Northern Trust releases whitepaper on Dutch pension system transition
07 December 2023 Netherlands
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In partnership with True Partner Capital, Northern Trust has published a whitepaper discussing upcoming changes to the Dutch pension system.
Under the Future of Pensions Act (WTP), the Dutch pension scheme is migrating from a (partially contingent) defined benefit framework to a collective defined contribution format, in which a contribution framework is paired with continued centralised management, retaining some risk-sharing elements.
While the WTP is a multi-year project, the first relevant deadline is 1 January 2024. If a transition committee is to be used, it must be requested by this date.
By 1 January the following year, employers will send amended pension agreements and transition plans to the pension fund.
Pension funds will submit implementation and communication plans to the relevant supervisory authority by 1 July of that year, with the final transition deadline for the new approach set for 1 January 2028.
Moving to the new framework raises a number of challenges, one of which being the transition to individual capital accounts.
Northern Trust has outlined key investment risks that pension funds must consider as they prepare for and execute the transition.
Potential market shocks and the varied impact they could have on different age cohorts, the protection of the funding ratio into the transition to the new contract, the protection of portfolio value and changes required to the underlying portfolio, must all be taken into account, the report affirms.
Risk mitigation could come in the form of hedging via interest rates and equities, the firm says, adding that pension funds should conduct stress testing and consider the cost and management of risk protection approaches.
Under the Future of Pensions Act (WTP), the Dutch pension scheme is migrating from a (partially contingent) defined benefit framework to a collective defined contribution format, in which a contribution framework is paired with continued centralised management, retaining some risk-sharing elements.
While the WTP is a multi-year project, the first relevant deadline is 1 January 2024. If a transition committee is to be used, it must be requested by this date.
By 1 January the following year, employers will send amended pension agreements and transition plans to the pension fund.
Pension funds will submit implementation and communication plans to the relevant supervisory authority by 1 July of that year, with the final transition deadline for the new approach set for 1 January 2028.
Moving to the new framework raises a number of challenges, one of which being the transition to individual capital accounts.
Northern Trust has outlined key investment risks that pension funds must consider as they prepare for and execute the transition.
Potential market shocks and the varied impact they could have on different age cohorts, the protection of the funding ratio into the transition to the new contract, the protection of portfolio value and changes required to the underlying portfolio, must all be taken into account, the report affirms.
Risk mitigation could come in the form of hedging via interest rates and equities, the firm says, adding that pension funds should conduct stress testing and consider the cost and management of risk protection approaches.
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