NETHERLANDS - The Dutch government should continue developing a general pension vehicle (API) which accommodates defined contribution schemes despite concerns from the defined benefit sector, consulting firm Mercer has suggested.

"Multinational companies and their subsidiaries increasingly express the need for one Europe-wide system, which the Netherlands still is not able to offer. If we abolish an ‘API lite' now, Holland will lose it competitiveness," according to Tim Burggraaf, European partner at Mercer.

Burggraaf's comments were expressed in response to an earlier statement from Frans Prins, director of the Foundation for Company Pension Funds (OPF), who argued  there is no need for the introduction of a simplified API - which should allow the development of crossborder schemes - ahead of a full API which is also aimed at defined benefit schemes.

"The proposed setup is not of much use to us, since it doesn't address the issue of the required scaling up of domestic schemes, nor does it provide solutions for cross-border schemes," Prins had explained to IPE.

In Burggraaf's opinion, the pension funds' representatives bodies are not enthusiastic about a DC-driven API because it could undermine their members' schemes, which are predominantly DB-based.

"Although there is a small but distinctive trend of pension funds moving to DC, the Dutch market for DC products is mainly driven by insurance companies," he said.

"Nevertheless, I am surprised about the negative response at this stage. During the consultations by the parliamentary select committee, I do not recall any of the participants indicating objections against an API lite ahead of a much more complicated DB variant," Burggraaf added.

At the same time, however, the Mercer partner is highly sceptical about the viability of a DB-based API.

"There might be no demand abroad for such cross-border vehicles because of the rules of the financial assessment framework FTK are too strict, as it is based on a fully-funded pension system," he stated.

"Moreover, the Netherlands already offer the Fonds voor Gemene Rekening (FGR) as a transparent asset pooling vehicle, while worldwide networks of insurers already accommodate cross-border risk pooling. An IORP vehicle will only add unnecessary problems, such as funding discussions with national supervisors."

Mercer indicated last autumn it was assisting four Dutch companies in moving their pension funds to Ireland.

"Pending the discussions about the API, the companies have now put their plans on hold," Burggraaf said.

In his opinion, asset managers and banks will also benefit from an ‘API lite', because it will allow them to directly enter the market for second pillar pensions and offer their services to both pension providers and individuals.

The Dutch government has recently started a consultation among stakeholders about the creation of a ‘premium pension institution' (PPI) as the first phase of the API.

According to the Treasury, the PPI will focus on ‘pure contribution schemes' without any insurance risk, and will have the same tax exemption as pension funds.

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