Earlier this month, the Dutch financial watchdog AFM published its first communication guidelines for pension funds in the Netherlands. Pension Funds Insider explores the benefits of the guiding principles for Dutch pension schemes

The guidelines for pension funds' member communication have been created to help schemes comply with the rules and regulations set out by the government in the Dutch Pension Act, which came into force in 2007.

In the past few years a lot of schemes approached the AFM with questions relating to member communication, in order to comply with rules which formed the essence of the then new Act.

Now, four years later, pension schemes have received the answers they need in the shape of a near 30-page long handbook and checklist, issued by the AFM.

"We saw that many pension schemes were struggling with the rules set out in the Act," says Jan van Miltenburg, manager of pension fund supervision at the AFM. "They didn't know what to do or how to do it. We wanted this product to contribute to what we try to be, not just a watchdog but also a point of orientation, of guidance."

Van Miltenburg says the guidelines should help pension schemes communicate better with their members, however big or small they are as a fund. "There is a lot of tension between giving clear, comprehensible and complete information, but following our advice it should be possible."

The guidelines set out the principles of the legal obligations that pension schemes have to adhere to. One example of this is the provision of a so-called starting letter, which includes basic information that needs to be known by every member, like the type of pension they will receive, the rules regarding opt-outs, the risks assigned to the member and the length of payment by the scheme.

The guide also details the further obligations that the pension schemes have to comply with, such as the provision of an annual update on the status of the member's pension (called an UPO), and the time limits on information provision in other cases, such as early retirement and redundancy.

Aside from these measurable requirements that pension schemes need to adhere to, the AFM also advices on quality measures when it comes to member communication. It advices on timing, clarity, tone of voice and how detailed the information should be in order for it to be understandable for every member.

Welcome

Diana Abrahams, spokesperson for PGGM, the provider of the €99bn Dutch healthcare scheme PFZW, says the pension provider welcomes the guidelines. "It is good for the sector to have a minimum set of rules," she says. "It will be a good starting point and certainly very useful as a guide to clear communication."

According to Abrahams, PGGM and PFZW see it more as a starting point as they themselves go a lot further where it comes to communication with their members. "Because it is all financial it is often not clear for members of schemes what they are entitled to and how it all works. We find that accessibility of information and transparency of a pension scheme is very important."

Stephan Vollenbroek, head of communications at Media Pensioen Diensten, the provider of pension scheme PNO Media, agrees, saying that the guideline will be particularly useful for smaller pension schemes. "Larger pension schemes often already comply with legal communication obligations. They have more access to the AFM to explore the do's and don'ts together. This guideline will however improve the readability for their target groups," he says.

Blurred lines

The AFM has not however, provided clear instruction on the blurred separation between information provision that a pension scheme has to offer and advice it is not allowed to offer.

Vollenbroek highlights one example, where a scheme member can now be fully informed about transfer payments. "However," he says, "the question the member is really looking to get answered is, 'what should I do with this transfer payment, what should I sign', but this would qualify as giving advice."

The thin line between the two can lead to missed opportunities for both schemes and scheme members, says Vollenbroek. "It would be helpful if the AFM would also include this information in its guidelines."

Recognising this problem in the feedback of various pension schemes, Van Miltenburg says that many schemes should not be afraid to step over the line as there is room for moving "between the two fields".

"Schemes just have to get used to the new rules. They can give advice, we even support the advising role they can play, as long as they stay away from naming specific financial products."

The AFM says that the guidelines are not just useful for compliance purposes but also help pension schemes communicate more effectively with their members. Members, the AFM says, often have an incorrect image of their pensions, and sometimes expect a higher pension then they will eventually receive.

Making it clear?

Criticism has been made however, of some of the parameters that AFM proposes is used in scheme communication, which may actually end up confusing some members.

"The AFM uses quantitative measures, such as 'comprehendible', 'clear', 'timeliness' and 'completeness'," says Vollenbroek. "But for some members a brief and concise joining letter does not comply with the phrase 'completeness'. For others a thick, complete joining pack can fail the requirement of being 'clear' and 'comprehensible'. We could find ourselves in a communication twist."

Van Miltenburg agrees that the measures can be hard to comply with but says that the attitude a scheme adopts towards communication will determine its success or otherwise.

"If communication is high on the agenda we normally can establish that schemes succeed. We want them to be pro-active. This can be achieved with little investments if needed. A scheme needs to make sure that their members understand the complex financial issues in a way that is suitable for them."

No doubt what Van Miltenburg has in mind is something very similar to what PGGM offers its PFZW pension fund members.

Last year it organised pension seminars, which, according to Abrahams, generated huge interest, due to the financial crisis. And the provider ensured that it used as many communication channels as possible to get its message across, including social media such as Twitter.

Pension schemes will not have to worry about the guidelines being out-of-date when the Pension Act undergoes its final revision, Van Miltenburg says. The AFM will guarantee that the guiding principles will be added on to and updated whenever changes occur. The latest version will be posted on their website and new chapters will be announced in the watchdog's newsletter.

"We support good practice and are always on the lookout for pension schemes to show us what they did to make it better. There could be new ways, innovative ways for schemes to communicate and the guidelines are open for suggestions."

azeevalkink@wilmington.co.uk

First published on 23.03.2011