Legal changes in Netherlands could be watershed for PPI, expert says

The expected end of mandatory annuity purchases for defined contribution (DC) pension schemes at retirement in the Netherlands could be a “watershed moment” for the new PPI vehicle, according to pensions lawyer Hans van Meerten.

Explaining the marked increase of assets under management at PPIs, Van Meerten noted that an increasing number of Dutch companies were closing their pension funds in favour of the low-cost vehicle. 

According to figures from regulator De Nederlandsche Bank (DNB), the combined AUM in PPIs increased by 226% to more than €1.2bn last year, following a 189% increase over the course of 2013.

In the Netherlands, participants in a DC scheme must buy an annuity from an insurer at retirement date, but this requirement has come under increasing fire, in light of the continuing low-interest-rate environment.  

Jetta Klijnsma, state secretary for Social Affairs, is currently exploring the possibility of allowing at least part of pension rights to remain with the pension fund at retirement, allowing participants to keep benefiting from investment returns.

According to Van Meerten – who is also a professor of international pensions law at Utrecht University – if this were to become an option, it should also be applicable to the PPI vehicle.

“If the mandatory participation of companies in industry-wide pension funds were to be abolished, the option of placing pension rights with a PPI would become even more attractive,” he added.

Van Meerten claimed that support for mandatory industry-wide pension funds was dwindling and that solidarity was losing its significance, as risk was shifted increasingly towards individual participants.

He said the impact on PPIs would depend largely on the details of Klijnsma’s proposals, due later this year.

Nearly a dozen PPIs have been launched since January 2011. 

PPIs are managed by insurers, banks, asset managers and pension providers, which work together in varying capacities within the vehicle.

The PPI implements collective DC plans in the second pillar and accrues pension assets for its participants, but they do not carry any risk.

Initially, the vehicle was established to enable the implementation of cross-border arrangements.