The information on the costs related to pension schemes that take the shape of pension contribution agreements has to become clearer. Participants have to know which part of the contribution is spent on pension accrual, on costs and on premiums for term life insurance. An investigation performed by the Netherlands Authority for the Financial Markets (AFM) shows that this insight is currently not provided in most cases. The AFM advises new participants in pension contribution agreements to check whether the information on the costs has been included in the starting letter. Participants should contact their pension fund or pension insurance company if there are matters that are unclear or if they have questions.
The AFM has investigated the starting letters of a representative selection of pension administrators with contribution agreements. Only 7% of the starting letters investigated complied with the statutory transparency obligations. The pension administrators have to provide a clear overview of the costs in the starting letter. This cost overview was lacking in more than half (56%) of the starting letters investigated. Some administrators wrongly assume that if no costs are charged this need not be reported in the letter. The AFM considers it in the interest of the participant that this is reported, even if it exclusively concerns savings and no costs and risk premiums are charged.
The information on costs is often spread across the documentation, which means that the participants lacks oversight. The AFM advises pension administrators to include the costs in a clear overview, so that participants can see at a glance which costs will be charged. This will also make it clear for participants when no costs are withheld from the contribution.
Amount of the costs
The amount of the costs of the premium contribution agreements investigated differs significantly and varies from zero cents to 35 cents per available Euro in contribution. A number of contribution agreements were calculated further; of each available Euro, an average of 79 cents is spent on pension accrual, 16 cents on costs and 5 cents on risk premiums (life insurance and disability insurance).
The individual findings were reported to the relevant pension administrators. The starting letter, including a breakdown of the costs, has been mandatory for pension funds since 1 January 2008 and for insurance companies since 1 January 2009. The AFM assumes that it is clear to all pension administrators what conditions the provision of information on costs in the starting letters have to satisfy; after all, this is laid down in law. The AFM will therefore be able to implement formal measures if new cases arise.
Concerning the investigation
The starting letters of both pension funds as well as those of pension insurance companies were investigated for the purpose of the investigation. There are 175 pension administrators that offer contribution agreements, the starting letters of 43 pension administrators (25%) were investigated. The starting letters of a total of 57 schemes were investigated at these 43 pension administrators. In general terms, there are two kinds of pension schemes in the Netherlands: benefit schemes and contribution (or defined contribution) schemes. With respect to the benefit scheme, it is clear in advance what pension someone may expect at the date of retirement. There is, with respect to this type of agreement, no statutory obligation to report the costs to the participant. It is not clear in advance, with respect to the contribution agreement, what pension the participant will receive on the retirement date. The contribution is invested (in part) and pension entitlements are paid from the available capital from the retirement date.
The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.
The AFM is committed to promoting fair and transparent financial markets.
As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.