The Netherlands: Better in Belgium?
Mariska van der Westen finds out about the benefits that convinced a Dutch pension fund to join a Belgian OFP
Many smaller Dutch pension funds are buckling under increasingly stringent supervisory requirements and regulatory pressure. But at conferences and debates exploring alternative solutions, one option is rarely mentioned - moving to Belgium. That's odd, since Belgium offers many advantages and is a viable alternative, says Henk van den Beukel. He recently moved his pension scheme south of the border and is glad that he did so.
Van den Beukel understands the challenges facing smaller pension funds - with his one-man scheme Pension Fund Lugtigheid he has had plenty of first-hand experience. Driven by increasing regulatory pressure, a few years ago he began his search for a sustainable, future-proof solution for his pension fund.
He looked beyond the standard solutions - buyout, buy-in, or merging with an industry-wide scheme - to search for a solution that would meet a number of demands. What he needed, Van den Beukel decided, was a way to get out from under the ever-heavier regulatory burden, at relatively low cost, while ensuring a sufficient level of expertise that would be sustainable in the future, with room for tailoring to suit his scheme's specific needs and, last but not least, a solution that would allow his pension fund to retain its own unique identity.
"So, obviously, I paid close attention to the developments with regard to the Dutch API and multi-opf, which were as slow as molasses in January. But I also gathered information about the possibility of starting a Belgian OFP (Organism for the Financing of Pensions), or joining an existing OFP," he told IPE's sister publication, IPNederland.
While the Dutch plans for a pan-European pension vehicle or ‘API' remains mired in endless talks, Belgium moved ahead with legislation to facilitate pan-European pension provision as early as January 2007 and has since launched its first OFPs. An OFP can offer Dutch schemes a range of advantages, says Van den Beukel. An OFP is suitable for defined benefit schemes rather than being limited to defined contribution, as is the case with the Dutch PPI. "Also, schemes don't have to give up their independent identity, the governance structure is relatively simple and transparent, and one has access to professional providers while still achieving a significant cost reduction," he said.
"It became clear that the best solution for my scheme would be a multi-employer OFP managing various schemes for multiple sponsor companies in separate compartments. In 2010 I made my decision: my pension fund would emigrate to Belgium."
As starting up an OFP from scratch was a bit too ambitious, Van den Beukel went looking for a multi-employer OFP he might join, and it didn't take him long to find Belgian pension consultant Conac. "They were in the midst of changing their corporate Conac pension scheme into an OFP under the name ‘Pension & Co IBP'. I joined the flow, as it were, and Pension Fund Lugtigheid became the first participant in the resulting multi-employer fund."
The multi-employer OFP's governance structure is comprised of two layers, explains Emmy Verbist of Conac. "The top layer is the trustee board, where representatives of the participating sponsor companies hold the majority of the seats, complemented by a number of professional Conac trustees who provide the expertise required by the regulator." A secondary operational governance layer consists of compartments managing the individual schemes, each with their own separate assets and investment strategy.
Conac provides professional trustees, administers the schemes and provides actuarial services. The participating schemes make their own asset management arrangements. "I simply kept the asset management as it was, except now the contracting party is Pension & Co," says Van den Beukel.
Thanks to ring-fencing, participating pension funds can each retain their unique ‘personality' - an important consideration for many small to mid-size Dutch corporate schemes, adds Van den Beukel. And the fact that the governance structure includes professional trustees ensures a sustainable and sufficient level of expertise and continuity.
In addition, this solution brings down costs quite a bit. Yvo Vermeylen of Conac: "We recently did a study for a Dutch company with about 1,000 employees. It turns out this solution would reduce their costs by about half."
The Belgian alternative offers another important advantage, adds Van den Beukel: "Prudential supervision in Belgium is pragmatic and the Belgian supervisor has a very helfpful attitude. If you ask them something, the answer will never be ‘no, you can't', but rather ‘let's see how we can find a solution'."
Van den Beukel considers himself a happy émigré: "We are getting started now on an operational level and as soon as the annual ritual of annual reports and statements has been concluded, I hope to formally discontinue my Dutch pension fund. I'm fully content with the future-proof set-up we now have."