Since 2018, profound change has taken place in the Dutch pensions market, with political agreements achieved in June 2019 to create a new sustainable and flexible pension framework allowing for variable benefits and (optional) personal accounts.
As part of our 2019 global survey of retirement goals and challenges, we interviewed 195 DC plan sponsors globally, including 37 from the Netherlands. Here, we’re sharing 6 country-specific highlights:
1. Simplicity is Key
2. Members to Take the Reins
3. Advice is Valued
4. Doing Good and Doing Well
5. Changes Ahead
6. Don’t Forget the Gig
Simplicity is Key
Ease and simplicity were high on the agenda for Dutch plan sponsors when asked what they consider when selecting a plan provider. Providers should offer ease in implementation, maintenance and monitoring for the employer and ease in understanding and use for the employees. Premium contribution costs and administration and asset management fees came in much lower in the equation.
It is interesting to note that Dutch plan sponsors viewed minimizing costs/fees as a less important consideration when selecting a provider (13% ranked this as a primary consideration). Our respondents indicated that cost was a consideration in their selection process, but as part of a wider assessment including investment returns, flexibility, provider reputation and provider market expertise.
Members to Take the Reins
When asked to rank who is most responsible for ensuring that members have adequate income in retirement, the majority of those surveyed in the Netherlands selected the employer (43%). This percentage is substantially higher than the global average. It shows that Dutch plan sponsors are not stepping away from the pension arrangements even if it is of a collective defined contribution (CDC) or DC nature and financial risks shift to the plan members.
However, a large portion of plan sponsors do also recognize that, under a DC arrangement, responsibility for income in retirement lies with the individual (40%). Although this percentage is below the global averages, the results show there is increasing awareness in the Netherlands that it should be plan members who take the lead.
Advice is Valued
We asked our respondents how much they think their members valued the following in their retirement plans:
Again, we see that simplicity and ease of use are top of mind with Dutch respondents (81%). The ability to access advice is also highly valued, with 76% of people surveyed stating that this is likely to be either extremely or very important to their members.
However, there seems to be a vacuum in the Netherlands regarding member advice. Plan providers, including Dutch pension funds, insurers and master trusts, have gradually stepped away from providing pension advice as a result of cost efficiency and duty of care issues. Independent financial advisors are no longer allowed to include advice as an integral part in the solution but—following regulatory changes—have to price advice separately at market rates. The Dutch government has no key role in occupational pensions.
Members are increasingly in need of advice because the existing defined benefit (DB) and CDC pension plans are complex and underperforming, and members change jobs more frequently. But they are not willing to pay for that advice.
The way forward in the Netherlands seems to lie in providing educational sessions/seminars on the different retirement options available to members, paid for, initiated and hosted by plan sponsors and/or social partners (i.e., trade unions, employers’ associations). Consultants and service providers such as asset managers should look at how they could best support plan sponsors in these initiatives.
Doing Good and Doing Well
Fully 73% of plan sponsors said they felt that it was important to incorporate environmental, social and corporate governance (ESG) considerations into their plan’s investments, compared with a 70% average across all other countries surveyed. In addition, 73% of Dutch plan sponsors said plan members value ESG investing. This is somewhat higher than in other countries (64%), and fits with the Dutch view that ESG is a useful method to engage members.
Despite widespread appetite for ESG, it is not necessarily incorporated fully into pension plans. Cost and limited product availability were the two main reasons for lack of adoption. We believe that as more products become available, the positive attitude towards ESG will result in an even more rapid adoption within Dutch pension funds and master trusts.
The pension landscape in the Netherlands has faced waves of change including increasing retirement ages, DB funding requirements, the emergence of master trusts and the launch of DC plans.
By far the largest anticipated source for change in the Netherlands is regulation (32%). This percentage is higher (average 23%) than in the other countries surveyed, and is fully in line with the major pension reforms agreed amongst trade unions, employers’ associations and the government in June 2019.
Don’t Forget the Gig
We asked Dutch plan sponsors whether they would like to offer a pension arrangement to self-employed people working for their companies.
Although the majority of plan sponsors have indicated an unwillingness to incorporate self-employed workers into their plans (51% of responders) over a third are willing to do this.
In order to offer a more inclusive saving alternative to the self-employed, the Dutch government is actively working towards pension reforms. The move away from DB towards DC and personal accounts will help these efforts, as this will enable pension providers to offer more flexibility to members in terms of timing and level of paid-in premium contributions and take up of pension benefits. For these reasons, it will be easier for self-employed workers to receive a more tailored saving experience and have the flexibility to join or stay in an existing pension plan.
Seeing the Big Picture
As pension financial risks are shifting more towards the plan members, away from the plan sponsor and pension providers, the DC market in the Netherlands is on the horizon, pending foreseen major reforms. Yet plan sponsors are not stepping away.
Our survey identified a number of areas where the industry can support plan sponsors to further the retirement happiness of plan members in the Netherlands:
- Offer solutions that are easy for plan sponsors to implement and for plan members to understand and use
- Support plan sponsors in offering member workshops to help improve understanding of retirement options and build a sense of ownership
- Continue to innovate low-cost ESG investment products and consider these as a tool for engaging members
- Policy makers to consider pension solutions for the gig economy, as the majority of plan sponsors do not plan to cater for these groups