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Towers Watson predicts bright future for DC in Netherlands

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  • Towers Watson predicts bright future for DC in Netherlands

NETHERLANDS - Defined contribution (DC) pension plans have become an increasingly attractive alternative for base arrangements in the Netherlands as the country works to reform its pensions system, Towers Watson has said.

Speaking at a seminar held by pensions provider TKP, Gaston Siegelaer, senior DC investment consultant at Towers Watson, argued that the new pensions vehicle PPI was very well suited for this task, as it offered individual, life-cycle planning for pensions.

He also argued that asset management costs at PPIs were approximately one-third lower than at pension plans with insurers, adding that the share of investments for DC schemes had risen from 1% in 2006 to 7% in 2011.

Siegelaer stressed that communication with participants should focus on "relevant aspects", such as decisions for a retirement date, the desired pensions income and additional saving, rather than on the choice of investment funds.

Speaking at the same seminar, Jan de Dreu suggested that the wide range of investment policies at Dutch pension funds was a sign of "sub-optimal choices".

De Dreu works at the global debt advisory of Spanish bank BBVA and is currently carrying out promotional research at the School of Economics of Utrecht University.

He said the "sub-optimal choices" were reflected in the wide spread of investments, the limited diversification and the "rounding-off" of investment targets - particularly for smaller pension funds.

He said these funds had invested 53% of their equity portfolios in euro-zone countries, whereas this percentage at large schemes was no more than 26%.

Smaller schemes also have significantly less investment in alternatives (9%) - including property - than large pension funds, which have invested 20% in the asset class on average, according to De Dreu.

He also claimed that better and tailor-made service at smaller pension funds failed to offset their relatively higher costs, pointing out that cost differences were primarily related to scale.

He said further consolidating the number of pension funds to fewer than 50 would therefore benefit both participants and sponsoring companies.

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