Professional fund gearing up for challenges ahead
In a country with a highly organised pension sector, the Dutch association looking after occupational funds for the professions did not come into being until late in the day – 2001 in fact. Unie van Beroepspensioenfondsen(UvB) is the now the third recognised body representing pension funds.
“With just 60,000 participants covered in the 11 schemes, we are a small group in number, but the professionals we represent perform key functions in society,” says Rene Bastian, who runs the UvB association. He is also legal adviser to the doctors’ funds in Utrecht, the biggest of the professional funds.
“What makes them different to the funds covered by the other associations, the VB and OPF, is that there are no employers involved.” While the funds have their own law, the BPR, a more important differentiating factor is the influence of the participants.
“In the other pension arrangements, the employers and the unions represent the participants and the final decision-taking can be remote from them, but with our pension funds it is entirely different as the board is made up of the participants themselves.”
So meeting with scheme members can be organised several times a year, in order to ensure they are run “by, with and for the members of the profession”. So when there are discussions about participation levels in funds, UvB member schemes turn out to be extremely well organised, he says.
Bastian also states that in general the professional funds weathered the financial storms of the past few years, though some of the younger established funds did find the going tougher.
“Our mission is similar to the other associations, in particular to defend the interests of our member, to provide pensions information targeted at board members of schemes, and to offer a forum for the different funds to discuss common matters.”
The list (see panel) gives an idea of the range of professions covered, which includes most if not all of the liberal ones – the architects for example are not – but some that might not be regarded as professions elsewhere are part of the mix.
At the top of the UvB’s agenda is the change to the law governing these funds. “Apart from a few instances, the existing general pension law does not apply to us. The new FTK, which will be a paragraph in the new pension law under discussion at the moment will fully apply to us.”
The BPR law that regulates these profession-based occupational schemes is being revised. “In 2000, the government stated in no uncertain terms that the BPR would no longer apply unless our participants accept more solidarity in their law. Since then, there has been ongoing discussion about the content of this ‘solidarity’ and the impact, particularly in relation to the great solidarity that already exists.”
Now the Dutch parliament is considering the new law. “In general, we accept this new law and have reached a good understanding with the Ministry of Social Affairs and the civil servants involved, expect for two issues where we differ significantly.”
The first is on the question of the premium definition. “Here the ministry wants us to follow completely the premium or contribution calculation used for employees in the BPF law that makes industry-wide pension funds obligatory in particular sectors.”
Here the UvB believes that the particular circumstances of its participants are not being taken into account. “What the government want to see is a flat contribution rate that does not take into account age or gender differences, but would only vary with the income of the individual.”
The main UvB concern is that there is no age differentiation possible in this fixed contribution approach, thus when a fund sets the flat contribution rate, it will be using assumptions about interest rates, demographics and so on. “When these assumptions are not correct, as inevitably will happen, there will have to be corrections. As the schemes consist of mainly relatively small groups of people, with high levels of contributions, the contributions levels could fluctuate severely. In our case the participants have to pay the total premium by themselves, where employees have the benefit that their employers pay most of the premium. You see that this uniformity between our participants and the emplyee-participants results in similar cases beings treated differently.”
Another worry is the impact on those UvB schemes on a defined benefit(DB) basis , since contributions that can vary with age will be allowed under defined contribution(DC) plans. “Pension funds in order to avoid fluctuations in contributions would change from DB to DC. As there is less solidarity in DC, the government will end-up achieving less instead of more,” Bastian points out.
The other key issue is on the question of whether each scheme will continue being mandatory on everyone in the profession. “The government says that it wants to make scheme participation obligatory only when it’s the wish of the participants that it is so. Therefore the government wants every five years a confirmation by the participants of that obligation.” While the UvB can understand the thinking here, it thinks the government is going too far.
Each of the professional bodies looks after the interests of its members, which includes their financial and pension position, he points out. “The government then goes on to point out that the body may not represent 100% of those in the pensions arrangements. So that everyone can give their view, the government wants to introduce another ‘pension fund body’ for each profession with the sole purpose of ascertaining whether all in the profession still wanted an obligatory scheme.”
UvB rejects this concept on a number of counts. “We think it’s strange that while the professional bodies are able to deal with everything else, there is one subject where it cannot.” This could establish an important precedent with the government overriding the liberty of the profession as to who can represent their interests and on what issue. “That’s a question of principle in our view.”
He points out that back in 1997, the Social and Economic Council(SER) advised that groups’ economic and financial interests were better dealt with integrally and not hive them off to different bodies.
“We also point out that some professional bodies do have a 100% coverage and most have at least 70 to 80%, so why make such big deal for a minority. The move also interferes with the normal operation of representative organisations, and denies them the right to represent the group.” Trade unions very often only have a 30% representation among the employees they act for in pension matters, he points out.
Overall, the UvB believes that the government is insisting on taking a principle that bit too far. “What they are trying to do is unreasonable.”
In the next couple of months, the association will start lobbying parliamentarians to convince them on these two points and the provisions amended and that the pension decision remains the responsibility of the existing bodies. As they have general meetings, their members can speak out if they are not happy. “Our view is that the system has worked satisfactorily up to now.”
He thinks it is too hard to judge how the MPs will react, but UvB just wants them firstly to be aware of these two issues in the new BPR law. He thinks it is wrong to treat the member of a profession the same as an employee, when the individual has to pay all of the costs. “But we are hopeful they will react positively towards our views.”
Another subject is the new general pension law that includes solvency regulations, which also apply to the professional schemes.
The UvB is working with the two larger associations about the new FTK pension regulations, as well as the regulatory bodies. “We are involved at ‘panel board level’ with the supervisory bodies, where the major issues are being discussed.”
While Bastian does not think that the Staatsen proposals on issues like pension funds running insurance operations will give difficulties in general to the professional occupational pension funds, a close eye is being kept on the suggestions limiting investment exposures in any enterprise to 20%. “What if different pension funds decide to co-operate and set up a joint administration or investment management operation. Presumably, such activities would obtain PVK approval, but we want to be sure about this.”
The compromise solvency ratio of 97.5% which will apply to UvB members is basically acceptable although its details are still with the under study. “It is an improvement on the 99.5% originally proposed,” he says.
Other areas being followed are the debate on corporate governance where UvB has just joined, as observer, the board of SCOP and on pensions governance, it is following the discussions, but believes that with the close involvement of participants in their schemes, the professions are ahead of the field here.