Asset Owner Academy | Insights Series
Asset Owner Academy | Insights Series
By Xavier van den Brande and Marvin Vervaart
Preparing for this shift is not only a key strategic priority for the Dutch pension market but also, the design and execution of it will be closely monitored by pension markets across the globe looking to adopt best practices.
“Pension funds are increasingly looking at their service providers to help them orchestrate solutions and streamline information across investment and operational processes to ensure strategic objectives are being met in the midst of this massive transition.” said Rohan Singh, Global Head of Asset Owners, Asset Servicing and Digital at BNY Mellon.
The Dutch government’s proposal to transition away from a defined-benefit (DB) model in favor of a defined-contribution (DC) model in various forms is expected to require a four-year transition period and anticipated to take full effect January 1, 2027.
Dutch pension funds have the option to select either the "Solidaire Pensioenregeling” (SPR or Solidarity Pension Scheme) or the “Flexibele Pensioenregeling” (FPR or Flexible Pension Scheme). Pension funds under the SPR model will invest on behalf of their members with a strong focus on collective investment outcomes. Pension funds under the FPR model, which is comparable to the DC models known in the Anglo-Saxon markets, on the other hand, will have a stronger focus on individual investment outcomes. Deciding on the right option and how to administer the new plans have sparked important questions to consider.
Figure 1: Preliminary preferences of Dutch Pension Funds*
*Based on feedback received from pension funds and fiduciary managers.
In Q4 2021 and Q1 2022, BNY Mellon engaged with approximately 50 market participants, including pension funds and their administrators, fiduciary managers, and technology companies, to obtain their views on the most pressing questions around the implications of Dutch pension reform.
Discussions with market participants have helped form preliminary answers to these important questions viewed through three key lenses: pension member engagement, investment models and operating models.
Pension funds will need to reconsider content and frequency of engagement with members leading up to and through the enactment of the pension reform to secure its success.
While pension funds must consider how their investment and hedging strategies may change, the transition to the new DC model is not expected to lead to dramatic changes in the overall asset allocation across the Dutch pension fund assets above and beyond existing megatrends, such as search for yield through alternatives and emerging markets.
The shift to DC will likely result in wider market consolidation to achieve greater economies of scale and operational efficiencies. Service providers will also need to adapt their value propositions from front to back according to the needs of the pension funds, noting that individual components are mostly already in existence today.
Most pension funds expect the start of the transition to begin in Q1 2023, with legislation expected to be finalized later this year. In the meantime, market participants, including BNY Mellon, seek a continuous dialogue to help anticipate likely investment and operational outcomes, as well as the preferred member engagement. This is particularly important given that 2023 and 2024 may give rise to implementation bottlenecks as market participants put their plans into action at the same time.
Learn more by visiting BNY Mellon Asset Owner Academy, a platform to share bold ideas, insights and learnings to help asset owners stay agile as they transform their operating models.
Asset Servicing Global Disclosure
© 2022 The Bank of New York Mellon Corporation. All rights reserved.