In recent months, the AFM conducted three investigations at pension administrators. It concerned the duty of care with respect to contribution agreements, the completeness and clarity of the starting letter and a consumer survey into the clarity of the Uniform Pension Statement (UPO).
The manner in which pension administrators carry out their duty of care is insufficient. The information provided by the pension administrators is incomprehensible to many participants. The AFM expects that pension administrators are working on improvement. In cases of apparent violation of the legal requirements, the AFM can take formal measures.
1. Pension administrators fail in their duty of care with respect to contribution agreements
Insurers and pension funds (pension administrators) make too little effort as regards the duty of care with respect to pension schemes with freedom of investment for the participant. The AFM has investigated the starting letters of a representative selection of 22 pension administrators. It concerned nine insurers and thirteen pension funds. None of the investigated organisations complied with all statutory requirements. Approximately 500,000 pension scheme participants in the Netherlands have a contribution agreement with freedom of investment.
Pension administrators have been obliged, since 1 January, to exercise their duty of care with respect to contribution agreements whereby the participant personally has the freedom to determine the investments. This means that the insurer or pension fund, which administers the pension scheme, has to provide accurate information, has to draw up a client profile and issues advice in the interest of the participant. Moreover, the pension administrators have to check each year whether the investments remain within the agreed limits and inform the participant in respect thereof. The AFM monitors compliance with this statutory requirement.
The main conclusions of the investigation are:
- At this time, participants are still insufficiently informed of the risks inherent in contribution agreements with freedom of investment, such as the investment risk and the interest risk. The consequences of the investment choices of the participants are not yet sufficiently clear for these risks either;
- Data on the participant and his (desired) pension level, income, expenses, assets, willingness to take risks and knowledge of and experience with investing with pension contributions (‘customer profile’) is not always obtained in a careful manner.
- The translation of the client profile into specific bandwidths within the investment portfolio (risk profile) leaves much to be desired;
- The advice on spreading the investments in relation to the period remaining until the date of retirement was insufficient in more than half of the investigated cases;
- More than half of the pension administrators check insufficiently whether the investments of the participant are within the advised boundaries one year after it issued the advice.
- The investment risk in the life cycle is not (always) phased out in a balanced manner as the retirement date approaches, in accordance with the statutory provision.
2. Starting letter of pensions often incomplete and incomprehensible
The Pensions Act provides what information has to be included in the starting letter. The completeness and the clarity of the starting letters were checked in a representative random sample. None of the starting letters investigated contained all elements required by law. A qualitative consumer survey into the clarity was also carried out. This consumer survey shows that participants often do not understand the starting letter after they have read it once, that the language used is too complex and that the starting letter contains too much professional terminology. The clarity and completeness of the starting letter are both very important to inform new participants properly. In its investigation into the completeness and the clarity of the starting letter, the AFM investigated a total of 55 starting letters of 39 pension funds and eight pension insurers.
3. Uniform Pension Statement (UPO) hard to understand for many people
Three out of four participants are interested in the UPO. They realise that this is an important document. Nevertheless, only 36% of participants indicate that they thoroughly read the UPO. The majority of consumers (85%) does not understand the UPO without an explanation. Consumers consider the pension and the UPO complex, which is why they take little initiative too obtain more in-depth information. The UPO is also hardly consulted during changes in the living situation. Only 18% consults the UPO when changing jobs. 563 active participants filled in an online questionnaire for this random sample. The findings are in line with the investigation into the expected pension shortfalls, published by the AFM in January 2010 (report entitled Geef Nederlanders pensioeninzicht). These findings were reason for the AFM to consider, together with pension umbrella organisations, improvement of the UPO model.
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.