Pensions and Fintech, not a match made in heaven?!
In The Netherlands, the definition of an Institution for Occupational Retirement Provision (IORP) applies to the following organisations: “Algemene Pensioenfondsen (APF)”, “Bedrijfstakpensioenfonds (BPF)”, “Ondernemingspensioenfonds (OPF)” and “Premie Pensioen Instellingen (PPI)”. For conducting activities in any of these institutions, a license – administrated by the Dutch Central Bank – is required. APF and PPI maintain commercial objectives alongside the main purpose of conducting administration for the said provision/funds. Therefore, they are – to some extent – less independent towards the founding company in comparison to an OPF.
It is interesting to see the developments that are going on at IORP’s, namely the financial positions are under pressure from, among other things, interest rates and life expectancy. Management costs for smaller pension funds are out of step. And we also see consolidations of small(er) pension funds -or transfer- to an insurance company, also known as an “APF” or a “PPI”.
The regulators, pension fund boards and/or the stakeholders are also implementing developments. At this moment we see an improvement of the communication, a more prudent person principles approach within the Financial Assessment Framework (“Financieel Toetsingskader/FTK”), Governance Reinforcement Act on IORP’s (“Wet Versterking Bestuur Pensioenfondsen – Wvbp 2014). And last but not least Maturity Assessment of the Governance Structure of Pension Funds promoted and enhanced by Regulators/Supervisory Bodies.
The majority of the above topics are related or derived from the context of the topics within the integrated risk approach, being “in control” and reinforcement of the governance structure of the IORP’s.
We’ve recently seen some service providers in the Dutch market who aim to administrate the occupational funds. These parties should not be considered as IORP’s, as the asset gathering is done in a more casual way, which is more comparable to private saving funds. Insofar there are no guarantees provided on the benefits, these alternatives may not require the necessary license for a saving fund.
Due to the low compliance costs, there might be interesting business opportunities for such an alternative. However, the pension topic is heavily regulated and directly linked to taxable income. Therefore these alternatives could only focus on the individuals with no link to a ‘regular pension scheme’ arranged by the employer. Considering the growing proportion of self-employed individuals in the Dutch labor market, the potential customer base is growing. We have also seen market shares of a regulated financial services institutions being acquired by FinTech alternatives. Will the pension sector be the next topic for FinTech?