The transfer of the pension fund of Aon Hewitt Netherlands to Belgium is “supervisory arbitrage” as the discount rate for pensioners is considerably higher than in the Netherlands, a Dutch MP has argued.

In questions to Wouter Koolmees, the Netherlands’ minister for social affairs, Pieter Omtzigt, MP for the Christian Democrats party, suggested that the Netherlands could no longer stop pension funds from moving abroad under the European IORP II directive.

Focusing on the 3.5% discount rate applied for pensioners in Belgium, Omtzigt questioned whether the minister deemed this percentage prudent, and asked why the Netherlands required pension funds to use the ultimate forward rate (UFR), currently 2.4%.

If the 3.5% discount rate was not prudent, Omtzigt challenged why Dutch supervisor De Nederlandsche Bank (DNB) had approved the transfer.

The MP also observed the “strange discontinuity” in the Belgian supervisory regime, which meant that the discount rate used for active and deferred members was 1.6%.

Omtzigt argued that the fact that in Belgium full indexation would be allowed at a coverage ratio of 110% also counted as supervisory arbitrage. Under Dutch rules, full inflation-linked pension uplifts are only allowed when a scheme’s funding is at least 125%.

In a tweet, he claimed the transfer was “supervisory arbitrage in its purest form”.

DNB has told IPE’s Dutch sister publication Pensioen Pro that it assessed a “multitude of factors” for value transfer. However, it declined to comment on the specific case of the Aon Hewitt scheme.

Omtzigt said he feared that the Netherlands could no longer prevent pension funds adopting cross-border arrangements “as IORP II doesn’t allow local supervisors to pass judgement about a situation abroad”.

However, the MP also said he did not believe the Dutch supervisory regime was too strict. “We have opted for certainty which means a discount rate of 2.4%,” he said. “Certainly not 3.5%.”

DNB, when asked, declined to comment on the consequences of IORP II for cross-border transfers and on how the directive’s criteria differ from the current practice under IORP I.

What IORP II says

Article 12.8 of IORP II limits a regulator’s power over a pension scheme’s transfer from one EU member state to another:

The competent authority of the home member state of the transferring IORP shall only assess whether:

(a) in the case of a partial transfer of the pension scheme’s liabilities, technical provisions, and other obligations and rights, as well as corresponding assets or cash equivalent thereof, the long term interests of the members and beneficiaries of the remaining part of the scheme are adequately protected;

(b) the individual entitlements of the members and beneficiaries are at least the same after the transfer;

(c) the assets corresponding to the pension scheme to be transferred are sufficient and appropriate to cover the liabilities, technical provisions and other obligations and rights to be transferred, in accordance with the applicable rules in the home member state of the transferring IORP.

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