
The APF of ASR – Het Nederlandse Pensioenfonds – has absorbed €140m of insured pension rights from the amusement park De Efteling as its first client. The Centraal Beheer APF has attracted the €700m Dutch scheme of RBS .
Erik Goris, director of PGGM’s Volo APF, says he expects to announce clients in its target range of between €250m and €1bn before the summer. He adds that Volo’s business case was based on reaching €5bn of assets under management in five years’ time.
As Delta Lloyd has recently agreed to a take-over by Nationale-Nederlanden, the future of its APF is not entirely clear.
The expectation is that APF providers will focus on the remaining 200 or so company pension funds, as well as firms with insured pension arrangements. Wichert Hoekert, senior consultant for retirement solutions at Willis Towers Watson , believes most schemes are considering an APF, but expects that no more than a few dozen have “concrete potential” to actually make the step.
In his opinion, the set-up of a new pensions system – scheduled to come into force in 2020 – could have a big impact on the future of APF vehicles. “If the new system is to focus on individual pensions accrual, and existing rights can also be transformed into personal entitlements, the future would become less bright for the APF,” he says. “The existing low-cost DC vehicle premium pension institution (PPI) might be better suited for implementing individual DC arrangements.”
Kleijnenberg, agrees that it is too early to say whether the APF will play a dominant role. “Most pension funds are still reluctant and are waiting to see which way the wind blows. Some have indicated that they want to come and talk when our assets exceed €3bn.”
In a report, the consultancy Sprenkels & Verschuren suggests that existing APFs will only be viable if they manage between €4bn and €15bn in five years’ time. It reckons this will only be possible if APFs are also allowed to implement pension plans for the mandatory sector schemes.
However, government proposals recently announced allow mandatory industry-wide pension funds that merge to ring-fence their assets for a maximum of five years, which will hamper the growth of APFs. Sprenkels & Verschuren expects some APFs to merge with PPIs, in particular where APF providers also run a PPI.
Even so, Hans van Meerten, an associate at Clifford Chance in Amsterdam, emphasises that no PPI has plans to merge with an APF. “PPIs are in part focused on individual DC. Within an APF, with its single board, there would be a risk of ‘cross-contamination’ between the various plans,” he contends. “In addition, the PPI is not subject to the strict supervisory rules of the new financial assessment framework (FTK), is exempt from VAT, and is not affected by employers or workers.”
Clients prefer customisation
Although all commercial APFs offer both single-client and multi-client sections, pension funds prefer the former, according to Hoekert. He says several APFs offer the option of joining a single-client section first, subsequently switching to a lower-cost, multi-client section. “This would be a good solution in case a single-client compartment closed to new entrants, or when the funding and risk profile converge with schemes already in the multi-client [section].”
Costs are important for APFs. Hoekert says the costs synergies within an APF might only become clear when clients’ three or five-years contracts come up for renewal. He notes that pension funds joining an APF could, in principle, decide on their own investment policy, given that most join a single-client section. In practice, however, most will be bound by the investment opportunities offered by the APF.
Progress is not always in one direction. The custodian KAS Bank and the private bank Van Lanschot have pulled the plug on their €1.8bn APF, which they were setting up with the payment processor Equens. According to Ben Haasdijk, the chairman of Equens, it had become clear that commercial APFs were likely to charge lower fees.
Both Stap’s Kleijnenberg and Marieke Wessels, a consultant at Willis Towers Watson, note that the whole process of joining an APF has turned out to be a lengthy one, taking up at least a year.
“Pension funds first need to establish whether they wish to remain independent, and subsequently must decide if they want to join an insurer, a larger sector scheme or an APF,” Wessels concludes. “The last step is assessing the options at the various APFs and concluding final arrangements, including the implementation of the plan.”
The general pension fund
The new general pension fund, or algemeen pensioenfonds (APF), comes in addition to company schemes (ondernemingspensioenfondsen), industry-wide pension schemes (bedrijfstakpensioenfondsen) and occupational schemes for specific professions (beroepspensionefondsen) as well as the low-cost DC vehicle PPI (premie pensioeninstelling). The APF provides the option to operate several different pension schemes – even across sectors – under a single and independent board.
The APF is intended as an alternative to current schemes, and enables smaller funds to save costs on board expenses, asset management and administration through economies of scale. They can participate in single and multi-client sections, while keeping their identity.
APF assets must be segregated. Its board is responsible for a balanced policy towards all participating entities, and is monitored by a single supervisory board. Each section has a stakeholders’ body (belanghebbendenorgaan) of social partners and pensioners, which can influence decisions on investments, indexation and contributions.
The APF may not be deployed for cross-border pension arrangements. It also cannot accommodate mandatory industry-wide schemes, as current legislation doesn’t allow them to ring-fence assets.