When ABP's director of pensions, Jaap Maassen announced in early May that his fund was finally about to implement fundamental changes to its structure, the end of a much wider debate seemed nigh.

The review is the latest stage in an on-going discussion about the boundaries between pension funds and insurers in the Netherlands. The discussion reached its peak with the introduction of the new Pensions Act in January.

The new law specifically limits the scope of self-administering pension funds (ZAFs), which combine policy-making and administrative activities.

According to ABP, one of the last two remaining ZAFs, fundamental changes are necessary to stave off further regulatory pressure on additional insurance products, such as the much scrutinised new tax-friendly ‘levensloop', or life course scheme. PGGM has already announced its intention to move to a new structure from next year

Levensloop, intended to discourage early retirement, allows workers to save 12% of their salary tax-free every year. Subsequently they can use the balance to finance sabbaticals, for example parental leave, care leave or education.

It is an interesting insurance product that pension funds would also like to promote actively and provide to their members.

The problem though, is that it would cause unfair competition for insurers: after all, second pillar pension funds in the Netherlands operate in a climate where enrolment is obligatory, giving them a head start when offering insurance products, according to some.

Both ABP, with €211bn in assets, and the €83bn PGGM fund, were bruised by a regulatory slap on the wrist last year when they were fined by the Dutch pensions watchdog De Nederlansche Bank (DNB) for overstepping the mark in promotion of the levensloop scheme via their respective subsidiaries Loyalis and Careon.

At the core of a potential solution lies a regulatory dilemma, which evolves around the choice between fair competition versus the conservation of obligatory participation.

The Dutch government wants to endorse collectivity and solidarity, which means keeping the instrument of obligatory participation in a pension scheme, but also recognises that pension funds need to operate in an environment ruled by market forces.

On the other hand, ABP is saying that it agrees with the government's aim: "The Dutch collective system with its solidarity is very important to us because it offers the best pension for an attractive price, and it makes society ageing-proof." So far so good.

But, at present, legislation simply does not allow such sponsorship, and hence the fund would need to step away from its ZAF construction, either opting for the general pensions organisation (API) or run under the rules that apply to a pensions execution company (PUB).

The API, as proposed in March by professors Arnoud Boot and Berend Jan Drijber, meets the criteria under the Institution for Occupational Retirement Provisions (IORP) directive - in effect a European passport for pension funds.

Under the API, the fund, consisting of the assets and the liabilities, and the administration and asset management would be part of one and the same construction.

The only legal requirement is that the board of the respective pension funds will have to hand over the total balance sheet to an API, meaning that pension fund boards only will have a say in the set-up of a respective pension arrangement, but not in the total investment policy.

To prevent opposition of members to this approach, a pension fund could become 100% owner of the API, giving it a say in the management. This would mean the pension fund could also offer insurance products.

A PUB works under instruction of the pension fund. "In this case the social partners put the implementation at a certain distance," ABP spokesman Marcel Vleugels explains. "The management, the assets and the liabilities…are then detached from the administration organisation, which as a PUB can operate with more freedom on the market and can also work for other parties."

Mn Services and Cordares are for instance PUBs, both of which have created a reasonable distance to its participating pension funds.

ABP is adamant that any new structure must allow it to inform its participants about individual products. Calling it an "integral service", ABP says it wants to offer pension products along with supplementary insurance products.

Needless to say, the fund favours the PUB construction, as it is one of its ambitions to work for third parties. Some however fear this structure will potentially weaken ABP's position. The obligatory splitting of insurance products and pension fund asset management could hinder the comparative advantages of a larger pension fund such as ABP, it is argued.

It is unclear when ABP will make its definite decision about the structural change, although the fund is expected to make an announcement this summer.

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