NETHERLANDS - Increased legislation, regulation and guidelines are increasing pressure on Dutch pension fund managers leading to more bureaucracy, a stronger emphasis on risk control and therefore spiralling costs for pension funds, new research by SEI Investments reveals.
The survey found the management and financial pressures are a result of growing legislation and regulation in fields such as corporate governance, international reporting requirements (IFRS/IAS19) and recent guidelines issued by the Dutch government pension regulator Pensioen en Verzekeringskamer (PVK).
According to SEI, more than three quarters of those surveyed believe that decision-making is becoming more bureaucratic and 61% expect the situation to worsen.
Most managers are dissatisfied with the existing level of risk management and the investment process, citing excessive costs, the “wait-and-see” attitude of external advisors and inadequate options to intervene in the investment process in a timely manner, SEI said.
“The changes in the international accounting rules and Dutch PVK regulations have shown some unfavourable and unintended consequences for Dutch pension funds,” commented Bart Heenk (pictured) , managing director of the Nordic and Benelux regions.
“These consequences include reduced benefits for employees and increased costs for them and their employers. The research we commissioned reflects that these trends are likely to continue unless they are addressed.
“However, as the research demonstrates, pension funds in the Netherlands are starting to realise that rather than just accepting the consequences they need to review their investment process and risk management methodology.
“This trend to address the issues facing pension funds is very encouraging and is an area where we are well placed to assist Dutch pension funds through our asset allocation, portfolio construction and manager selection capabilities.”
SEI said 64% of respondents expect the companies for which they manage pensions will demand greater involvement in their investment and risk management policies because the valuation of pension liabilities under IFRS leads to increased volatility in annual corporate financial results.
Some 66% said their funds’ assets and liabilities would increasingly be included in their corporate finance decisions. Against this background, SEI said both a better balance between assets and liabilities and a bigger share of alternative investment instruments are expected to emerge.
To restore the pension liabilities coverage ratio over the last two years, SEI said managers have implemented or are considering measures such as increasing employee and employer contributions or adjusting their indexation policies.
The survey was of 43 managers from both pension funds and sponsoring entities.
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