Because pension funds also provide little detail about their costs, it is also hard to understand why the cost levels of pension funds vary so widely, according to AFM. The regulator based its conclusions on an investigation of the 2019 annual reports of 166 pension funds. It found reporting mistakes with 90 of these funds.
IPE. Pension funds in the Netherlands delivered an average return of 10.2% after costs in 2020. Returns varied widely, between 0.5% and 20.1%, with smaller funds doing somewhat better than the largest schemes.
Consultancy LCP compiled the returns of 184 pension funds based on figures provided to regulator De Nederlandsche Bank (DNB). The 10.2% average return includes the return on interest rate hedges. If one accounts for the size of pension funds, the average return drops to 8% as on average the larger schemes did worse than their smaller peers.
Pension funds made the best returns on their interest rate hedges, as interest rates dropped to record lows over the year. The remainder of the returns was made on equities and other return assets such as real estate.
The 8% average weighted return was about half the size of 2019’s returns of 16.7%. LCP’s Jeroen Koopmans estimated the positive 2020 returns were an unexpectedly good result for pensions funds.
IPE. Trade unions and the Pensioenfederatie have criticised plans by political parties that could incentivise workers to save less for their pension. The Pensioenfederatie, the association for pension funds in the Netherlands, has warned the plans will also lead to a delay in the planned switch to defined contribution (DC) arrangements, currently foreseen for 2026.
Liberal coalition partners VVD and D66 propose to make pension savings voluntary for annual incomes above €60,000 in order to increase the freedom of choice for workers. Some other parties, including Christian parties ChristenUnie and SGP and socialist party SP, want to lower the income threshold (currently €112,000) that exempt pension contributions from income tax to €80,000 or lower. “These proposals are not in line with the consultation on the new pension law,” a Pensioenfederatie spokesperson commented.
IPE. The draft of the new Dutch pension law, which was under consultation until yesterday, limits pension funds in several respects, according to Pensioenfederatie, the Dutch association for pension funds.
The association wants more possibilities for pension funds to determine the risk appetite of their members, how to attribute returns to the different age groups in a fund and how to share longevity risk, it said in its 18-page official response to the consultation. Pensioenfederatie also fears a possible tsunami of secondary regulation that could reduce pension funds’ room for manoeuvre even further.
“In no less than 20 instances, the draft law leaves the possibility for more, lower-level regulation,” said policy advisor Marcel Lever, commenting on the draft law in a call with journalists.
“This of course means we can at this stage only give a generic opinion about the draft law because so many details remain unclear. But details can be of decisive importance.”
The association is therefore demanding a “careful process” to determine this lower-level regulation. “It’s important this will be available for consultation before the law is sent to parliament [after summer],” the organisation said.
The Dutch Pensions Federation has clashed with supervisor De Nederlandsche Bank (DNB) over “unnecessary and costly” governance changes at a time when the sector’s attention is focused on external developments.
Responding to the watchdog’s proposed extension of the rules for assessing the suitability of people in important roles at pension funds, Edith Maat, the industry organisation’s director, said that DNB was “trying to change the rules during the game”.
In a letter to the supervisor, the federation said the proposed policy changes were extensive, contrary to what DNB had initially suggested.
According to the industry organisation, DNB wanted to include people in the key positions for audit, risk management and actuarial matters – prescribed by the European pensions directive IORP II – in its screening process.
APG and PGGM, the two largest pension fund managers in Netherlands, announced the success of a pilot test that focuses on developing a blockchain app to facilitate pension administration. The final goal is to apply this prototype to the pension administration system and make it cost-efficient, transparent, and flexible.
Jetta Klijnsma, state secretary at the Dutch Social Affairs Ministry, has confirmed that the government plans to decide early next year whether to extend the 10-year recovery term for the country’s beleaguered pension funds.
In a letter to parliament, she said the decision would depend on schemes’ financial position at year-end, which is the criterion for rights cuts, as set out in the new financial assessment framework (nFTK).
Klijnsma warned that, based on the regulator’s Q3 funding estimates, 30 pension funds would be forced to discount pension rights – by more than 0.7 percentage points on average – for more than 2.1m participants and pensioners next year.
Current recovery rules dictate that pension funds must cut pension rights by a equal percentage annually over the next 10 years, with a view to achieving the required funding level of 125%.
Klijnsma, however, said the regulator had concluded that, by extending the recovery period by one year, 24 pension funds would have to implement a 0.4% discount on average for 2m participants, including 190,000 pensioners next year.
Under a 12-year improvement term, the necessary discount could be reduced to 0.4% at no more than 17 schemes.