Dutch pension funds in a post-Pensions Act world

In this article in our series on Pension Funds, our expert Jan-Albert Koopman explores the transformation of the pension funds industry in the Netherlands. The Dutch Pensions Act (Wet toekomst pensioenen) impacts and transforms the full pension fund system in the Netherlands as of 1st of January 2025. The Asset servicers will have a crucial role to play.

The Dutch Pensions Act came into force in July 2023 after years of preparation. The Act is set to transform the €1.5 trillion Dutch occupational pension fund system, the largest in the European Union, from a predominantly defined benefit (income based) model to a defined contribution (capital based) one. Several pension funds have already decided to move to the new system and this will bring significant changes to the current ecosystem.

The Act replaces existing pension schemes with two new defined contribution models. Most current defined benefit pensions – the majority of schemes – are expected to migrate to the new Solidarity Premium Scheme (‘Solidaire Premieregeling’ (SPR)), with DC schemes transitioning to the Flexible Premium Scheme (‘Flexibele Premieregeling’ (FPR)). While there is a four-year implementation period, most funds plan to transition by 2026.

Migrating to the new investment schemes will require Dutch pension funds to completely reconsider their investment models, how they communicate with members on an individual basis, and how they monitor and report on the schemes. In the Netherlands, asset servicers will have a crucial role to play in this transition by supporting the development of funds’ new investment and reporting operations.

New schemes under the Dutch Pensions Act

Existing DB and DC plans will have to roll into the new defined contribution schemes ahead of the 1^st of January 2028 deadline. A 2023 survey of 146 pension funds conducted by De Nederlandsche Bank (DNB), the Dutch central bank, found almost 60% prefer the new Solidarity Premium Scheme (SPR), with only 16% opting for the Flexible Premium Scheme (FPR) alternative. One in five respondents had not yet decided.

The main difference between the schemes will be the attribution of investment returns to participants.

A new type of asset servicing for Dutch pension funds

Servicing the new Solidarity Premium Schemes will require administration and reporting to take place at the level where the allocation rules are applied, creating a new ‘middle layer’ of additional processes and information exchange.

Asset service providers can play a vital role in providing the extra layer of transparency needed to create more customised reporting for underlying participants or monitor the calculation made by the pension administrator.

This new middle layer will be performed mostly on the pension administration side. Asset managers and servicers will play a role in the managing, implementation and monitoring role.

Existing asset service providers may be well-positioned to pick up this monitoring and reporting role. By collecting aggregated data on the cohort level from the pension administrator, the asset service provider can independently show the effect of the allocation rules and asset performance at cohort level.

Service customisation will be increasingly important to meet pension holders’ individual needs. As pension contracts become more aligned with policy holder lifecycles and risk profiles, individual participants will likely be more vocal about their specific investment priorities. They may request more detailed insights into their personal pension investments. Pension funds may be expected to provide more detailed reporting on holdings – as is the case already in other DC markets. By creating unitisation and/or lifecycle portfolio structures, asset service providers can play a vital role in providing the extra layer of transparency needed to create more customised reporting for underlying participants.

Managing the Dutch pension funds transition

The quantity of assets set to be transferred to the new schemes over a relatively short timeframe is enormous. And there is only one opportunity to get it right.

Once the assets are transferred between pension plan arrangements, there is no way to reverse them. Before assets are transitioned, the pension plan and its participants should agree on:

• the value of their pension investiments
• design a new operational model between all stakeholders
• and whether the underlying participant is comfortable moving their exiting pension entitlements into an unknown pension plan arrangement that is based on contributions linked against the capital markets

The transition must then be flawless. This requires an intense focus on duty of care, with strict governance around operational risk, controls, compliance, outsourcing, IT, risk and communication. Guaranteeing a successful transition will depend on impeccable preparation, multiple dry runs and watertight project management agreed among all parties in the value chain.

Asset servicers are well-placed to help, since moving assets and administration is their primary role. Servicers like BNP Paribas have been dealing with regulatory in/outsourcing governance rules, asset transitions, project management and servicing the existing array of pension scheme structures for years. With their expertise and experience, servicers are ready to transition to and operate in the new pension environment.

Data, communication & reporting: changing expectations for Dutch funds and pension holders

The current Dutch pension fund system ranked first out of 48 worldwide in the Mercer CFA Institute Global Pension Index 2024 based on

• Adequacy (benefits provided)
• Sustainability in providing benefits into the future
• and integrity of governance, with its influence on citizens’ confidence in their pensions.

The scale of the changes to such a highly ranked system means better financial education of, and communication with, individual scheme participants will be vital.

A golden source data environment built on data resilience and control will be fundamental to successfully delivering a full-service communication and reporting capability to members

Asset servicers will be a central conduit for scheme members in this new world. The asset service providers’ role will be to furnish members with as much transparency as possible on the underlying investments and their performance, including information on key areas such as the sustainability of assets. Offering proxy voting and engagement against social and ESG themes will likely gain importance.

A golden source data environment built on data resilience and control will be fundamental to successfully delivering a full-service communication and reporting capability to members under the new pension arrangements. Agreeing data standards, quality and transparency, flawless control, risk & IT governance, along with full collaboration among parties involved in the value chain will be crucial in meeting participants’ and the regulator’s demands.

How BNP Paribas supports asset owners and pension funds globally

Globally, institutional asset owners are facing increasing demand for – but also complexity regarding – high quality insights and reporting on their investments, with a particular focus on ESG or private capital elements. Securities Services is supporting asset owners in this aim through a central layer of data management services. This seamless flow of data can support asset owners both in their day-to-day operational needs and their asset allocation team’s investment decisions. Through our deep knowledge of pension fund structures in different markets and our teams of data experts, we support asset owners’ core investment processes and underpin their transition to new or changing pension structures and their pension holders’ requirements.