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:
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. (42%).
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
The views expressed in this material are the views of SSGA Defined Contribution as at 27 September 2019, and are subject to change based on market and other conditions.
All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon.
Investing involves risk, including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-800-997-7327, download a prospectus or summary prospectus now, or talk to your financial advisor. Read it carefully before investing.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SSGA Funds.
THIS SITE IS INTENDED FOR U.S. INVESTORS ONLY.
No Offer/Local Restrictions
Nothing contained in or on the Site should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. SSGA Intermediary Business offers a number of products and services designed specifically for various categories of investors. Not all products will be available to all investors. The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
All persons and entities accessing the Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations. The Site is not directed to any person in any jurisdiction where the publication or availability of the Site is prohibited, by reason of that person's nationality, residence or otherwise. Persons under these restrictions must not access the Site.
Information for Non-U.S. Investors:
The products and services described on this web site are intended to be made available only to persons in the United States, and the information on this web site is only for such persons. Nothing on this web site shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.