All three remaining Dutch ‘early birds’ have now received permission from pension regulator De Nederlandsche Bank (DNB) to convert defined benefit (DB) accruals to defined contribution (DC) capitals on 1 January 2025.
The professional pension fund for shipping pilots was the first to get the go-ahead earlier this month. It has now been joined by the two remaining pension funds that were still planning for a DC transition on 1 January 2025: the sector fund for disabled workers, PWRI, and the staff pension fund of pension administrator APG.
The presidents of both funds received a phone call from the regulator on Tuesday evening, within 15 minutes of each other, bringing the news.
“It has been an incredibly intensive process. Especially over the last few weeks, we have been in contact with the regulator almost daily,” said PWRI president Margreet Teunissen, which has €10bn in assets under management and is by far the largest of the three early birds.
Tinka den Arend, president of the APG staff pension scheme, received a similar call from regulator DNB. Being a pension administrator, the fund was being followed closely by the pension sector. But this did not add to the pressure, according to den Arend.
“I don’t think we care so much what the sector thinks. We just have a huge intrinsic motivation that we want to do this – and of course that we can do this, but it wasn’t easy,” she said.
The fund was so eager to convert accruals to DC because it wanted its members to experience the benefits of the new systems, said den Arend. “It’s more personal, more transparent and it will become easier to increase pensions.”
At the end of October, the APG fund had a funding ratio of 123%.
“Based on this, all members will benefit from the changes, but exactly by how much will differ per age group. People who have been accruing pensions at APG for a long time, will receive most because we will give compensation for missed indexation in earlier years,” she explained.
PWRI has a similar funding ratio, at 124%. President Teunissen also said all members will see their (expected) pensions rise following the transition, but it is still not possible to calculate by how much.
“I don’t think it’s wise to say that, because it really depends on the funding ratio which has varied by as much as 5 percentage points in the past two months. But things must get really wild and the funding ratio must go down by a lot if members were not to benefit from the transition,” according to Teunissen.
Black swans
Though both pension funds have now received the green light to convert DB accruals to DC, they will still have to show DNB how they will monitor the funding ratios over the remaining 40 days of 2024.
“DNB has a number of generic regulations that apply to all pension funds,” said den Arend.
“These are also quite logical, as there is a gap between the moment permission is granted and the actual moment it happens. Of course the regulator wants to be sure that what has been promised before in terms of monitoring and protecting the financial position will actually happen,” she added.
Both PWRI and the APG staff funds have increased their interest rate hedge in the run-up to the transition, while the APG fund has also sold part of its equity portfolio.
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